Master thesis

Recent economic development of Colombia

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Recent economic development of Colombia

Colombia has recently experienced a decade of strong economic growth, as a result of strong economic policies and the search for free trade agreements (FTA) with not only the US, but other countries including “[…] Canada, Mexico, Switzerland, the EU, Venezuela, South Korea, Turkey, Japan, and Israel [...]” (CIA World Fact Book). Colombian exporters are encouraged to diversify their exports to other countries than the US and Venezuela, the two countries that are traditionally the principal trading partners of Colombia (Index Mundi). The FTA with the US is expected to be implemented in 2012, after it was approved by the US Congress in October of 2011 (cf. CFTA). Due to the Colombian economic policy based on neo-liberal ideology, the country is now able to handle external shocks. Gross Domestic Product (GDP) is growing and inflation is under control, which has lead to Colombia’s investment grade being upgraded by the three major rating agencies16. However, Colombia is very dependent on oil exports, which makes the country vulnerable to alterations in oil prices. The country is the “[…] third largest Latin American exporter of oil to the US” (CIA World Fact Book). In spite of the great importance of the oil sector in Colombia, the industry is dealing with persistent strike activity. This is illustrated by workers that started a new protest in January of 2012 whereby production was shut down at an oil field in the north of Colombia, damaging the state-owned oil corporation Ecopetrol. The government’s oil production could be influenced considerably if strikes continue to take place (Latin America Monitor).

Furthermore, the economic development of Colombia is challenged by the existing problems deriving from inadequate infrastructure and the influence of heavy flooding. In addition to these problems, the unemployment rate of Colombia remains one of the highest numbers in Latin America, with 9.2% (CIA World Fact Book). It may be clear that “[i]nequality, underemployment, and narcotrafficking remain significant challenges, and Colombia’s infrastructure requires major improvements to sustain economic expansion” (Index Mundi). In spite of strong economic growth, the infrastructure in Colombia desperately needs to be improved in order to expand further economically. Moreover, the severe flooding that hit Colombia at the end of 2010 produced damages of at least an estimated $6 billion. Heavy rains continued to damage the country in 2011 and have lead to hundreds of deaths as well as millions of displaced inhabitants (CIA World Fact Book). Many inhabitants of FARC-EP controlled areas in Colombia feel forced to flee as a result of the impact of violence or the deteriorating economic conditions in the area (Global Post).

Foreign direct investment (FDI) in Colombia is mainly depending on the oil sector. FDI “[…] reached a record $10 billion in 2008, but dropped to $7.2 billion in 2009, before beginning to recover in 2010, notably in the oil sector” (Index Mundi). Colombia’s investment climate improved significantly over the past years as a result of the reforms in mainly the oil and gas sectors, as well as the export-led economic growth policies according to neo-liberal ideology. With regards to the Colombian business environment, it is clear that in spite of a policy that is focused on attracting investments, the lack of sufficient infrastructure in Colombia continues to affect the economic development of the country. Colombia will only be able to benefit from the growing demand for its raw materials if substantial investments for the improvement of the transportation network are made. Furthermore, the country’s growth potential is affected by inflexible labor markets and insufficient human capital (Latin America Monitor).

The Departamento Administrativo Nacional de Estadística [National Administrative Department of Statistics] (DANE) states that during the third quarter of 2011, the Colombian GDP grew by a 7.7% year on year rate. This increase was the highest since the last quarter of 2006, and was even more remarkable due to the fact that this growth was achieved during a time of decreasing global economic growth and international uncertainty (Economist Intelligence Unit). The expansion of GDP is mainly driven by the oil, mining and construction sectors. Furthermore, the planned improvements on the Colombian infrastructure reflect in productivity figures, illustrated by a 20.9% year-on-year growth rate in public construction. The Colombian economy shows a high internal demand for products and services, resulting in a decrease in the unemployment rate and a strong rise in imports (ibid). Ultimately, Finance Minister Juan Carlos Echeverry expects the Colombian national economy to grow by 4 to 5% in 2012. Meanwhile, the country’s debt figures are decreasing (Colombia Reports).

