THE ECONOMIST
[London]

8 August 1998


                Colombia on the brink
                ---------------------


BOGOTA -- If you want to talk peace, the best start is a bit of successful
war: that is the hopeful explanation of the guerrilla attacks that this
week engulfed Colombian army and police posts and oil installations,
leaving 150-200 of the security forces dead and many in rebel hands.
President-elect Andres Pastrana, due to take office on August 7th, flew
home on August 3rd from a fence-rebuilding visit to Washington into a
crisis. And security is not his only challenge: the economy is sluggish,
the treasury in deficit, public life chaotic, corruption and drugs as
menacing as ever. Yet Colombia today has better chances than for years-if
its elite, its plain people, its rebels and its new president have the
courage to grab them.


        The road to peace?
        ------------------

The main reason is the change of presidency, and-above all-the hope of an
end to 34 years of guerrilla war that it has brought. On June 21st Mr
Pastrana, a Conservative but backed by a ``grand alliance for change'',
ended 12 years of Liberal rule, defeating Horacio Serpa, a former interior
minister of the outgoing, much-disputed, President Ernesto Samper in a
second-round vote. The turn-out, nearly 60%, was high by Colombian
standards, and the demand for far-reaching change manifest.

Mr Samper had tried more than once to get peace moving; indeed this
February his negotiators won a talks-about-talks deal with the ELN- Army
of National Liberation-the smaller of the two main left-wing guerrilla
groups. But his political weakness killed his hopes; the deal, like other
attempts, came apart, because the guerrillas were not really ready to talk
with him.

Mr Pastrana was different. Within days of his victory, he flew to the
jungle to meet the leader of the FARC, the Revolutionary Armed Forces of
Colombia, the larger group. Separately, a new National Peace Council,
unofficial but officially blessed, had arranged to meet the ELN in
mid-July, in Germany. ``Civil society'' would be there, said the council,
and it was: bishops and top businessmen, trade-unionists, farmers, even
the chief prosecutor and a leading judge.

Both guerrilla groups agreed to humanise their war; and on conditions-
notably, from the FARC, demilitarisation of a chunk of central Colombia-
to talk peace once Mr Pastrana was in office. Then, on July 27th, came a
real surprise: a deal with the AUC-United Self-Defence Units of
Colombia-the paramilitary groups, fierce and increasingly aggressive
enemies of the guerrillas, and eager to be recognised like them as a
political force.

Do they all mean it? No, says the army. The ELN had barely signed up
before last week it attacked a northern town, blowing up civic buildings.
Then came this week's attacks, the worst in decades.  As were government
losses: at least 20 men killed near Uribe, 150km (93 miles) south of
Bogota, at least 40 when an anti-drugs base at Miraflores, in the
guerrilla-ridden south-east, was over-run, with 150 more wounded or
captured. Longer-term, the army fears ``demilitarisation'' just means time
and space for the guerrillas to consolidate their grip (no disaster, in
fact: the area is big but its people and non-coca resources few).

Yet --though the ELN is plainly split between hard men and less hard-- the
best bet is that war is now a preparation for diplomacy. Even the AUC,
butchers as they are --they massacred 35 civilians as alleged guerrilla
supporters in one raid on the oil town of Barrancabermeja in May-- are not
only that. Most Colombians are desperate for peace; but the guerrillas and
their rivals are also under pressure, and know they now risk all-out war
with each other.

The road to peace will be bloody; and nasty, even for civilians, even if
the guerrillas keep their promises. The ELN love to kidnap for ransom, and
it is no game: as the cattle farmers' organisation laments, over 250 of
its members have been seized this year and 18 ended up dead. Yet civil
society's negotiators, in effect, accepted that the ELN can go on, sparing
only old people, children and pregnant women- and that only if it can find
other sources of cash. Likewise it, or the AUC, can attack not military
targets identified as such, but anyone not visibly civilian; Barranca-
bermejans now wear white ribbons. Pierre Gassman, local head of the
international Red Cross, thinks far too much was conceded. ``Scandalous,''
says Alfredo Rangel, a realistic former security adviser to Mr Samper.

