(Adds close of peso, Fitch comment)
By Julia Symmes Cobb
BOGOTA, June 18 (Reuters) - Colombian President-elect Ivan Duque has promised to unite a divided country behind his plans to toughen a peace accord with Marxist rebels and rekindle economic growth, but he will face major challenges when he takes office in August.
The right-wing former senator comfortably won Sunday’s election with 54 percent of votes against leftist rival Gustavo Petro, who garnered 42 percent with his pledge to shake up Colombia’s economic model and tackle inequality.
Both the Colombian peso and local Treasury bonds fell on Monday due to external factors, analysts said, though in the medium term investment flows are expected to increase based on support for Duque’s business-friendly policies.
The peso was down 0.95 percent to 2,923.05 per dollar while the yield on local Treasury bonds, known as TES, coming due in July 2024 rose to 6.17 percent from 6.14 percent on Friday.
It was the first presidential election since a 2016 peace agreement with the Revolutionary Armed Forces of Colombia (FARC), which ended its part in a five-decade conflict that has killed more than 220,000 people and displaced millions.
Duque, 41, pledged in his victory speech to unite the polarized Andean country and tackle corruption, improve security and increase educational opportunities.
“Peace is something all Colombians yearn for, and peace means that we turn the page on the fissures that have divided us,” Duque told cheering crowds at his celebration party on Sunday night in Bogota as confetti rained down.
Duque, a protégé of hard-line former President Alvaro Uribe, first grabbed attention railing from Congress against the peace deal, which he believes is too easy on former rebel leaders.
Striking a conciliatory tone on Sunday, he promised to guarantee justice for victims and the reintegration of rank-and-file rebels into Colombian society.
His aim of revamping the agreement to impose tougher punishment on FARC leaders for war crimes will face considerable opposition from the Constitutional Court and Congress, where most parties favor implementing the existing accord. The FARC has invited Duque to discuss the accord.
“He is going to have a harder time passing reforms to the peace agreement than he would have his supporters believe,” said Sergio Guzman, Colombia lead analyst for consultancy Control Risks, singling out the Constitutional Court, which has already ruled that the deal cannot be changed. The nine-judge court is responsible for deciding whether laws passed by Congress are in line with the constitution.
Duque needs to include politicians from centrist parties in his cabinet if he wants to unite the country, Guzman said. He is likely to reveal the names of some ministers this week.
Duque will face no shortage of security challenges. Crime gangs allied with Mexican drug traffickers, the National Liberation Army (ELN) - the remaining rebel group - as well as FARC dissidents who have refused to demobilize, have moved into territory left behind by the FARC.
Only 19.3 million people, just over half of eligible voters, participated in the election, suggesting some centrists did not like either choice.
Duque has promised to bolster Colombia’s $324 billion economy with tax cuts and support for extractive industries such as oil and coal, the country’s top exports. The government expects the economy to grow 2.7 percent this year.
“With the election of Ivan Duque the business sector, made up of both local and foreign investment, will see fiscal reforms that will seek a reduction of the tax burden for businesses and the simplification of administrative processes,” said Ciro Meza of law firm Baker McKenzie.
Some economists are concerned that Duque’s proposed tax cuts may worsen the budget deficit and force him to push through unpopular reforms, including a pension overhaul, to preserve Colombia’s investment-grade credit rating.
Ratings agency Fitch said on Monday that Duque’s victory signals a continuation of economic policies but added that a fiscal consolidation and encouraging growth are his government’s key challenges.
While oil has been the main driver for peso movements, the election has added to the currency’s volatility according to Kenneth Lam, a New York-based Latin America foreign exchange strategist at Citigroup.
“Now that we got the (electoral) outcome we expected, oil reverts to be the main driver” for the peso, which has been outperforming other Latin American currencies, he said.
Alberto Carrasquilla, who served as finance minister during Uribe’s first term and was Duque’s economic adviser during the campaign, could reprise the finance minister role, Capital Economics said in a note, and would be “a safe pair of hands.”
Duque has said he will curb ELN attacks on pipelines and invest in state-run oil company Ecopetrol’s refineries to allow exports of more higher-value crude derivatives.
Although Petro, a former M19 rebel, won a majority in only eight provinces and the capital Bogota, the fact that a leftist received 8 million votes, versus 10.3 million for Duque, is historic in traditionally conservative Colombia.
The fractured left has failed for decades to come close to winning Colombia’s presidency, overshadowed by right-wing contenders who promised security. Yet the FARC deal has shifted priorities for many of Colombia’s more than 50 million people.
Voters are interested in tackling inequality, corruption and inadequate social services, which could create opportunities for the left.
“If Duque is not able to get moving on his promises and see concrete results, and if he doesn’t look for reconciliation, the left could win in 2022,” said Andres Pardo, head of investment holding company Corficolombiana.
Reporting by Julia Symmes Cobb Additional reporting by Nelson Bocanegra, Steven Grattan and Dylan Baddour in Bogota and Rodrigo Campos in New York Editing by Daniel Flynn, Helen Murphy, Jeffrey Benkoe and Cynthia Osterman