Historical overview of the development of the FARC-EP

When looking at the origins of the FARC-EP, it is important to recognize the influence of the Partido Comunista Colombiano [Colombian Communist Party] (PCC) in the revolution against the Colombian capitalist class and imperialistic state system. During the past decades, “[…] the FARC has grown from a small peasant organization to its present unprecedented military strength” (TNI). Unlike communist parties in other Latin American countries, the PCC managed to establish itself beyond the urban centers, including the peasants from the Colombian countryside in their communist ideology. The influence of the communist party in the rural areas of Colombia is unusual in the Latin American context. It is often stated that the FARC-EP originated from combined strengths of the Colombian Liberal and Communist Party, however, the organization was instigated by self-defense groups against the repression during La Violencia, and these groups were lead by the PCC only (Brittain & Petras: 2-5). Ultimately, the people’s support for the targets of the FARC-EP “[…] is also a product of the lack of government response to the severe hardships faced by peasant farmers in the region” (TNI). However, in spite of the claims of the FARC-EP that the insurgency fights for the rights of the people of Colombia, especially for the poor, the support from Colombian peasants results to be quite limited with only 5% of Colombians supporting the FARC-EP nowadays, according to national polls. Detractors of the insurgency claim that this number is not surprising, as “[…] the FARC is extremely out of touch and unconcerned with the interests of the Colombian public today, including the rural populace” (Coha). The situation was different at the time of the emergence of the FARC-EP.

In order to put a stop to the disorder occurring during La Violencia, the Liberal and Conservative parties agreed to the construction of a truce known as the National Front, whereby the two principal parties would share the political office irrespective of the electoral results. The PCC and its political power derived from support from both urban and peasant workers and was dismissed from the political process in Colombia. Furthermore, the political power of the influence of the PCC was stopped by making the party illegal. Not only the political power of the peasants was restricted, as the introduction of a new economic model known as accelerated economic development (AED) by the National Front put a great strain on the rural population. “The rationale behind AED was to maximize capital through the concentration of agriculture, with industrialization by large landowners” (Brittain & Petras: 7). The capitalist industrialized farms were supported heavily by the state, in order to ensure maximum efficiency of land use. This caused the industrialized farms to grow heavily during the 1960s, as part of the AED, resulting in loss of land and a decrease in production for the small producers and a great rise in displacement amongst the rural population. The Colombian government mainly aimed to increase export, rather than allowing small farms to produce for local consumption. Peasants that lost their land to the industrialization process migrated to urban centers. Therefore, the effects of this rural industrialization were, firstly, “[…] an increased reserve army of labor in the urban centers, reducing the cost of labor while increasing surplus profits for industrial capitalists” (ibid). Secondly, the monopolization of rural areas ended in the hands of capitalists, bringing more power to the Colombian bourgeoisie. Lastly, an emergence of self-defense groups occurred. These groups were part of the PCC, and emerged in a response to the violent repression of communist beliefs by the National Front. As a result, instead of surrendering to the political-economic domination, the self-defense groups challenged the capitalistic upper class in Colombia, a process that has been described in the Theory of War (cf. Theory of War). The peasantry turned out to be “[…] a more active revolutionary force than the working class” (TNI).

The self-defense groups originated in the south of Colombia during the 1950s and 1960s and are often regarded as “[…] autonomous enclaves of radical peasants” (Brittain & Petras: 8). However, these independent communities are strongly related to the ideology of the PCC, and are subsequently connected to the guerillas. The FARC-EP officially originated on May 27, 1964, and was officially recognized as a guerilla movement two years later. In 1964, the FARC-EP announced “[…] its intention to use the armed struggle as part of a political strategy to seize national power” (TNI). Based on the PCC ideology, the guerilla movement aimed to protect rural civilians against capitalistic interests, and “[…] established itself as a goal-oriented defense-based peasant collective in the face of extreme political and militaristic coercion” (Brittain & Petras: 8). The peasant communities became areas in which the people had the power to follow different political directions from those offered by the state.