Details of the hoped-for talks are still uncertain. Soon, all agree, but
how? The ELN wants a ``national convention'', the FARC direct negotiations
with the government. Neither so far accepts any role for the AUC. The best
guess is an initial series-maybe a shambles --of separate tables, somehow
to be drawn into one at the end.

What end --if any? These will not be the traditional diplomatic
negotiations, ``condemned to success''. Both FARC and ELN are well to the
left, the ELN more intellectually so, therefore less pragmatic, with an
especial dislike of the United States, multinational companies and, above
all, oil ones. Many of the guerrillas' generalities sound acceptable to
anyone. Not so the details.

The ELN, for instance, wants all natural resources nationalised. Existing
oil contracts? Revise them. Their basic principle now is: the-usually
foreign-company pays all exploration costs; the oil, if any, to go 20% to
the state, 40% to its oil company, Ecopetrol, 40% to the foreigners. Fair
enough? Not for the ELN. Oil prices? ``Sovereign management'', in world
markets. Foreign investment? Yes, if it brings technology- and is linked
to Colombian priorities, economic and social. Foreign debt? Renegotiate
it, say ELN and FARC alike.

Fine, if Colombia lived in a world of its own. Even there other demands
would jar. The ELN wants ``a new army, based on the insurgent forces";
guess the generals' reply. Both groups are keen on land reform: take
land-confiscate it, says the ELN --from drug dealers, landlords and big
estates, and give it to the landless. Turn poor people without land into
poor people with it, snort the cattlemen. Yet they share the aim of better
rural credit, roads, markets and prices, just as Mr Pastrana promises wide
land reform. Somewhere in all this a deal may be possible.  Or it may not.


        Drugs, violence and corruption
        ------------------------------

The guerrilla-cum-paramilitary war --and the hundreds of thousands of
displaced persons it has generated-- is by far the biggest challenge to Mr
Pastrana. But --even were the United States not obsessed with it-- he
cannot ignore the war on drugs, and the crime and corruption they lead to.

The two wars are distinct. The guerrillas mostly do not grow or trade
drugs. But they protect those who do, at a price. Growers  (say the
police) pay $100 per hectare of coca, laboratories $100 per kilo of
cocaine, traffickers' airstrips $18,000 per take-off. The Americans try to
insist that their military aid be used solely against drugs. The armed
forces just as eagerly diffuse the concept of ``the narco-guerrillas''.
It is half-true.

The two wars share another root: a tradition of violence unique even in
Latin America. The 150-year rivalry of their two big parties has led
Colombians repeatedly to civil war. Today, 30,000 or so are murdered each
year. Cali in 1997 recorded 90 murders per 100,000 people, Bogota 49,
outrunning even Caracas's 48, Rio de Janeiro's 34, Mexico city' s 12 (and
Chicago's 30). Some minor cities do far worse. Another figure shows why:
nationwide, police seize 500 knives and guns a week.

What is unique to the drug trade is the scale of money involved, and the
resultant corruption. The smashing of the Medellin and Cali mobs in 1993
and 1995 badly hit those cities' building industries. Prosecutors have
investigated thousands of cheques from the Cali men or their front
companies that have gone to public figures of all sorts, down to football
referees-and last week revealed that they had 37,000 more cheques, for
some $500m,  still to go.

The war on drugs is led by Jose Serrano, an impressively forceful police
general. He has plenty to record: the big gangs dismantled, 50-70 tonnes
of cocaine or cocaine base seized each year, as much of marijuana, and
hundreds of tonnes of coca leaf and of chemicals used in processing; huge
and increasing air-spraying-in the past, some 40,000 hectares of coca and
(some)  poppy a year, but 50,000 already in 1998. His force uses ten
aircraft, 50 or so helicopters, and spends $100m a year, plus $50m in
American aid. It eagerly expects bigger and more of both.  This year alone
it has seized 35 aircraft, 180 vehicles, 300 boats --and (before this
week's guerrilla attacks) had ten men killed and five kidnapped.

