Factbox: Key political risks to watch in Colombia

By Patrick Markey

BOGOTA (BestGrowthStock) – A tight election race to succeed President Alvaro Uribe, rebel violence, the push for investment grade and tensions with Venezuela are all points to watch in Colombia this year.

PRESIDENTIAL ELECTION

Colombia’s election campaign has seen a dramatic surge for independent candidate Antanas Mockus in the race to replace President Alvaro Uribe in May’s election. In his two terms, Uribe took the fight to guerrillas and helped foreign direct investment rise to an estimated $10 billion this year from $2 billion in 2002 when he first came to power. But Mockus, a former Bogota mayor, now has a lead in polls against Juan Manuel Santos, Uribe’s former defense minister.

Mockus is drawing support from voters who are tired of scandals over human rights and corruption during Uribe’s time, and with his appeal for clean government. Voters are also now more concerned about the economy than security.

The Colombian peso dipped slightly with Mockus’ rise, largely because he is less well known to investors. But both Mockus and Santos say they will stick to security and pro-business policies, and analysts see little long-term impact on the peso and local TES bonds.

Santos is a former finance minister who once helped bring Colombia out of a fiscal crisis. But opponents say he lacks Uribe’s charisma. Mockus is well-known for his solid fiscal management of Bogota but also for his off-beat tactics, such as using mimes to educate the city’s residents about civic duty. Critics say he can come across as meandering in public speeches, leaving listeners confused.

Neither Mockus or Santos has enough votes to win outright in the first round of voting and will likely face off in a June run-off.

What to watch:

— New polls showing Mockus closing in on a first round win or Santos gaining on him again.

— Scandals in the Uribe administration hurting Santos.

ARMED GROUPS, DRUG TRAFFICKERS

Uribe gained the upper hand in Colombia’s long conflict with successes against the left-wing Revolutionary Armed Forces of Colombia or FARC rebels. But peace talks are unlikely. Under intense pressure from Uribe’s security policies, the FARC has settled into hit-and-run tactics. Now the question is the new government. Both Santos and Mockus are promising a tough line. But there is pressure to talk to the rebels a least on a deal to free hostages, and the idea of a swap of FARC-held captives for jailed rebels is an election issue. Authorities can still score with major rebel desertions or by capturing or killing top leaders while the FARC could seek to gain more credibility by releasing some hostages or show its force by pulling off an operation such as its kidnapping of a governor in December. Colombia remains the world’s No. 1 cocaine producer and illegal armed groups are all engaged in drug trafficking, making the government’s task more complex as rebels form alliances with drug-trafficking gangs. Despite a demobilization of paramilitaries who once fought the FARC, new groups have emerged and rights groups say they are an increasing threat. Critics say the influence of illegal armed groups and traffickers in the new Congress is still evident.

U.S. Democrats approving U.S. aid cash and a free trade deal for Colombia will watch the new government for signs of improved control of rights abuses and drug corruption among troops and lawmakers, as well as more protection for union leaders and probes into their murders.

What to watch:

— Major blows to the FARC’s leadership.

— A high-profile urban rebel attack to show resurgence.

— More rights scandals marring trade, aid deals.

VENEZUELA TENSIONS

Tensions between Uribe and Venezuela’s socialist President Hugo Chavez are at their worst in a long feud as the two clash over a Colombian plan to allow U.S. troops more access to its bases. Chavez says the plan is a U.S. threat to his OPEC nation. Trade was always a buffer between Chavez and Uribe, but Venezuela has curbed commerce and that is hurting Colombia’s economic recovery. Full-blown conflict is unlikely but some analysts say they cannot rule out a limited border incident — even by accident — especially as elections loom. Venezuela says ties will only be renewed after Uribe leaves. Colombia now accuses Chavez of meddling in the election. Ties will continue to be a challenge for the next president. Santos says he and the Venezuela leader are like “oil and water”, and relations will likely stay tense or worsen. Some voters may see chances of better relations with Chavez and Mockus, but Chavez will still lash out at the base plan and use it to attack U.S. influence.

What to watch:

— Increased nationalist saber-rattling during election campaigns in both Colombia and Venezuela.

— A Colombian deal to sell electricity to energy-strapped Venezuela that opens way for improved ties.

NEW, OIL MINING INVESTMENTS

Thanks to its political stability, better security and pro-business environment, Colombia is now Latin America’s No. 4 oil producer, a major coal exporter and a growing player in gold investment. Canadian companies like Pacific Rubiales (PRE.TO: ) and other foreign operators are making headway in exploring Colombia’s once abandoned oil fields. Risks from guerrilla attacks on oil operations are still there and the country needs more infrastructure, but it hopes to reach 1 million barrels a day in 2015 and an oil block auction in June will measure interest. Mining is also growing with interest especially in gold. Some companies have faced resistance in receiving environmental permits, including AngloGold Ashanti (ANGJ.J: ) and Canada’s Greystar Resources (GSL.TO: ).

What to watch:

— More oil finds lifting Colombia’s reserves.

— Results of June auction of 200 oil and gas blocks.

— Environmental authorities rulings.

INVESTMENT GRADE

The next government will inherit the task of bringing Colombia back to investment grade rating, lost during a 1990s fiscal meltdown. Colombia has been praised for managing the global crisis and in general for fiscal policies under Uribe. Last year, Canada-based credit rating agency DBRS raised Colombia to investment grade, citing debt management, macroeconomic policy and public security gains. That pushed up the peso and local stocks. But larger rating agencies have balked so far at giving Colombia the prized rating. Colombia’s finance minister says the country needs a fiscal overhaul, based on Norway’s model, before it can reach the grade and to better manage its fiscal deficits. Colombia is pulling back from the global financial crisis, but the economy and unemployment are top election issues.

What to watch:

— Proposed reforms in the fiscal and tax system.

— The sale of the state’s share in Isagen electricity company, which is needed to help cover deficits this year.

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(Editing by Kieran Murray)

Factbox: Key political risks to watch in Colombia