Colombia’s government reckons a peace accord with leftist rebels to end decades of civil war could boost GDP by perhaps 1 percentage point a year. That, at least, is what Mauricio Cardenas, the Andean nation’s finance minister, hopes. But as with merger deals, expected financial returns often go up in smoke.
Latin America’s fourth-largest economy could do with a fillip. The central bank last week scaled back its 2015 growth estimate to 3.2 percent from 3.6 percent, reflecting the damage done by falling crude prices. Oil is Colombia’s biggest export – it produces about 1 million barrels per day – and accounts for roughly a fifth of government revenue. The Colombian peso has fallen more than 25 percent over the past year to around 2,390 against the greenback.
Peace efforts, though, have been progressing, albeit in fits and starts. The biggest rebel group, the Revolutionary Armed Forces of Colombia, has been talking to President Juan Manuel Santos’ government for more than two years. Its head recently met with his counterpart at the smaller National Liberation Army to try to convince him to join formal talks. Neither will as yet countenance prison time, but an eventual accord seems likely.
Cardenas spoke of his hopes of a permanent peace-fueled lift to the country’s fortunes this week. He was in New York attending a conference aimed at attracting investors to help upgrade road and rail links across the country and connect isolated rural areas where poverty is widespread and the government’s writ barely runs.
Any boost to the $380 billion economy from ending the conflict may already be priced in to investors’ assessments of the country’s prospects, though. Such dividends also have a way of evaporating.
Moreover, peace is not just the absence of war. As much as stopping the 50 years of fighting that has cost 220,000 lives would be welcome, there would still be plenty of weapons and jobless young men inured to violence. That’s a toxic mix. The violent drug trade, for example, would almost certainly endure.
The lesson of conflicts elsewhere is that optimism should be tempered. In El Salvador, for example, violent crime soared after that country’s 12-year civil war ended in 1992. As a Colombian businessman observed at the conference, in peace talks and M&A, the hard work doesn’t end upon signature. That’s when it starts.