Furthermore, “[a]rmed opposition in Colombia was also bolstered by the exclusionary nature of the Colombian political system” (TNI). The exclusionary political system entailed the dismissal of the PCC from the political process in Colombia. As a result, many of the peasants saw the state as their most important enemy, and, therefore, started communities in order to create a safe place. The description of the communist organization in rural areas of Colombia is incomplete without acknowledgment of the “[…] militant construction and political goal of the self-defense groups” (Brittain & Petras: 10). These groups were not social organizations afraid of violence, partly as a result of La Violencia, and they understood the need to protect themselves against the regime and upper class interests. The communities were ready for a revolution and were strongly influenced by the PCC. The network of self-defense groups later founded the FARC-EP, therefore, it can be stated that “[…] guerilla warfare was ‘the intensification’ of an already existing class-based struggle” (ibid: 11). The guerilla groups were a threat to the existing regime and class structure, which resulted in the repression of the communities. The crucial elements explaining the organization’s progress towards a revolutionary struggle can be clarified both through Marxist economic theory and the Theory of War. Based on the Theory of War, it can be stated that the struggle of the FARC-EP is aimed to bring revolutionary change to Colombia, thereby protecting the country’s national interests. Ultimately, the internal conflict in Colombia is fought between organized groups, making it a clash of societies as is explained through both Marxism and the Theory of War (cf. Theory).

The FARC-EP started to grow significantly during the 1980s, but only in the 1990s the organization managed to grow even stronger than in the preceding three decades combined, due to the “[…] rise of neoliberal economic policy and increased state repression […]” (ibid: 16). The reason for the growth that initiated during the 1980s is the fact that support for the guerillas was “[…] nourished by the lack of space for political participation and legal opposition” (TNI), as is explained through the exclusionary political system in Colombia. Over the course of a few years, the guerilla movement obtained a substantial influence in the vast majority of all municipalities in Colombia. This resulted in a large territory being no longer controlled by the government, but instead run by the FARC-EP without any sign of state influence.

According to James J. Brittain, based on his extensive research in the area over the course of several years, the extent to which the guerilla movement has grown over the 1990s is much larger than described by many scholars. However, “[c]ollecting information on the number of combatants in the FARC-EP is understandably difficult” (Brittain & Petras: 19). He states that between the late 1990s and the early 2000s, when the organization was at its peak, there were an estimated 40.000 combatants connected to the FARC-EP. The strong growth of the organization can be explained by the continuous struggle of the peasant workers with regards to the political-economic suppression by the state. This is explained through the neo-liberal policies of the Colombian government that do not benefit a large part of the population. The governments of both Colombia and the US declare that an increased amount of guerillas has been killed, captured or deserted in recent years. However, the losses mainly occurred in the already weaker areas of control, and the main targets were political leaders of the FARC-EP. Furthermore, the military wing remained practically untouched and the organization’s overall strength remained in the form of fewer, more concentrated fronts. Therefore, in spite of the decline in the insurgency’s strength during the past years, “[…] it is ill-informed to assess that the FARC-EP has seen its end” (ibid: 21). However, the Colombian military states that the FARC-EP will not be able to recover from the loss of its members at the hands of armed forces, as the insurgency experiences great difficulties in recruiting new guerillas. When the insurgency consists of a strongly reduced number of combatants, they are left disabled. They are, consequently, forced to stay hidden due to the reduced capacity of their economic resources, manpower and terrorist attacks (6topoder).

