Colombian voters narrowly defeated a peace treaty with the Revolutionary Armed Forces of Colombia on Sunday in a surprise victory for ‘no’ voters who defied polls suggesting only 40% at best were in their camp. While the vote does not mean a vote for war, as many drama queens in the New York media were quick to point out (and were later slammed by the locals for it on Twitter), it definitely puts a damper on sentiment.
The knee-jerk reaction to the no vote was always going to be negative. “A no vote is a disaster. It will set a lot of things back,” said Mark Mobius, chairman of Franklin Templeton Emerging Markets Group in Singapore. Mobius said hat a week before the vote and may have changed his tune since. He was unreachable for immediate comment.
On Sunday night, Colombian president Juan Manuel Santos and FARC leadership both admitted defeat. They also said the cease fire continues in earnest and the two sides would go back to the drawing board in Havana. The Colombian government and the FARC have not been at war for years.
No voters expressed their concern over the content of the accord. The deal provided FARC leadership with political impunity for past crimes. The FARC, in part, took over from where the Medellin and Cali drug cartels left off after they were roundly defeated by president Alvaro Uribe in the 1990s. Part of the accord gave them amnesty not only for drug running, but also for kidnapping, extortion, and homicide.
Not all no voters were victims of the FARC, however. Many low income workers in Bogota said they were adamantly against the deal because they could not see giving former “criminals” seats in congress. “I am not giving these psychopaths my vote so they can get a job as a corrupt politician now with impunity. Forget it. I can’t do it,” says Dhiana Alavarez, a hair stylist in Bogota.
Santos, the FARC and even the opposition led by ex-president Alvaro Uribe will have to work out an arrangement that is more satisfactory to all sides. Given the closeness of the vote, it seems a only a little tweaking is in order to pull one side over the edge. But which side?
The current deal guaranteed the FARC 10 seats in both houses of congress. The group had to form a political party first, but if only four seats were won by the FARC, the government would give them the remaining six, unelected. The FARC says it is now a political organization and wants to organize in that manner. In the business community in Bogota and Cartagena, consensus seems to be that the FARC will not resuscitate their guerrilla movement.
“They’ll sit down and renegotiate. Both sides have seen the light at the end of the tunnel,” Luiz Carlos Sarmiento Gutierrez says. Gutierrez is the CEO of Grupo Aval, a holding company in charge of Colombia’s biggest banks. His father is Colombia’s richest man, worth $11.7 billion according to FORBES. “They have been at this now for so long that no one in his right man would say, let’s forget about it and start shooting each other again. There is a lot of work to do, but I think they will get it done.”
The no vote is potentially bad news for Santos, who has been watching his popularity dwindle in his second term from the 80s to less than 40% currently. He has put all his efforts into this deal. Meanwhile, the economy continues to slide and unemployment is rising.
Still, Colombia has been resilient overall. The cease-fire has attracted more foreign capital into the country over the years. Now that it is back to the drawing board, the market will wonder when Santos is going to tackle other issues, namely a tax reform law that was expected this month post-referendum vote.
No Vote Could Stall Tax Deal
Politics aside, the October vote on a tax overhaul may be postponed as Bogota deals with this surprise from the voters. This may be a mixed blessing because corporate investors have been dreading the tax changes all year. They believe the government will increase the corporate tax rate, or value-added taxes (VAT) in order to help pay for peace. Colombia’s tax revenue has been in decline since oil prices fell. And someone has to fund schools and public hospitals and other basic infrastructure in areas of the state that have been off limits for more than 50 years.
According to Baker & Mackenzie, Colombian taxes are higher than what companies pay in Argentina, Brazil, Chile, Mexico, Peru, and Venezuela. The firm found that adding traditional income tax and two additional taxes that are levied to fight inequality would amount to 40% of a business’s taxable income.
Santos said the tax legislation would be approved by mid-December. Now that his focus will once again be on the accord, corporate uncertainty about future tax loads could easily hinder sentiment.
The no vote is also a blow to perception. This is particularly true if the media narrative in the West continues to simply push that the vote as a vote against peace. Unlike the Brexit referendum, Santos is not on the hook. No one in Colombia is talking about impeachment and Santos is not talking about resigning. The economic impact is also different for Colombia. It’s more a matter of perception of Colombia slipping back to being a security risk. Brexit comes with bonafide rewriting of trade and tax rules between the U.K. and Europe, the U.K. and the rest of the world. Colombia’s trade rules are intact. The tax changes are still up in the air.
“For me, a no vote is very bad for perception and that hurts business,” said Frederico Torres, country manager of U.K. construction design consultancy firm Arup. They opened an office in Bogota in 2014.
Expectations were that if the peace deal passed, money sitting on the sidelines would slowly begin to pour into Colombia providing the world economy did not implode first. A no vote puts the breaks on that.
Colombia has seen marked improvements in security, giving foreign investors that do put money to work there a reason to be optimistic. Between 1980 and 2000, when drug cartels and the FARC were in their heyday, the murder rate was over 80 per 100,000 inhabitants. Today it is down by half. As a result, foreign investment into Colombia has gone from $6.4 billion in 2010 to $12.5 billion in 2015, according to UNCTAD. Bogota ranks 17th as a destination city for global FDI, sandwiched between highly attractive Singapore and Dubai.
“Going back to war with the FARC is not possible,” says Juliana Suso, a Colombian woman from Cali who manages government affairs for U.S. multinational Amgen. “Colombia is not going back to the 1980s.”
This article was written by Kenneth Rapoza from Forbes and was legally licensed through the NewsCred publisher network.