trending Market Intelligence /marketintelligence/en/news-insights/trending/ZkCP4x4V-1ikbx3A5ELaBA2 content esgSubNav
In This List

Colombia's president wins Nobel Peace Prize but peace uncertain after FARC "No" vote


Banking Essentials Newsletter: January 11th Edition


Banking Essentials Newsletter December 21st Edition


The Road to Basel IV: Navigating the challenge facing European banks


Basel Framework- Utilizing data to analyze the capital position of European banks.

Colombia's president wins Nobel Peace Prize but peace uncertain after FARC "No" vote

AsColombia decides on the next steps after voters' narrow of the FARC peace deal in areferendum Oct. 2, the broader financial community is weighing in on what theresult could mean for the country's economy.

Initialreactions to the rejection of the historic accord, which was signed byPresident Juan Manuel Santos and FARC commanders just days before the vote,were negative with the stock market, the local currency and sovereign bonds allfalling in the following days.

Moody'ssaid the result is credit negative for the country's credit profile given that itwill probably jeopardize the government's ability to push through important taxreforms needed to fund public investment.

But,on the positive side, the ceasefire remains intact and President Santos, whojust won the Nobel Peace Prize for his efforts, is working to reach a new dealby the end of October that would be more acceptable to the opposition.

Thetiming of the Nobel Prize, announced less than a week after the "No"vote, raised some eyebrows. Some Colombians said it could ease the negotiatingprocess, but others in the opposition camp said President Santos did notdeserve the prize, especially since peace has not yet been reached, The New York Times reported.

Oppositionleader and former President Álvaro Uribe, who was scheduled to meet withPresident Santos on Oct. 6, has emphasized that jail time for FARC leaders whocommitted atrocities should be a prerequisite for any new deal, The Wall Street Journal reported.

Interms of the economy, for the short term, the impact of the "No" votewill likely be warier investors and a higher probability of a downgrade by creditrating agencies, such as Moody's, if fiscal reform is postponed, Forbes reported, citing variousanalysts.

Butthe longer term outlook for the economy is positive, especially if theceasefire holds, a consensus is reached with the private sector on tax reform,and investment in the infrastructure sector picks up, Forbes noted.

Itis true that Colombia's economy — dragged down by low oil prices — is not theregional star it once was. The World Bank, for example, has cut Colombia's GDPforecast for 2016 to 2.3% from 2.5% after the FARC deal was rejected, accordingto the organization's most recentreport on LatinAmerica and the Caribbean, titled "The Big Switch: Restoring Growththrough Trade."

Themain problem, aside from low oil prices, is that Colombia's domestic economyshows relatively low rates of saving, rising inflation and high interest rates,as well as high public spending without the tax structure to support it, saidWorld Bank officials in the report.  

Buttax reform could help correct these imbalances and Colombia is still wellregarded internationally as the best place to do business in South America, Forbes reported, citing the "DoingBusines Report 2016."

Inaddition, Colombia's banking sector remains strong and prepared to deal withadversities including the economic slowdown and, most recently, the rejectionof the FARC peace deal, La Repúblicareported, citing a banking sector panel at a conference organized by nationalfinancial institutions' association, ANIF.

Despitegreater weakness in credit quality, consumer lending is growing around 9%annually, which shows the financial system is solid despite challenginginternal and external conditions, the chairman of , Diego FernandoPrieto, reportedly said.

Inaddition, despite continuing economic uncertainty, Juan Carlos Mora, chairmanof Bancolombia SA,said he is "optimistic" given the financial sector's goodperformance.  "It has not beenextraordinary, but it is in line with expectations," he said.

ForColombian banks it is largely business as usual, as they face other challengesin terms of technology, regulation and becoming more efficient, the bankersreportedly said in the panel.