Peace is at hand in Colombia. Overstating its significance would be difficult. The Revolutionary Armed Forces of Colombia, known as the FARC, agreed on June 23 to disarm. A formal treaty with Colombia’s government is expected to be signed in late July. It would end a half century of civil war, one that has had a tremendous human cost as well as an immense economic one. Over the past 50 years some 220,000 people, 80% of whom were civilians, have been killed. More than 6 million people have been internally displaced, a population on par with that of Syrian refugees. Nearly 500,000 women have suffered sexual violence, and 27,000 people have disappeared. The economic cost is difficult to calculate. The war certainly has prevented an efficient economic structure, forcing many Colombians to be inward-looking. “It’s a culture thing,” María Lacouture, the head of government economic development agency ProColombia, told me. “In the social arena, we would go to our friends’ [house] to go out, or we’d stay in the house. We’d focus on, how can I develop in my area, in my business?” And the country’s infrastructure is terrible. Old one-lane roads in the mountains, from Bogotá to the coast, make it nearly impossible for Colombian manufactured goods to compete abroad. A handful of rail lines carry little more than coal. Ports and airports are antiquated and small. Banks often are unwilling to take the risk of financing small and midsize companies. Education and innovation remain weak. Poverty and income inequality don’t allow sufficient scale and scope for Colombian businesses to become large and modern. Many of these problems are typical of developing countries. Colombia suffered from an additional one: cocaine drug cartels. The cartels, like that of Pablo Escobar, financed the FARC (and the ELN, another left-wing terrorist group) in return for protection. Despite these limiting factors, Colombia’s economy has been growing at 4.8% annually for a decade. Its outlook is helped by a young, hard-working population and good macroeconomic management. A functioning democracy since the 1970s, Colombia has pursued an economic strategy of export-led growth to take advantage of its coastal access to the Pacific and Atlantic. With a floating currency and an independent central bank that pursues “inflation targeting,” the Colombian government runs small fiscal deficits and maintains inflation under 2.5%. Until recently, when the price of oil collapsed, Colombia enjoyed trade surpluses. Moreover, Colombia has free-trade agreements with adjacent countries, the United States, the European Union, and South Korea. One notable exception from the agreements is Venezuela, ties with which have deteriorated as Venezuela has increasingly moved toward socialism. Venezuelan President Nicolás Maduro has effectively severed trade and frequently threatens the Colombian government. Colombia has sound macroeconomic policies and overall positive external relations, but its productivity, especially total factor productivity (TFP), has scarcely contributed to growth. TFP, a measure of efficiency of labor and capital inputs, has actually declined for the past seven years. This is the most interesting, and potentially important, mystery of Colombia. It’s also an economic mystery that peace could bring to a close. The war’s stifling of efficient economic structure may be the chief reason for the country’s negative TFP. As part of the pending treaty, the FARC has agreed to end support for drug cultivation and to help the Colombian army find and destroy cocaine labs. The government has agreed to land reform, making rural property available to the poor. If realized, these terms could go a long way toward fostering stability, infrastructure investment, and economic development in large swaths of the country. Still, implementing the peace won’t be easy. The government has agreed to allow the FARC to form nonviolent political parties. The population and ruling society will have to come to terms with a changing political landscape. Colombia also will have to come to terms with the human cost of the war and navigate a difficult reconciliation process. Under the agreement with the FARC, a “Special Jurisdiction for Peace” will hear confessions and will try to punish war crimes and crimes against humanity. Demobilized guerrillas who fully confess will receive between two and eight years of “effective restriction of liberty,” meaning being restricted to a certain village, or perhaps rural county. Those who do not confess could face prison time instead. While many Colombians feel this level of clemency is far too great, it has proved key to encouraging the FARC to fully disarm. Under the treaty, FARC guerillas will lay down their arms over a period of six months. With disarmament at hand, hope is growing for an additional peace deal with the smaller guerilla group ELN. For Juan Manuel Santos, the president of Colombia, this permanent truce is the missing piece of his vision for Colombia, one of “peace, equality, and education.” The formal treaty to end a half century of civil war could usher in a new era of growth. The countryside will become safe, and modern infrastructure will become more viable. The peace should encourage foreign direct investment and tourism, too. Huge numbers of displaced Colombians will be able to return to their homes to farm and open new businesses. Industries producing everything from coffee to air cargo to software to cement are poised for growth. It’s an enviable position for President Santos, given the difficulties facing the rest of Latin and Central America. Peace should help Colombians, from the mountains to the coastal plains, focus on growth and competitiveness in the outside world. And the currency devaluation will allow Colombian nonenergy businesses to begin serious efforts at exporting. As Finance Minister Mauricio Cárdenas told me, “Colombia can be a country easily growing at between 6% and 7% per year after a peace agreement has been sealed.” Here’s to the peace that’s within grasp for Colombians, and the dividends it holds for all.
