Colombia's Economic Model at Stake in Sunday's Elections

(Bloomberg) -- Polls closed in Colombia Sunday afternoon after a polarizing presidential election for who will inherit a set of sharp challenges: hundreds of thousands of hungry Venezuelans pouring into the country, the future of a controversial peace accord that ended a 52-year civil war, soaring cocaine production and a sluggish economy.

Five main candidates are in contention, but two likeliest to move to a June runoff are the one Wall Street most loves, and the one it most fears. With 1.7 percent of the polling stations counted, Ivan Duque was ahead with 43 percent, followed by Gustavo Petro, with 25 percent.

The country of 50 million awaited results early evening. If, as expected, no candidate gets a majority, the run-off will be on June 17.

Colombia's Economic Model at Stake in Sunday's Elections

Duque, a protege of former President Alvaro Uribe, and an advocate of cutting corporate taxes and a backer of Big Oil, had 42 percent support in the most recent poll released May 20th. He was followed by 30 percent for Petro, a leftist former guerrilla and mayor of Bogota who wants to reduce the country’s dependence on hydrocarbons, redistribute land and develop new export markets such as avocados.

“Colombia’s economic model is under discussion,” said Munir Jalil, Citibank’s chief economist for the Andean region.“Gustavo Petro wants to find substitutes for oil and coal, while Duque just wants to complement them with other exports.”

Ecopetrol Shares

Duque, 41, campaigned against the 2016 peace accord with Marxist rebels, saying it was too lenient to those with blood on their hands. He’s expected to do what he can to dismantle it while Petro, 58, backs the deal.

“Petro is a real threat for Colombia,” said Pablo Piñeres, a 36 year-old pilot whose family voted for Duque, believing that he was the best one to defeat Petro. “He wants to take advantage of people’s discontent.”

Colombia's Economic Model at Stake in Sunday's Elections

The voting passed without significant violence, and long lines at many polling stations indicated possibly higher-than-expected turnout.

The other contenders are considered more centrist and include Sergio Fajardo, a former math professor and mayor of Medellin, and German Vargas Lleras, who has a strong party machinery getting the vote out for him, even though the most recent poll only gave him 7 percent support.

“You’ll see the market get nervous if Petro reaches 30 percent or more of the vote in the first round,” said Carlos Enrique Rodriguez, director of equity research at Ultraserfinco in Bogota. If this happened, the peso would weaken and the stock market would drop, he said.

Ecopetrol, the state-controlled oil company that Petro has said he would like to convert into a solar power company, would probably see its shares drop, he added. At the same time, if Duque wins outright in the first round, or if Petro fails to make the second round, many analysts expect to see a rally in Colombian assets.

Weak Economy

The economy grew at its weakest pace since the global financial crisis last year, as consumer confidence slumped and the government’s highway-building program stalled following a corruption scandal.

The government’s peace process with the Revolutionary Armed Forces of Colombia, or FARC, has also run into some trouble. The guerrillas handed over their weapons last year, and relaunched themselves as a legal political party, but the areas they abandoned were swiftly taken over by drug-trafficking gangs and dissident FARC members disaffected with the peace process.

Production of coca, the raw material for making cocaine, more than tripled between 2012 and 2016, fueling violence in the countryside where it is grown.

Whoever wins, and takes office in August, will also need to deal with the implications for Colombia of the collapse of the Venezuelan economy. It has created the biggest migration crisis in Colombia’s history, as hundreds of thousands cross the border each month, straining public services such as health and schooling.

“Colombia is looking for new ideas, a new generation,” said Jairo Beltran, an out-of-work engineer who stood outside of a school in a working-class neighborhood of Bogota where Petro cast his ballot Sunday morning. “This is a country with problems. All these Venezuelans are coming looking for work and hungry. There isn’t enough for everyone.”

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