Colombia: Peace Deal Falling To Pieces


November 22, 2015: Violence caused by leftist rebels and drug gangs has reached record lows in the last few months. But this could be temporary because of opposition from the many Colombians (about a third of the population) who believe FARC members are getting away with murder. This coalition threatens to block ratification of the peace deal. FARC insists it will not compromise on the amnesty arrangements already agreed to by negotiators from both sides. If that problem is resolved FARC says it is ready to demobilize its 7,000 armed fighters. The government accuses many FARC members of continuing their illegal activities especially those involving drugs and illegal mining. This results in violence against anyone who interferes with these activities. In addition to gunfire FARC continues to plant landmines around bases and illegal mining sites.

ELN, with about 2,500 armed members, is willing to talk but has not actually begun peace negotiations yet. ELN is apparently feeling the heat from a population fed up rebellions and related drug gang violence that has left nearly 300,000 dead since it all began in the early 1960s. As a result of this progress and other recent actions by FARC the government announced that it would take part in a mutual ceasefire with FARC on January 1st followed by the signing of a final peace deal before March 23rd. Success is not guaranteed because not everyone in FARC backs the peace deal and many Colombians do not trust FARC. Face it, if you start a rebellion that goes on for half a century and leaves over 200,000 dead and millions homeless, unemployed or otherwise harmed, there is going to be a lot of bad feelings and mistrust. The FARC leadership is trying to get all their followers to accept that and follow orders. Both FARC leaders and government officials admit (at least in private) that there will be some FARC “fringe groups” that will have to be declared outlaws for not observing the terms of the peace deal. These groups will have to be taken down violently.

Even if there is peace with FARC and ELN it is almost a sure thing that Colombia will have a leftist dictatorship next door to deal with now. That’s because the president of Venezuela has announced that even if his ruling party loses the December 6th elections he will refuse to step down and instead would continue running the country “with the people in a civil-military union”. This threat of an armed coup does not come as a surprise to many Venezuelans. The radical leftists who have been in power since 1998 already organized and armed a civilian militia loyal only to them and replaced any military officers who were not considered loyal to the leftist leadership. This makes the military less effective but, more importantly, less likely to rebel against the government. Following the example of Cuba, North Korea and other leftist dictatorships Venezuela will now devote its dwindling income to armed loyalists who will keep the other 90 percent of the population in line. This will not end well, but as North Korea and Cuba have demonstrated this can last a long time. The rest of Latin America has taken note and in a rare move have almost all condemned what is going on in Venezuela.

For Colombia a leftist dictatorship in Venezuela means more illegal activity going on next door. Venezuelan officials have long profited from the drug trade. Recently two nephews of the Venezuelan president were arrested in Haiti and extradited to the United States to stand trial for drug dealing. These two are actually nephews of the president’s wife (Cilia Flores), whose family are infamous for having received so many high paying government jobs since her husband became president in 2013. Flores is a lawyer and politician and even before her husband became president she was known to be corrupt. Flores is aware that the daughter of former president Chavez managed to build a fortune worth over $4 billion after her father came to power in 1998. Newly wealthy politicians are accepted by the government and resented by the increasingly impoverished Venezuelans. Those with education and skills have been leaving the country in greater numbers, either for Colombia (which has the highest economic growth rate in South America), other Latin American countries where their skills are needed or the United States. Before Chavez took over Venezuela had long been among the wealthiest (on a per capita basis) countries in South America. Now it is the poorest and most crime ridden, with one of the highest murder rates in the world. Colombians long envied Venezuela but they have come to fear it.

In late October the Venezuelan president admitted that foreign income (96 percent from oil) was down 68 percent this year. The government stopped issuing official economic data a year ago so this admission was unexpected. The government blames all the economic problems on the low oil price and efforts by the United States to overthrow the Venezuelan government. GDP shrank four percent in 2014. Foreign analysts like the IMF see a ten percent GDP decline in 2015 and about six in 2016. Inflation is officially 80 percent for 2015 (and 70 percent in 2014) but unofficially more like 200 percent this year. Not much change is seen in 2016. The Venezuelan currency (the bolivar) buys less and less. The government enables shortages by artificially selling dollars to well-connected people for 6.5 bolivars (local currency) but on the black market dollars cost 800 bolivars. Thus importers have an incentive to divert dollars they bought at the official rate to illegally import items (like cell phones) they can sell on the black market for huge profits. The government will not admit this sort of thing even exists but it is common knowledge that this practice causes both the shortages and the sudden wealth so many government officials (and their friends in the business world) have come into. Goods available in government stores are sold for bolivars at the government rate. Thus smugglers point out that it is often more profitable to smuggle Venezuelan food into Colombia than to move Colombian cocaine into Venezuela.

