By GRI Analysts Andrés Felipe Hernández Amín and Daniel Lemaitre.
If current trends continue, the international community will pay for only a small portion of Colombian post-conflict rebuilding, leaving the financing burden on the Colombian state.
Since peace negotiations between the government of Colombia and the FARC guerrillas formally began in September 2012, the international community has provided over 1.65 billion USD in aid for post-conflict social and economic development—half a percentage point of Colombia’s total GDP—to central and local governments.
International financial cooperation is a central component of Colombia’s peace project, which hinges on the support of external guarantors. The peace project, which would entail state-led, massive bureaucratic reforms, is considered one of the most expensive social endeavors in the history of the country, estimated to cost the Colombian state and its non-governmental and private sector partners over 90 billion USD over the next 10 years.
Political context and background
As the government implements its first round of fiscal austerity measures as a response to a substantially weakened economy in 2015, international cooperation for the post-conflict stage of the peace deal is even more critical than originally planned. In current U.S. dollars, GDP is expected to shrink from 384 billion in 2014 to 332 billion in 2015 because of the Colombian Peso’s precipitous devaluation, triggered by large dip in oil revenues.
On October 14, the Colombian Congress confirmed its commitment to social progress by passing a 15 billion USD (30% of the national budget, in current USD) annual budget for the Plan Nacional de Desarrollo, the state guide for developing social programs and a likely vehicle for post conflict program implementation.
Although superficially it seems that the agencies under the Plan Nacional de Desarrollo will be financed well, the 15 billion USD figure is 33% less than the funding proposal set in July 2015. The Colombian government’s current inability to preserve the suggested funding benchmark for social projects implies that the national government will have less internal resources to fund social programs in the years to come. Even before peace is implemented in Colombia, the social agenda is being underfunded.
Legislators are aware of the possible social financing shortfall–only weeks prior to the national budget bill, the Congress created two emergency reserve funds in anticipation of a tighter national fiscal position triggered by less revenues from the dominant petroleum sector. However, the Congress has also demonstrated its commitment to post-conflict reconstruction by recently approving a 3.4 billion USD appropriation bill for 2016 to include ongoing social programs related to victim reparations and land restitution.
Given the state’s fiscal position, President Juan Manuel Santos has turned to the international community to assist in implementing the peace process. Since 2012, he has traveled to Brussels, Washington and New York to request bilateral and multilateral funding.
In 2011, Santos created the Presidential Agency for International Cooperation as a receiving organism for international grants and has invested significant state resources into ProColombia, a mixed ownership company that promotes foreign investment and exports in Colombia, to lead a global public relations campaign to internationalize the peace process. Colombian senators have also assisted the government’s public relations pitch by traveling to Washington to lobby the United States Congress for further funds from the United States.
Current figures
Since 2012, 1.47 billion USD of total funds has been awarded by over 57 bilateral donors and is classified as Official Development Assistance (ODA). The United States is the largest ODA donor, covering 22.7% of the total international post-conflict aid pool, close to 380 million USD.
The European Union, which has been courted extensively by Mr. Santos, follows with 250 million USD. Germany and Canada are the third and fourth largest donors, with 99 million USD and 96 million USD, respectively. Recession-stricken Spain and its autonomous communities (the Basque country has donated 2.4 million USD) rank fifth, contributing 79 million.
196 million USD, classified as non-bilateral “New Grants”, derive from smaller foundations and corporations. Give to Colombia, a U.S.-based nonprofit focused on socioeconomic development, is the largest donor under the non-bilateral category with a 51 million USD disbursement portfolio. BHP Billiton and the Bill and Melinda Gates foundation follow with 28.5 million USD and 15 million USD, respectively.
Colombia’s Post-conflict funding visualized
The distribution of grants received by Colombia since 2012 is demonstrated in the following graphs. All data is taken from the Colombian Agency for International Cooperation.
The first graph below shows the percentage of contributions each actor has provided, illustrating Western countries as the most significant donors.
