Santos Re-Election Still Most Likely Scenario Despite Peñalosa Threat

BMI View: While the last-minute candidacy of popular former Bogota Mayor Enrique Peñalosa poses a plausible challenge to President Juan Manuel Santos's re-election bid, we believe that lack of unity in the opposition makes a second term by Santos the most likely outcome of Colombia's May 25 election. The expected Santos victory would be well received by markets, ensuring continuity of both business-friendly policies and peace negotiations with left-wing insurgents.

We maintain our view that the most likely scenario for Colombia's May 25 presidential election is a second round victory by incumbent President Juan Manuel Santos ( see 'Santos To Win Re-Election But Security Concerns To Remain High', March 8). The two main challengers to Santos's re-election bid are Óscar Iván Zuluaga from the newly-formed Centro Democrático (CD) coalition, and late-comer candidate former Bogota Mayor Enrique Peñalosa from the Partido Verde (PV), who officially announced his candidacy in early March, and immediately received strong support across several segments of society. That said, most polls are consistent in showing that Santos would garner the most votes, though below the 50% needed to avoid a run-off. However, polls on the outcome of the two most likely second round scenarios, namely, Santos versus Zuluaga and Santos versus Peñalosa, also suggest Santos would win in both cases. While voting intentions could shift in the run-up to the election as campaigning intensifies, especially given the high number of undecided voters, which according to polls is around 20% of the electorate, we believe that the lack of unity among the different opposition factions makes it unlikely that Santos would lose in a hypothetical second round.

Fragmented Opposition Makes A Unified Second Round Challenge Against Santos Unlikely

Santos Still Favoured, But First Round Victory Unlikely
Colombia - Results To Poll: If the election were tomorrow, who would you vote for?, %

BMI View: While the last-minute candidacy of popular former Bogota Mayor Enrique Peñalosa poses a plausible challenge to President Juan Manuel Santos's re-election bid, we believe that lack of unity in the opposition makes a second term by Santos the most likely outcome of Colombia's May 25 election. The expected Santos victory would be well received by markets, ensuring continuity of both business-friendly policies and peace negotiations with left-wing insurgents.

We maintain our view that the most likely scenario for Colombia's May 25 presidential election is a second round victory by incumbent President Juan Manuel Santos ( see 'Santos To Win Re-Election But Security Concerns To Remain High', March 8). The two main challengers to Santos's re-election bid are Óscar Iván Zuluaga from the newly-formed Centro Democrático (CD) coalition, and late-comer candidate former Bogota Mayor Enrique Peñalosa from the Partido Verde (PV), who officially announced his candidacy in early March, and immediately received strong support across several segments of society. That said, most polls are consistent in showing that Santos would garner the most votes, though below the 50% needed to avoid a run-off. However, polls on the outcome of the two most likely second round scenarios, namely, Santos versus Zuluaga and Santos versus Peñalosa, also suggest Santos would win in both cases. While voting intentions could shift in the run-up to the election as campaigning intensifies, especially given the high number of undecided voters, which according to polls is around 20% of the electorate, we believe that the lack of unity among the different opposition factions makes it unlikely that Santos would lose in a hypothetical second round.

Santos Still Favoured, But First Round Victory Unlikely
Colombia - Results To Poll: If the election were tomorrow, who would you vote for?, %

Fragmented Opposition Makes A Unified Second Round Challenge Against Santos Unlikely

Ideological differences between Peñalosa and Zuluaga underpin our view that a unified opposition challenge against Santos in a hypothetical second round is unlikely. The first issue of disagreement between the two challengers is the peace process that Santos began between the government and the left-wing insurgent group Fuerzas Armadas Revolucionarias de Colombia (Farc), which remains a highly divisive topic among the electorate. Peñalosa has stated that if elected he would continue the peace process, while Zuluaga, consistent with the hard-line strategy spearheaded by CD's founder, former President Álvaro Uribe, is against negotiating, opting for military intervention instead. Second, Zuluaga's political inclination is centre-right, similar to that of Santos, while Peñalosa's is centre-left and would likely favour greater regulation, especially in the resources sector. As a result, in the event that Santos faces Zuluaga in a second round, Peñalosa's votes are unlikely to automatically transfer to Zuluaga, at least not in large enough numbers to defeat Santos, mainly because a Zuluaga victory would imply an end to the peace process with the Farc. Conversely, if Santos faces Peñalosa, Zuluaga's followers would hesitate to unite behind Peñalosa, due not only to their disagreements on how to address the issue with insurgents, but also because a Peñalosa victory could threaten to wane the progress made over the last decade in shaping positive foreign investment perceptions towards Colombia.

Polls Point To Another Four Years Of Santos
Colombia: Poll Results For Voting Intentions On Two Most Likely Second Round Scenarios, %

Santos Victory Most Market Positive, Zuluaga Victory Most Negative

We believe that of the three most likely electoral outcomes, a Santos victory would be received the most positively by markets for two main reasons. First, a second term by Santos reassures investors of continuity in the improvements made in the business environment throughout his first term, especially in the hydrocarbons sector. Second, a Santos victory also ensures that the ongoing peace negotiations continue uninterrupted. While the negotiations have yet to deliver strong results, abandoning the negotiations would likely result in a period of heightened violence by the Farc, which could target multi-national assets to gain political leverage. For that reason, we believe that a victory by Zuluaga would be the most detrimental from a market sentiment stand-point, due to fears of a wide-spread deterioration in security if the government were to abandon peace talks. Finally, we believe that a victory by Peñalosa would stand somewhere in the middle in terms of how its seen by investors. On the one hand, it would likely prevent a spike in security concerns given that peace negotiations would continue. On the other hand, however, the prospects of greater environmental-regulations, consistent with PV's political rhetoric, could pare back long-term investment plans on Colombia's key hydrocarbons sector. However, with a legislature dominated by Santos's Partido de la U and Uribe's CD coalition, a significant shift away from market-friendly policies under Peñalosa would be largely resisted by congress.

Risks To Outlook

There are two main factors that could seriously decrease Santos's likelihood of securing a second presidential term. First, the threat of another round of protests by agricultural sector workers, following several demonstrations throughout 2013 and early-2014, could undermine support for Santos, and could also prompt undecided voters to support Peñalosa or Zuluaga. Indeed, the protests, which have been highly disruptive and joined by students, have seen Santos's approval rating dip in the past, which could be enough to make an impact on the outcome of the election. Second, a significant attack by the Farc in the run-up to the election, as the insurgent group seeks to gain leverage at the negotiating table, could flare negative perceptions towards the peace process, and increase support for Zuluaga, who proposes abandoning the negotiations, favouring a hard-line military approach instead. Under such a scenario, the likelihood of a Zuluaga victory would increase significantly, especially if he succeeds in swaying undecided voters in his favour.

Read the full article

This article is tagged to:
Related sectors of this article: Political Risk, Domestic Politics
Geography: Colombia
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.