Many Venezuelans note that they are suffering a lot more than the worst GDP declines would indicate. There is still a lot of wealth in the country and people wonder where it has gone. It is no secret that a lot of it is lost to corruption. Government officials take bribes, steal when they can and have taken the lead in plundering government reserves of foreign currency. The biggest offenders in exploiting the official (far below the black market) exchange rate between dollars and the local currency are government officials. The black market rate for a dollar is now over 800 bolivars, way up from 400 in May. In 2013 it was under 30 bolivars. Before the 1999 socialist revolution inflation was about 20 percent and you could buy a dollar for six bolivars. The average inflation in neighboring countries in 1999 was under 15 percent. The official exchange rate is 6.5 bolivars per dollar but that is only available to government officials and well-connected businessmen. The Venezuelan government seems paralyzed. One reason the government no longer releases economic data they collect is because it would show the skyrocketing poverty rates. Lowering this rate was the main justification of the leftist government to take control of the economy. But private surveys in Venezuela see the current poverty rate at a record high of 73 percent. The rate was 48 percent in 2014 and 27 percent in 2013. It was about 50 percent when the leftists took power in 1998 on promises that they would drive the rate down. They did, until they ran out of money.

The December 6th elections are going to be interesting because the current government has the support of less than 20 percent of the voters and is believed planning to rig the vote to deal with that. President Maduro recently announced that he would abide by the results of the election but at the same time he has prohibited foreign voting observers. Maduro has since reneged on this promise. The government is cracking down on opposition political parties and leaders but that may not be enough to avoid a vote that would either remove the current government or trigger a coup and imposition of a leftist dictatorship. The government appears aware of the risks but it is unclear how far they would go to hold onto power.

There are still some Venezuelan professionals left and some of them working for the government. But a growing number of these (usually the non-corrupt ones) are getting fed up and leaving. Some were senior officials in the government and got fired for criticizing government inefficiency and inability to deal with the growing economic problems. Some of these former officials, once safely out of the country, provide confirmation and details about mistakes that have been made and continue to be made in Venezuela. All this confirms that the government abuses its power. This is no secret to more Venezuelans who see the police acting as they wish regardless of laws. This is especially true when it comes to the growing number of outspoken critics of the government.

A major reason why the government has no cash for domestic emergencies (like the closed universities) is the effort to avoid defaulting on foreign debt and getting banned from international borrowing. To avoid default the government has had to take extraordinary measures (like selling off the gold reserve) and is apparently going to reach the end of the year without defaulting. This surprised international bankers as through most of the year credit default swaps (a form of market based “insurance” on bonds and loans) activity for Venezuelan debt showed that most owners of Venezuelan debt (bonds and other loans) believed default and economic collapse was likely by 2016 at the latest. The credit default swaps markets still thinks Venezuela will default, but not as soon as once believed. If Venezuelan leaders have a workable plan for getting out of this mess they have not shared it with anyone and that is scary to Venezuelans and the neighbors, especially Colombia.

November 21, 2015:  In the south (near the Ecuador border) troops found nearly a ton of ELN explosives hidden in a warehouse disguised as sacks of rice. ELN has uses explosives a lot to attack economic targets like oil pipelines and electricity transmission lines.

November 16, 2015: In a peace gesture the leftist ELN rebels released two soldiers they captured in October.

November 11, 2015: The UN reported that in 2014 Colombia regained the lead (from Peru) in the amount of land given to growing coca (used to produce cocaine). The reason for this resurgence of coca growing is the government ordered halt in aerial spraying of coca crops (over health fears) and many rural farmers seeking to game the FARC peace treaty, which will pay compensation to those who have coca crops growing when the treaty is put into force.

November 10, 2015: FARC ordered its members to stop buying guns. The government believes that not all FARC factions will obey this order from the FARC high command. This factionalism is what fuels apprehension by many Colombians about the viability of the peace deal.

November 2, 2015: The ELN called on the government to agree to a cease fire, as the government has now done with FARC. The government is considering it.

October 30, 2015: The government announced that its program to reduce the illegal cash trade (“money laundering”) continued to work with money laundering only comprising about two percent of GDP. When the efforts to curb the illegal cash trade began in 1998 money laundering represented 14 percent of GDP. This illegal cash is the lifeblood of gangsters and leftist rebels.





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