The second graph shows the cooperation distribution among non-bilateral grants (foundations and philanthropic organizations), in which Give to Colombia appears as the most significant contributor by a wide margin. Non bilateral grants account for approximately 7% of total contributions.
The third graph shows the number of international cooperation projects by year. The figure shows a decreasing trend in projects since 2012. Through the first 10 months of 2015, only 105 projects have been initiated, compared to 345 in 2014.
The fourth graph shows local (Alcaldías and Governaciones), and national grant distribution, showing a preference towards local authorities.
The fifth graph shows the distribution of grants by local departments, in which Valle del Cauca and Antioquia, two of the departments with the most victims, take most of the cooperation projects.
The sixth graph shows the relationship between finalized and ongoing cooperation projects.
The map below shows the geographical distribution of cooperation projects disbursed in each department.
Policy recommendations and a path forward
Although President Santos has done his best to attract grants for post-conflict programs, he has not achieved the desired results. His meeting with US Secretary of State John Kerry in October and Ambassador Kevin Whitaker in November resulted in a 636 million USD pledge by the United States for peace-building and post-conflict projects. Although this sum seems large, it is small in comparison to the United States’ assistance to other post-conflict countries. Nicaragua, for example, received 7 billion USD (over 15 billion USD in today’s dollars) for its transition in the 1980s.
The EU also agreed to create a fund with an initial 26 million euro pledge, while China has promised 8 million USD if the peace accords are signed.
Taking into account the 90 billion USD total estimated cost of the post-conflict reconstruction, these contributions are not significant. Using the current rate of capital inflows designated for post-conflict programs, Colombia will not receive more than 6 billion USD from foreign donations over a ten-year time period.
If this is the case, international grants would only cover up to a 7% of the total estimated cost of post-conflict programs, leaving local actors with the remaining 93% of costs. It should also be noted that given the current division in Colombian society over the ethics and practicality of the peace accords, an important fraction of the private sector will not agree to fund post-conflict programs, forcing Santos to spend further political capital wooing domestic actors.
Former Minister of Agriculture, Juan Camilo Restrepo, supports this conclusion, stating that foreign capital would only cover 15% of post-conflict financing. The rest will fall on Colombian taxpayers, begging the question: does the Colombian state have the resources to finance its own peace plan?
The recently approved 3.4 billion USD appropriation bill for post-conflict programs can be taken as an estimate for future, annual post-conflict budget appropriations. Adding the ten year growth estimate of this annual projection (34 billion USD) to the expected contributions from international actors (6 billion USD) yields an estimated 40 billion USD, which is 44% of the total 90 billion estimated cost of the complete implementation process. This financial situation poses a significant blow for tax policy optimists and sounds an alarm for negotiators in Havana.
Current Minister of Finance Mauricio Cardenas is more optimistic, saying that GDP growth will increase by one point above its current potential once the peace treaty is finally signed, meaning that “peace would finance itself”. Yet this statement seems more like a politically correct way of diffusing attention from the impending lack of funds for social post-conflict programs.
Cardenas’s argument, which assumes that increased foreign investment will finance the country’s social programs, is unrealistic. Capital entering the country after the peace accords will be contained to the private sector, which is not responsible for administering or funding state social programs. Consequently, the state is left with an unpopular decision about how to capture capital inflows via taxation, which may have harmful political and economic effects.
As the government of Colombia negotiates the back end of the peace accords and prepares a legal vehicle to ratify the accords, it should also craft an encompassing 10 year national financing plan. In order to achieve peace, the government of Colombia needs to have a concrete idea about how to internally fund the relevant state organs responsible for enforcing a post-conflict society.
Now, with post-conflict in the horizon, a realistic multi-year financing plan that takes into account a contracting economy and uncommitted international partners is a priority.
This article was co-written by GRI Analysts Andrés Felipe Hernández Amín and Daniel Lemaitre.