Yet what is the result? Small gangs of traffickers have replaced large
ones. Colombia grew little coca 25 years ago; today 100,000 cocaleros
cultivate 80,000 hectares, mainly in the warm south-east, plus 6,500 of
poppies in the hills. Airforce-protected spraying, where it is done
--mainly Guaviare and Caqueta (Putumayo is remote and the FARC may 
have
ground-to-air missiles there)-- cuts output by 20%, says the general;
without it, far more would be grown. Yet spraying also breeds discontent
--in 1996 in Caqueta almost a peasant revolt. Mr Pastrana this week told
Mr Clinton's men there must be a better way: alternative crops and ways to
market them, new jobs outside farming. Maybe. But huge efforts this way in
Bolivia are yet to prove it. No surprise: as even a supporter of the war
admits, ``you can carry $2,000 of coca leaf on your back, or of cocaine in
your pocket.''

Can the war be won? Should it be fought at all? ``You start a war to win
it,'' says General Serrano, ``and, by 2010, we shall.'' He is thinking of
cocaine supplanted by American-made synthetics --and surely, though he is
not crude enough to say it, of hard-hit Colombian cocaine gangs supplanted
by others-eg, already, Mexican ones. Twelve years is still a long time to
face the costs of an essentially American war. Yet few Colombians dare
think of stopping; and, alone, they would be mad to try.


        The economy, short-term and long
        --------------------------------

On top of its special woes, Colombia faces several more ordinary ones all
at once:

Slow growth: the latest official estimate for 1998 is 3.3%, and others
think less.

Big-city unemployment that has doubled since 1994 to 15.8%-and overall,
nationwide, figures would be still worse.

A rising central-government deficit. In a budget equivalent to about 33%
of Colombia's $100 billion-odd GDP, a 5% of GDP deficit is a low estimate
for 1998. Military costs do not help, and no one expects an early ``peace
dividend'' to slim their budgeted 1999 level of 4.2% of GDP.

A shaky currency, not aided by a likely current-account deficit of 7.5% of
GDP.

Inflation around 18%; lower than usual --but that makes the built-in
allowances for  the past all the more painful.

The natural result: high interest rates imposed by the independent central
bank. A good business borrower can pay 40%, a home-buyer 45%. Little
wonder housing is in the doldrums and some big builders (big employers,
that is) on or near the rocks.

Inevitably, the new finance minister, Juan Camilo Restrepo, plans to clamp
down soon and hard. He aims to slim the total public-sector deficit to 2%
of GDP by next year; less savage than it sounds, since this overall
deficit is usually less than central government's, but it still means cuts
of 2%. There will be pain all round; public servants' pay is to rise only
14% in 1999.

Business is ready-indeed eager, if fiscal rigour means lower interest
rates. And it accepts the need for structural change.  Colombia has lively
entrepreneurs and good managers, hampered by bureaucracy and corruption.
The body meant to run vocational training, laments the spokesman of small
business, ``has had five directors and nine sub- directors in five years.
Let us do the job.'' The savings rate is low, investment in new equipment
startlingly low.

Privatisation has been slow, partly because there was not much to
privatise. Insecurity and --till recently-- lack of American official
backing have deterred outsiders. Even so, among the big groups that supply
60% of industrial output, a third of that comes from multinationals. But
much more foreign capital could well be used.

So there is plenty to be done. The trouble is that the now
maybe-peaceloving guerrillas want more jobs and social spending, less
privatisation, less opening to market forces and world trade, and, at
least in oil, less foreign capital. Nor are they alone in disliking the
apertura, the free-marketry pioneered by President Cesar Gaviria in the
early 1990s. Can all this be squared?

Mr Pastrana is a free-market man. Yet Colombia --maybe because it was
never as statist as many Latin American countries-- has not taken as
keenly as others to apertura. Even now, the treasury relies remarkably on
customs duties, and protection is still a natural instinct: within days
last month measures were announced against imports of chemical fibres, and
promised against dried milk.

