March 26, 2014 | Daniel Lemaitre | 0 Comments

Colombia’s pro-business election results could attract foreign investment

The election of the Democratic Center party into the Colombian Senate and Chamber of Representatives shifts the national political discussion to the right and strengthens the bargaining position of capital and business interests. Colombia’s new legislative makeup provides very favorable political conditions for foreign investment.

The recent legislative elections in Colombia focused almost exclusively on the peace talks between the Santos government and the FARC. The new Democratic Center (CD) party, led by former president Alvaro Uribe Velez and Oscar Zuluaga Escobar, was formed to create an institutionalized opposition to the peace process.

Regardless of the high-profile debates between the ruling Social Party of National Unity and the single-issue Democratic Center party, these two parties differ solely on national security and foreign policy towards Venezuela and Ecuador.

Although politicians belonging to these parties would not admit it, these two parties align on most issues, including open markets, protecting property rights, pursuing orthodox monetary policy and pro-business, corporate-friendly fiscal policy. Additionally, both parties want to maintain strong ties with the United States while continuing to lure Asian investment by liberalizing both trade and the finance.

Unless a left-of-center candidate wins the upcoming presidential elections, the ruling political parties and institutions in Colombia will continue to create a safe environment for investment.

Background: from a two-party system to a multiparty system

Colombia’s political framework has changed dramatically since 2005, when Uribe proposed an amendment to the constitution that would allow him to run for a second term. When the amendment passed and he ran for his second term in 2006, he did so under the Social Party of National Unity ticket.

At its start, the popular Social Party of National Unity shattered the political status quo that had remained since the constitution of 1886—the party consisted of a broad coalition of candidates from both sides of the political spectrum, something new to Colombian democratic politics.

Before 2002, the status quo consisted of the Conservative and Liberal parties, which had monopolized elections under a two party system. Today, smaller, non-traditional parties have become popular among the electorate and have achieved considerable representation in both chambers of the legislature.

The rise of smaller and non-traditional parties has shifted Colombian legislative politics from absolute ruling majorities to fragile coalitions. In the post-2005 political arena, the Conservative and Liberal parties have lost much of their appeal and their traditional party machines have been replaced by a more populist line of politics, dominated by non-aligned coalitions.

The table below shows how the liberals and conservatives occupied nearly all legislative seats in 2002, as they had done for the entire previous century. By 2006, the party hegemony had been broken and seven parties now occupied the legislative arena—interests had reorganized themselves.

*Same two traditional parties that dominated Colombian politics since its independence (conservative and liberal parties).

**Seat apportionment has not been finalized due to allegations of fraud. Source: Colombian civil registry

The current legislative makeup

Since the fall of the two-party hegemony, pro-business interests have been very well represented in both legislative chambers. In 2010, the conservative party, Social Party of National Unity, and three smaller parties made up the right-of-center political landscape, combining for an overwhelming majority in both chambers.

Despite the rise and election of Uribe’s Democratic Center party and its platform against the peace talks, not much has changed as far as investors are concerned. If anything, the inclusion of the Democratic Center party into the legislature shifts the political discourse to the right. It provides another party that protects the interests of corporations, foreign investors, and domestic-based capitalists.

Colombia is a unique case in which pro-business interests are represented by the larger parties. Pro-business voters have three large, highly organized parties and one medium-sized party (Radical Change Party) that cater to their interests.

Left leaning voters, however, do not have as many choices. There is the traditional Liberal Party, which has been pushed to the center of the political spectrum, a medium-sized party (Opcion Ciudadana), and three smaller marginal parties.

The left in Colombia suffers from a lack of organization— too many smaller parties make it difficult to consolidate a united political movement. Ideologically, right-of center parties have also catered to the demands of the poorest by expanding the welfare state and attacking poverty. The fall of the two-party system has made it increasingly difficult for left parties to organize and has shifted power towards economic liberals and investors.

*Seat apportionment has not been finalized due to allegations of fraud.

**Total seats: 165. Source: Colombian civil registry,Terra news agency

*Total seats: 102. Source: Colombian civil registry,Terra news agency

The radical politicization of the peace process does not take away from what Uribe and Santos share in common: their alignment with business interests. But right leaning parties have been better able to organize and have successfully directed Colombia towards a liberalized, free market development approach.

The polarization within the right on the peace talks will most probably not disturb the economic trajectory the country has taken since 2002. If investors are cautious of investing in Colombia, it should be because of external market forces and the shape of global financial markets, rather than insecurity about lacking political cover.