Audit, Compliance and Risk Blog

International Standards on Auditing and Risk: Colombia Ceasefire Ends

Posted by Lorraine O'Donovan on Mon, Feb 18, 2013 James Lockhart-Smith, Maplecroft

The end of the unilateral ceasefire, declared in November 2012 by the Revolutionary Armed Forces of Colombia (FARC), the country’s largest insurgent group, came to an end as scheduled on 20 January 2013, resulting in an immediate increase in operational security risks for foreign investors and a medium-term increase in political risks.

The FARC had committed itself to the unilateral measure amidst ongoing peace talks with the government in Havana, Cuba, without any reciprocation from state security forces. Data collected by non-governmental sources suggests that while the number of operations conducted by the group fell by 90% during the two-month period, the truce was not wholly observed. The end of the ceasefire was marked immediately by a renewed spate of FARC attacks across the country on both police and army personnel and hydrocarbon infrastructure. The security outlook is negative for businesses in 2013 – particularly oil and gas companies – and the stuttering peace process will increase the medium-term risk of a deteriorating business environment.

The wave of FARC attacks, particularly against the extractive sector, following the end of the truce shows that Colombia’s operational security environment for investors has worsened markedly since 20 January. The government’s limited ability to address the situation means that this trend is likely to persist in the short term. More broadly, however, the success of the group’s peace talks with the government now looks even less assured than previously, despite some advances in the agenda for dialogue at the negotiating table in Havana.

Mounting public concern over the security situation will also increase pressure on the government to abandon the talks. In this context, the ultimate success of the talks is possible but increasingly unlikely, and investors can expect growing insecurity as well as increasingly ad-hoc security policymaking in 2013. In addition, public skepticism over the limited progress of the peace talks has increased the possibility that President Santos will not be re-elected in 2014.

Achieving Common Ground?

Despite discussion of a range of topics at the talks in Havana, the government and the FARC are unlikely to achieve full agreement in the short term. FARC pronouncements in January suggested that it has found some common ground with the Santos government in relation to rural development and illegal narcotics as two of the highest-priority items on its agenda. With the government looking to pass a new drugs law in 2013 mandating the creation of special zones in which the cultivation of ‘psychoactive’ crops for licit purposes would be permitted, the FARC has declared its interest in the legalisation of illegal crops for medical or cultural purposes.

However, other FARC demands are extremely unlikely to be met with a positive government response. The Santos administration is committed to maximising extractive sector investment and expending political capital on the restitution of land to internally displaced persons (IDPs). These policies conflict with FARC demands for substantial restrictions on open-cast mining and tax reform to penalise the ownership of non-productive rural land.

Doubts also persist over the political will of the guerrillas to commit to peace. The group has a long history of failed engagement with a series of governments since 1982. The FARC has used humanitarian issues such as prisoner swaps in an effort to maximise the strategic and political gains of peace processes without any commitment to a positive outcome. As with previous peace processes, the FARC has tested public tolerance in Colombia by looking to use the talks to generate publicity and international support. Its engagement with the Santos administration may merely be the latest iteration of this long-term strategy.

2014 Elections At Stake

Public support for President Santos has remained relatively high as of January 2013, but would be severely impacted by the failure of the peace talks. In this context, both the talks and Colombia’s security policy have remained at the centre of the conflict between President Santos and his predecessor and former ally, Alvaro Uribe (2002-2010). This has come to increasingly impact on voter perceptions of the government. A poll on the dispute conducted in January 2013 indicated that more respondents agree overall with Uribe (34.4%) than with Santos (30.3%). Uribe himself is constitutionally prohibited from running for office, but he will strongly support alternative right-wing candidates to Santos at the 2014 elections and will work during the year to split the ruling ‘U’ party in Congress.

Failure of Peace Talks Most Likely Scenario—Attacks On Oil and Gas Firms May Intensify

Events in 2013 will unfold according to one of two scenarios. Firstly, the success of peace talks between the government and the guerrillas cannot be absolutely ruled out. Any such success would likely occur in the first half of the year and be marked by FARC commitments of a nature unprecedented in the history of past peace talks. Such commitments could include, for example, a pledge to unilaterally demobilise and sign a joint agreement with the government indicating mutual compromise on a range of issues on the FARC agenda, notably land reform.

Nevertheless, it is far more likely that the peace talks will fail during the year. Political pressure on the government to succeed, as well as President Santos’s need to conclude the talks one way or another before beginning to campaign for re-election in May 2014, mean that the process is unlikely to be drawn out beyond the third quarter of the year. Insurgent attacks are intensifying and likely to continue doing so in 2013. In 2012, violence and sabotage against oil and gas companies reached an intensity last seen in 2002. The failure of the process would also presage a period of protracted confusion in policymaking and diminishing investor confidence pending elections in 2014. In this scenario, moreover, the risk of policy change would rise markedly given uncertainty over the election results.

James Lockhart-Smith is a Principal Analyst at Maplecroft

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