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Colombia: the economics of peace

Tuesday, October 25, 2016


Markets, not ballots, will in the end decide the fate of Colombia’s half-century old civil war.

A referendum last month may have failed to ratify a peace agreement reached by the government and the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia).

But the issue of economic insecurity - one of main the reasons for the creation of the FARC in the first place - would likely persist, even if the referendum had succeeded.

Colombia in theory should have one of the world’s leading economies, given a temperate climate, rich soil, abundant water, extensive natural resources, access to both of the world’s major oceans, and proximity to the biggest market.

At the same time, Colombia has not made the most of its advantages.

Purchasing power per person grew by 280% between 1990 and last year, according to the World Bank.

But among Latin American countries, Costa Rica, Peru and Uruguay all did considerably better, while Chilean purchasing power increased more than 500%.

Meanwhile, income inequity is among the highest in Latin America, with the richest 20% of the population earning 25 times more than the lowest quintile, according to the United Nations.

Education lags too, as Colombia placed 60th among 65 countries in the 2012 PISA test of aptitude in science, math and reading comprehension among high-school students, administered by the Organization for Economic Cooperation and Development.

Approval of the peace accord could have made Colombia’s economic situation worse, at least in the short term.

As part of the deal, FARC supporters would have to give up trafficking in cocaine, one of their main sources of income.

Part of the reconstruction plan of the administration of President Juan Manuel Santos involved providing funds, which would let farmers in FARC areas switch to other crops.

The government during the past two years has in addition awarded licenses for exploitation of oil—gas resources in FARC areas, mainly in southern Colombia.

But transforming agricultural practices involves many complications, including soil and climate conditions, seed availability, skills training, and market demand.

Oil-gas development likewise takes time, with no assurance that viable deposits exist, or that – even they are found – the business will significantly benefit local people.

Unless Colombia creates good jobs and reduces income inequity, the problem of alienation, including violence, may persist.

On the other hand, in a healthy economic climate the FARC phenomenon is likely to disappear, with or without a peace accord.