Yet two-thirds of what the guerrillas want, says the industrialists'
federation, are changes needed anyway: less corruption, more industrial
and agricultural ``policy'' --not state control but collaboration with
business-- and much besides. Only one-tenth is old-world Marxism. Even in
oil, says one cynic, ``let the unions and the left run policy for a year,
and they'll learn they couldn't do it, nor the state afford it.''


        Toward a new politics
        ---------------------

The big doubt is not the desire for change, but the political system' s
ability to change itself and deliver it. Mr Pastrana is no wonder-boy of
the new politics: he ran for the presidency, losing narrowly to Mr Samper,
as a straight Conservative, in 1994. But his allegations that the victor
had been aided by drug money earned him public abuse and two painful years
of exile,  and, on his return, his second attempt started as his own; only
later did his party join in.

His alliance for change really is that. He won the support of Alfonso
Valdivieso, the former chief prosecutor, Colombia's Mr Clean, an ex-
Liberal who once had justifiably high hopes of the presidency for himself.
Other Liberals who had turned against Mr Samper came aboard; notably
Ingrid Betancourt, barely known before, but triumphant in the Senate
elections in March and now one of two women who have a made a sensation 
in
Colombian politics.

The other is Noemi Sanin, a former Liberal (and foreign minister) who
launched her own candidacy as a ``clean it up'' independent and took a
startling 27% of the first-round vote. She was heavily backed by the huge
Bavaria (ex Santo Domingo) conglomerate; and --say her critics-- Bavaria's
real aim was to sabotage Mr Pastrana. True or false, the charge is barely
relevant: Ms Sanin's voters were voting against the old two-party duopoly
--against the Liberals, certainly, but arguably the Conservatives too--
and for change. In the second round, Ms Sanin did not openly back Mr
Pastrana, but most of those close to her did; and her voters did the same.

Mr Pastrana now, says one left-winger, has no choice but to go for change:
against corruption and the old party ``clientelism'', for real justice,
clean administration, civil control of the armed forces. The words could
(some do) come from Ms Sanin, even if she fears Mr Pastrana may not grab
his opportunity. He is an ``image'' she says, though ``at least he has
scruples and ministers without criminal records.''

And her own role, for she still has wide public trust? Well, she plans a
new ``movement'' (not least, so that members of both parties can join it),
and claims it will be influential when mayors and governors are elected
during the next two years. Money? There is state cash for parties (guess
why), but in proportion to their membership of Congress-where Ms Sanin 
has
none. Note her cheery claim, delivered with just a hint of tongue in
cheek, that in 2002 she will be president, but do not rush to accept it.

Some would not even hobble that far. Ms Betancourt and her like want
constitutional changes to re-invigorate the parties, not least to give
them discipline rather than the individual sinecure-cum-pork with which
members till now (and brilliantly by Mr Serpa, in his ministerial days)
were brought into line. This and other change, how? Via an early
referendum, she says, to which Mr Pastrana has agreed. But would the
guerrillas? They want a brand-new constitutional assembly (ugh, say
members of the present Congress) and a megaphone voice in it for, well,
guess who.

Meanwhile, in the real world --for so it still is-- of congressional
politics, Mr Pastrana now has a majority: the March elections left
Liberals in 60% of the seats, but some have defected to his alliance,
others are ready to collaborate. Mr Serpa is being spat at for claiming
his right to ``patriotic opposition'', and is having to fight to control
even the loyal faction of his party.  But do not write off this astute and
skilfully populist politician. Nor his party.

Nor yet think --though they like to-- that the terms of peace can be
simply dictated by the guerrillas. True, there is a huge desire for peace,
which they can always threaten to frustrate. But, for all their claims,
they do not speak for civil society, only for part of it; whatever his
history, his faults --or virtues-- Andres Pastrana speaks for far more.

        Copyright 1998 The Economist Newspaper Group, Inc.