One of my core Latin American views for some time now has been that political risk will be a key determinant of which countries out- and underperform over the medium term. In this respect, the landslide victory for Juan Manuel Santos in the second round of Colombia’s presidential election on Sunday represents a strong positive for the country’s economic outlook:

• Good For Growth: With the removal of political uncertainty and the continuation of market friendly policies introduced by President Álvaro Uribe set to remain in place for the next five years, the country stands to benefit from strong capital inflows going forward. Moreover, Santos’ plans for fiscal consolidation, with a balanced budget by 2014, places the country back on track to achieving a ratings upgrade to investment status in the near future, in my view.

• Security Improvements To Continue:A centre-right congress places former defense minister Santos in a strong position to continue Uribe’s fight against the insurgent Fuerzas Armadas Revolucionarias de Colombia (FARC). Strong security measures will assist Santos in achieving his other important campaign pledges, including labour market reform, the reduction of corruption and increase of educational standards, as the government reins in control of the peripheral regions of the country.

• Positive For The Peso: In recent days I have turned increasingly bullish the peso, given the positive outlook for Colombia’s investment climate and economy in general. With the election now firmly sealed in Santos’ favour, and the COP/US$ exchange rate sitting at key resistance, at COP1,932/US$, a break through this level in the next few days would support my bullish outlook for the currency. Moving to the stock market, although it is difficult to assess the impact of the vote on the benchmark IGBC equity index, due to the heavy weighting of several leading companies (for example Ecopetrol carries a 28% weighting) in the index, Santos’ victory is likely to be largely positive for Colombian equities.

This positive step puts Colombia firmly at odds with Argentina and Venezuela, which I have long identified as regional weak links given the high level of government interference in the economy. Certainly, there is little to suggest that any significant improvement in macroeconomic policy making is on the cards ahead of respective parliamentary and presidential elections in 2011 (Argentina) and 2012 (Venezuela) – indeed, in Venezuela’s case things could be set to deteriorate significantly in the short term – and unless these votes produce more market-minded administrations, Argentina and Venezuela are set to be left trailing behind more business-friendly economies over the medium term.