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Colombia Politics April 2018

Colombia: Wins for market-friendly parties in the legislative election are seen as a positive step for economic stabilization

Colombia is gearing up for the first round of its important presidential election on 27 May, which will be followed by a second round on 17 June if no candidate captures more than 50% of the vote. Legislative elections, often a bellwether for the presidential elections, were held on 11 March and saw a strong showing for market-friendly right and center-right parties, with the right-wing Democratic Center (Centro Democrático) winning 19 seats, the most of any party. Consistent with the legislative election results, the latest polls put Iván Duque of the Democratic Center in the lead. Duque’s platform advances market-friendly policies, and he is therefore the favored candidate among investors. However, he has voiced stern opposition to the peace agreement with FARC, which might risk re-fueling the 50-year long conflict and disrupt economic activity

The turn to the right in the legislative elections, away from the ruling center-left Social Party of National Unity (Partido Social de Unidad Nacional), which came in fourth place, comes against the backdrop of an economy that has lost considerable momentum in recent years. In 2017, growth lost ground for the fourth consecutive year, with the weakest pace of growth in eight years. A slump in oil and mining activity amid falling oil prices in 2014–2016, along with a marked slowdown in the construction sector, severely hit economic growth. Sharply reduced revenues led the government to enforce unpopular austerity measures in its 2016 and 2017 budgets, which in large part took the form of sharp cuts to investment. Duque’s popularity stems in part from promises to usher in changes intended to lure in higher inflows of foreign investment to boost growth.

Analysts have welcomed the results of the legislative election, which yielded a strong presence of parties in congress that advocate orthodox, market-friendly economic policies. This outcome is viewed as positive for the economy regardless of who wins the presidential race. Congress will more easily be able to leverage its legislative power to push for reforms that will advance the stabilization of the economy and resolve persisting macroeconomic imbalances, while acting as a balancing force to prevent the roll-out of reforms that could steer growth off course.

The Central Bank foresees the economy growing 2.7% this year. Panelists participating in the LatinFocus Consensus Forecast project that GDP will expand 2.6% in 2018, which is unchanged from last month’s forecast. For 2019, panelists expect GDP to grow 3.0%.

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