Colombian Update June 28th : Whats New (s) : Peace Process, Analyst's Survey, Industry.

PEACE PROCESS

Even before the plebiscite on the peace agreement was voted upon one of the most, if not the most, polemic areas was the JEP (Truth and Justice commission) and it continues to be a real problem, today according to many press reports is the last day officially that the final rules can be voted upon by the Senate and even having not taken office yet it is a test for Ivan Duque as he made it crystal clear during his campaign that he wanted it altered. The leaders of the parties in the Senate have been trying to come up with a compromise that avoids watering down the JEPs powers too far, a number of amendments have been accepted by the Government who want to get this on the statute book once and for all but there are two very, very nuggety areas where there is no agreement which go back to the core of Ivan Duque and of course his band of supporters. Firstly there is still no agreement on the extradition situation with ex FARC members, what is the process, who has claim and the limitations. Secondly another very prickly problem is the investigation of the military forces - the idea of the JEP is that everyone involved in the conflict is equally subject to the law, those from Duque’s CD party want the police, military etc attended in a separate way, within the JEP but under different rules - that is naturally not the premise of JEP equivalents found in other conflict zones where the emphasis is on transparency and openness. Another factor here which I written about at length is that the international agencies who have dedicated countless time and money already to the peace process are not going to stand idly by and see their work wasted - they want to see a JEP with teeth that investigates the wrong doings on both sides, the FARC have caused immense suffering over five decades but are not responsible for all the 220,000 deaths, the country will never heal if all sides are not called to bear witness to what they have seen and done. To this end the UN basically told the Senate yesterday to get on with the legislation, stop stalling and come through with their commitment to the victims. These comments were clearly directly at the Duque’s CD party and the alliance they are trying to form in Bogotá, the CD reacted badly stating they were not stalling but finalizing the details. This is a tricky situation that needs to get resolved fast and a slanging match between Duque’s party leaders and the UN is both unsavoury and unhelpful, it will draw focus to the detail of the JEP and attract the attention of other supporters of the peace process such as the IMF, OECD and ratings agencies - on top of that as mentioned on a regular basis President Duque has no time to submit Congress to a logjam related to the peace process when he matters such as tax reform, education and the justice system to attend, in this situation he needs to show who the boss is. I am currently working my way through the excellent Ken Burns/Lynn Novick Vietnam documentary on Netflix and one is struck by how potentially Colombia could have spiraled even further out of control if history had chosen a different path, fortunately it didn't but the JEP is a vital cog in spiraling back to a lasting peace and the President elect is now possibly seeing for the first time the difference between sitting on the opposition bench’s throwing stones at the peace agreement and owning it as the incoming President and he needs to get the JEP off his desk ASAP in order to make room for other legislation. INDUSTRY The latest snippets from the industrial sector appear to confirm to some extent what we saw in terms of the production data for April which at 10.5% was so much stronger than expected and in fact was the best reading for many a moon. 1. Firstly the latest ANDI (Industrial Association) announced that their latest survey of their members reflects an upturn in tone through the first four months of the year. For the January-April period there was an upturn of 2.5% in production and a 3.1% increase in sales - if we look back at the same period in 2017 all the numbers were in negative territory. 2. The next item on the menu was the ISE data for April where the headline number rose 3.5%, a year ago it was falling 0.8% however this is a very volatile data point as we can see in the chart below. However to if we look at the seasonally/calendar adjusted number we find a mixed picture - on the face of it a 1.2% decline YoY versus 2017 when the number rose 1% however again if we look at the graphic below we can see the number tracking steadily upwards over a very long period as activity increases, the key will be to look for continued YoY increases for May & June.

SURVEY

The latest review of what market analysts are thinking threw up a couple of talking points : 1. The top stock pick of 37.5% was GEB which only a couple of days ago I wrote at length on, it replaced EXITO which has been the favourite for many months owing to its exposure to the rebound in the consumer sector in both Colombia and Brazil. Rounding out the top three is Cementos Argos and you won’t get an argument from me on that one however going back to GEB it seems an odd choice, again there is no disputing the quality of the company and the potential upside but there is the small matter of US$1.2bn of shares to be placed into the market and given there is still no firm timeline on that sell down it seems curious to find it as a top pick. 2. On the macro side there has been no change in the GDP estimates for 2018 (2.5%) and 2019 (3.1%) with an expectation of 2.4% for the current quarter. The 2017 reading whilst in line with many overseas agencies appears light to me. The Finance Ministry estimate of 2.7% some might say is predictably higher but they have been consistent with that number for a period of time now and if (external events not withstanding) we continue on the recent course then there is every likelihood of achieving that 2.7% or perhaps more if some officials are to be believed.