Recent development of the FARC-EP

The Colombian government and the media argue that the FARC-EP is losing power considerably. The organization suffered strongly in early 2008, when two of its most important leaders were killed, followed by commander-in-chief Manuel Marulanda Vélez, who died a natural death. The government stated that the possibility of forced peace negotiations or military defeat is very real, due to the loss of power through desertion and insufficient internal cohesion, resulting in the possible eradication of the FARC-EP (Brittain & Petras: 22). When prominent FARC-EP leader Guillermo León Saenz, better known as Alfonso Cano, was killed in 2011, this was considered to be a triumph for the Colombian government. However, further progress towards peace does not necessarily derive from this triumph, as the FARC-EP continues to fight and does not seem to plan on giving up (Economist, 2011: 45). The government of Colombia is taking over control throughout the country, and has obtained presence in each of the departments. Nonetheless, neighboring countries remain worried about Colombian violence crossing the border into their land. Colombian citizens flee into neighboring countries due to the guerilla influence and organized illegal narcotics organizations (CIA World Fact Book).

Several major campaigns were implemented recently to fight the guerilla movements, including PC. As is proven by various attacks on capitalist targets by the FARC-EP (cf. The influence of violence on the economy), the Colombian government is far from declaring the eradication of the guerilla movement. The FARC-EP has managed to infiltrate the cities and obtain urban support, although these urban areas were considered to be safe from guerilla influences for decades. Critics, such as Cesar Caballero, the former director of DANE, state that President Uribe has manipulated statistics to make Colombia appear safer, which brings doubt to the achievements that have made him popular amongst both the Colombian and US government (UT San Diego). This statement suggests that President Uribe did everything in his power to uphold the common belief in an improved and safe Colombia in order to stimulate the country’s economic development. Yet it should be clear that as long as exploitation, inequality and displacement of people continues to exist in Colombia, there will be a basis for opposition and a possibility for guerilla groups to recruit new members frustrated with the disparities in their society, which is underlined by Marx’s economic ideas and the Theory of War. A further discussion on the influence of guerilla warfare on the economy will be presented in the analysis (cf. The influence of violence on the economy).

With the expansion of the FARC-EP into urban areas, the internal conflict has spread to areas of Colombia that were previously unaffected. Although the power of the guerilla movement in the cities is not as forceful as in the traditionally occupied rural areas, the influence of the FARC-EP in urban areas should not be underestimated. It is essential for a revolutionary movement to be supported by the people suffering most under the political and economic system of the country. Ultimately, it can be stated that “[…] what began as a peasant-led rural-based land struggle in the 1960s has since been transformed into a national political-military social movement illustrating a vision17 of alternative development through a socialist society via armed struggle” (Brittain & Petras: 29-30). A complete overview of the historical development of the FARC-EP allows for a deeper understanding of the impact of the insurgency and its relations to the economic development of Colombia.


The coherence between the economic development of Colombia and the development of the FARC-EP is studied in this chapter, thereby illustrating the influence of the FARC-EP on the country’s economic development. Although there are other insurgencies and paramilitary organizations affecting the Colombian society, the focus in this thesis is on the impact of the FARC-EP. Furthermore, the economic development of Colombia and the influence of the US on this development, for example through the implementation of PC, will be further examined. As the various elements affecting the economic development of Colombia are strongly intertwined, these elements are discussed both consecutively and simultaneously in the analysis. The analysis is presented chronologically, as well as per key problem area, in sub-chapters in order to create a clear structure.

The economic development of Colombia

The traditional economic growth of Colombia since the 1960s was the result of a government making sound macroeconomic decisions, irrespective of what the Colombian lower class would need to reduce inequality within the country. Neo-liberal economic policies were implemented by the Colombian government during the 1990s, when “[…] Bogotá adhered to economic policies that favored the economic interests of the United States and multinational corporations in return for increased military aid that served the interests of Washington and Colombia’s political and economic elite” (Colombia Journal). The FARC-EP does not agree with neo-liberal economic policies, which, according to Marxism ideology, lead to increased inequality within society. According to Marx, capitalism resulted to be the source of oppression and social unrest, as was the case in Colombia. The process of the initiation of an internal conflict as a result of inequality is explained through the vision of Karl Marx on economic progress, whereby he defines different classes within society based on unequal incomes and standards of living, combined with the Theory of War that allows for an understanding of the causes of war, as they were present in the Colombian society at the time of the emergence of the FARC-EP.

