Colombia’s Guerilla Tactic Retreats

Colombian stocks paused as the presidential race went to a second round between the incumbent Santos and his main challenger Zuluaga, a protégé of his predecessor Uribe who has assailed an outline peace deal with FARC rebels after lengthy negotiations in Havana. Commodity and construction-related 5 percent GDP growth caused the central bank to raise interest rates slightly as it also resumed dollar buying with an estimated $3 billion in local bond inflows following reweighting in JP Morgan’s benchmark index. Inflation is on its long-term 3 percent target and the 3.5 percent of GDP current account deficit is overbalanced by foreign direct and portfolio investment. The feuding between the Santos and Uribe camps has alienated voters according to opinion surveys which show consideration for the Green Alliance candidate Penalosa, a former Bogota mayor and technocrat. The talks in Cuba have dragged on for months with few points agreed between the guerillas and government, which still envisions an end-year accord. Demobilization funds and possible drug trade normalization are outstanding issues and officials hope to draw private sector financial backing for solutions following the mixed record on infrastructure development with $25 billion in road projects planned for the coming years. In Chile returning President Bachelet immediately went to work on hiking the corporate tax and eliminating write-offs to pay for wider university access, a move she claimed would affect only the richest corporations although it will contribute to reduced 2.5 percent GDP growth on inflation at double that number on currency weakness. Listed companies have announced spending cutbacks as banks are unsettled by slower credit growth under tighter prudential monitoring. With the accumulation of private domestic and foreign debt the country has appeared alongside the “fragile five” in vulnerability tables although many analysts argue the trend is manageable. The private pension framework may also be revamped under the new administration as US houses have acquired two funds anticipating evolution. Taxes have also been imposed on unhealthy consumer products to raise revenue and encourage lifestyle changes, and the President has vowed to replace the Pincochet-era constitution with outsize military influence including its automatic claim on state copper miner proceeds.

Mexico’s energy reform slog, which along with lackluster 2 percent growth has fostered an MSCI share loss so far, may demonstrate the complexity of charter revision as the Pena Nieto team tries to win congressional support for its Pemex private opening terms. The initial proposal mandates 25 percent local content over a decade period and a royalty regime tied to oil type and price. A presidential ally was elected to lead the ruling PRI as the assembly debates a raft of enabling law changes in telecoms and political conduct as well. Citigroup’s Mexican unit has come under fraud investigation as commercial lending has increased just 5 percent annually and the peso has been a popular short as momentum recedes.