Colombia’s government and the Marxist rebels of the Revolutionary Armed Forces of Colombia (Farc) have agreed on a new peace pact in a bid to end the country’s five-decade-long civil war, six weeks after the original deal was narrowly rejected in a referendum amid objections it favoured the rebels too heavily.
The main question now, says The Economist, is whether the country’s president, Juan Manuel Santos, will succeed in getting the revised agreement ratified. Under the terms of the modified accord, the rebels will have to surrender money and holdings to compensate victims of the conflict. Members of Farc will be allowed to run for public office once they demobilise and disarm, while guerrilla leaders who confess to war crimes will be subject to “restricted liberty”.
If Santos is able to end the war and solves the country’s fiscal challenges, Colombia looks well-placed to prosper. The government’s key tax reform bill is expected to face an uphill battle in Congress, but if approved, should be enough to plug a hole in the nation’s finances caused by falling oil revenues. This would be enough to preserve the country’s investment-grade credit rating – and perhaps improve it. “We could raise our rating to triple B+,” said the finance minister, Mauricio Cárdenas.
Emerging markets battered by shock result
Emerging markets (EMs) were among the hardest hit by Donald Trump’s victory, after he pledged to pull America out of the Trans-Pacific Partnership, to build a wall along the border with Mexico and impose big tariffs on Chinese exports. Mexico’s peso fell to a record low against the dollar, while the Brazilian real and South African rand lost almost 8% each.
Several analysts believe the rout will deepen. While higher infrastructure spending and lower taxes could boost demand and overall US activity, prioritising trade and immigration could damage supply chains and trade activity, resulting in weaker GDP growth in EMs, say JP Morgan Cazenove analysts.
However, the fears may be overdone, says Dimitra DeFotis in Barron’s. The EM growth recovery appears likely to continue. She points to four encouraging signs of a pick-up in growth: rising purchasing managers’ indexes, loosening policy, low levels of developed-market activity and the surge in oil prices. “Estimates from our best-performing indicators suggest that the rate of EM GDP growth will increase by just under 1% by end-2017.” Rick Rieder of fund manager BlackRock agrees. EMs “represent a great opportunity going into next year”, he says.
Will Italy reject reforms?
After Brexit in the UK and the election of Trump in the US, Italy could be the next country to face an anti-establishment revolt. Voters will go to the polls on 4 December in a referendum on constitutional reforms called by the prime minister, Matteo Renzi. The core element of the proposed changes is a reduction in the size and powers of the Senate, to ease legislative gridlock.
Renzi says he may resign if he loses, which could spark early elections in which the anti-establishment Five Star Movement (M5S) could emerge triumphant. The M5S wants to stage a referendum on Italy’s euro membership and is running neck-and-neck with Renzi’s Democratic Party in the polls, having already seized power in Rome and Turin.
Many analysts fear that the referendum could trigger Italy’s exit from the EU. The Nobel Prize-winning economist Joseph Stiglitz told Business Insider that it could lead to a “disastrous outcome” and a “cataclysmic event” in Europe. But for analysts at Citigroup, the referendum is not a make-or-break event. Even if it’s a “no” wins and Renzi resigns, he may “be re-appointed… to transition the country into the 2018 election”.