Overview

* Colombia is a solid BB+ rated sovereign (six notches above Jamaica’s rating of B- & one notch below investment grade) with a stable outlook.

* Real GDP growth averaged 4.7per cent between 2002 and 2007 before the global recession hit in 2008-reducing growth to 2.5 per cent and -0.5 per cent in 2009.

* Fiscal deficits have also trended downwards over the years; from a high of 6.1 per cent in 1999 to 4.5 per cent in 2003 before declining further to a 0.8 per cent in 2008.

* Reduced fiscal deficits and increased GDP growth have combined to reduce debt levels over the last decade. Debt/GDP declined from 48.5 per cent in 2003 to 29.7 per cent in 2008 before a slight increase to 32.7 per cent in 2009 due to reduced economic activity and countercyclical measures (increased spending) to boost economic activity because of the global economic downturn.

* Colombia has traditionally had strong external indicators. The sovereign’s current account balance (deficit) has averaged approximately -2.3 per cent since 2004 driven mainly by exports of crude oil, natural gas, coal and coffee. Forecasts suggest a return to a current account surplus in 2011 or 2012 depending on the rebound of commodity prices and the global economy.

* Steady capital inflows from official creditors (investors in Colombian debt), FDI (to the lucrative oil sector) and remittances normally ensure balance of payments and currency stability by adequately covering the current account deficit. Below we give a comparison of Colombian & Jamaican historical data (Table 1&2).

The Drug Trade: Impetus for US support

Colombia is the world’s leading producer of coca, the plant that makes cocaine, with 167,000 hectares of coca cultivation in 2007, potentially producing 535 metric tonnes of pure cocaine. Colombia is also the leading producer of other coca derivatives including opium poppy and cannabis. Illicit producers supply cocaine to nearly all of the US market and the great majority of other international drug markets. In 2005 a government led aerial eradication process dispensed herbicide to treat 130,000 hectares but replanting has returned the country to a position of prominence in terms of cocaine production. A significant portion of narcotics proceeds are either laundered (construction companies, dry cleaning businesses, supermarkets etc) or invested in Colombia through the black market peso exchange.

Crime, terrorist activities and corruption: A sustained assault on governance

Successive Colombian governments have had to contend with the combined terrorist activities of left-wing guerrillas from mainly remote and rural areas, the rise of paramilitary self-defence forces in the 1990s, and the drug cartels. Colombian terrorists assassinated three presidential candidates during the election campaign of 1990. The cartels have killed judges, blown up police stations and attacked court houses. After the Colombian security forces killed the notorious Medellin cartel leader Pablo Escobar in December 1993, indiscriminate acts of violence associated with his organisation abated as infighting among the “cartels” led to a breakup resulting in multiple and smaller trafficking organisations that competed against each other in the drug trade.

Embedded in the drug trade is the Fuerzas Armadas Revolucionarias de Colombia rebel movement or FARC. FARC and the National Liberation Army (ELN) are the largest of numerous paramilitary groups. Over the years the paramilitary groups have entered the drug trade to finance their operations. These rebel/guerrilla movements were bent on creating their own state within Colombia before president Uribe’s election in 2002. After peace negations with the Pastrana (former President) administration broke down in 2002, the guerrilla movement stepped up its attacks on the political establishment through kidnappings, killings, the expansion of the war from the rural areas to the cities including bombings in Bogotá (the nation’s capital) Medellin and Cali.

FARC, the ELN and other terrorist groups often target oil pipelines, electricity grids, and other infrastructure. The terror which these groups inflicted on Colombia while difficult to quantify, was a key deterrent to investment, contributing to a brain drain and internal displacement, and damaging infrastructure, which affected the productive capacity of the country. It is estimated (2007) that refugees and internally displaced persons amounted to between 1.8 and 3.5 million people due to the conflict between the government and illegally armed groups and drug traffickers. In 2002 the unemployment rate in Colombia was 18 per cent with another 34 per cent of the population under-employed with about 60 per cent of the population living in poverty at the time, according to the World Bank.

While paramilitary groups and drug trafficking were serious issues, there was also the problem of corruption among state officials and limited social services and poor representation, especially in rural areas. Bribes to public officials, delinquency in carrying out duties and poor representation plagued the Colombian political system pre-Uribe. These factors were highlighted as some of the key contributors to the strength of the paramilitary groups in rural areas. Essentially there was no law for those who lived too far from the capital. And where official law did not exist, drug lords filled the void with their own brand of justice. In Jamaica, it may be argued that thugs fill a similar void in some constituencies where the rule of law is not effectively implemented.

President Uribe’s strategy

Combined military & social intervention strategy

President Alvaro Uribe came to power on a no nonsense ticket of an aggressive democratic security strategy. During his tenor (2002-2010) he strengthened the military significantly (through aid from the US), he aligned security policy with that in the US and boosted the states presence with an eye toward eventually negotiating settlements with the guerrillas and paramilitaries, yielding many key successes. In short the government encouraged, via negotiations, the paramilitaries to lay down their arms and negotiate peaceful settlements with the government. Those who refused felt the brunt of an all-out military offensive which eventually brought some to the negotiating table.

Uribe’s strategies brought the Colombian United Self-Defence Forces (AUC) paramilitary group to the peace table and led to the demobilisation of 31,000 AUC members. In addition, at least 14,000 members of the FARC, AUC, ELN, and other illegal armed groups have individually surrendered their arms.

At the “peace table” the government embarked on a substantial social package which increased health and educational services to the people in the former conflict zones. Colombia also expanded key government and representational services to most of the country, boosting its presence in many areas that lacked any kind of state presence prior to the Uribe Administration. This is a key point of reference for Jamaica; politicians and civil society must provide effective representation for the people after the army eradicates the crime threat.

The former paramilitary fighters who had laid down their weapons and had no means of supporting themselves or their families were placed on government sponsored welfare programmes (in the case of Jamaica the PATH programme may need expansion) and received technical assistance (small business association/Jamaica Business Development Corporation/PSOJ) in setting up businesses and expanding/diversifying into other agricultural commodities besides coca, opium poppy and cannabis.

(See Part II next week)

Jermaine Burrell is senior economist & sovereign research manager at Jamaica Money Market Brokers