Economic progress and policies

There are plenty of signs that the Colombian economy has been growing firmly in the past decade. “[…] [S]trong fiscal reforms and a business-friendly, pro-market economic environment have helped Colombia to generate sustained growth in the period from 2002 to 2007, before the current global downturn took hold” (QFinance). This resulted in a reduction of poverty levels by 20% as well as a decrease of 25% in unemployment rates since 2002, combined with a strong growth in FDI. Furthermore, economic growth can be determined when comparing the value added in different sectors, as well as the increase in gross capital formation18 and limited inflation of the Colombian currency19, which has remained relatively stable over the past decades. In spite of countries dealing with internal conflicts usually experiencing strong inflation rates, Colombia’s inflation rates continued to be unaltered. Further indicators of economic health are labor-force participation and unemployment rates, of which Colombia has an unusually high labor-force participation, which derives from the large number of the young population choosing to work over pursuing further education, and the fact that many Colombian women work outside their homes. Ultimately, this extremely high labor-force participation leads to an insufficient number of jobs being available in Colombia, and, consequently, “[…] the third-highest unemployment rate in Latin America […]” (Holmes, Gutiérrez de Piñeres & Curtin: 33). In addition to its relatively high unemployment rates, Colombia was not attracting as much FDI as the other Latin American countries. However, Colombia has recently been able to improve its business climate which resulted in an enormous increase in FDI. In spite of historically having the lowest number of FDI, Colombia managed to attract the third-highest inflow in FDI by 2005, only following Brazil and Mexico. “Increases in FDI are a signal that foreign markets have confidence in Colombia’s future” (ibid: 35), as well as a confirmation of the positive impact of neo-liberal ideology on the economic development of Colombia.

When the global economic crisis affected private investment in Colombia at the end of 2008, it was proven that “[t]he government’s pursuit of sound economic policies prior to the global downturn meant that it was well placed to loosen fiscal and monetary policy to boost domestic demand” (QFinance). The fiscal policies of the Colombian government allowed for the financial system to remain sound, and the IMF expects for public debt to decrease rapidly once the economy starts to recover. Furthermore, the IMF stated that “[…] the flexible exchange rate policy has helped protect the external position in the face of adverse shocks” (ibid). Consequently, it can be said that economic policies have lead to Colombia showing great economic potential for the future. Colombia is one of the emerging markets attracting considerable attention from investors worldwide, as the country offers a diversified economy and substantial population, combined with prospects of significant economic development in the nearby future. Due to the improved internal security policies and the growing economy, as well as the business-friendly environment and broad natural resources, Colombia has great economic potential. Challenges to this potential include “[…] a persistent budget deficit, one of the highest unemployment rates in the region, a weak infrastructure, an underdeveloped capital market and a continued reliance on commodities” (Colombia Forum 2011).

For President Santos it is most important to ensure high economic performance in order to be able to be re-elected in 2014, therefore, the neo-liberal economic policies of Colombia remain focused on facilitating business. Export growth is decreasing but Colombia is still expecting a growth in GDP of approximately 4.4% in 2012 (Economist Intelligence Unit), followed by a stronger economic growth from 2013-2016 as a result of a positive global economic environment and continuing strong investments in the Colombian mining and oil sectors. Even though the economic growth experienced over the past years has helped to decrease the levels of inequality and poverty in Colombia, the global economic crisis also has its impact on Colombia (Shifter, 2009: 76).

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