FACTBOX-Key political risks to watch in Colombia

BOGOTA, April 6 (Reuters) - A tight election race to succeed President Alvaro Uribe and a possible run-off vote in June, rebel violence, the push for investment grade and tensions with Venezuela are all points to watch in Colombia this year.

PRESIDENTIAL ELECTION

Colombia's political landscape shifted after a court barred the still popular Uribe from seeking a third term. In his two terms, Uribe took the fight to Marxist guerrillas and helped foreign investment rise to an estimated $10 billion this year, mostly in oil and mining, from $2 billion in 2002 when he first came to power. Two Uribe allies now lead in the polls to replace him, but neither has enough backing to win outright in the May vote and a June run-off looks likely. [ID:nN28219489]

Juan Manuel Santos, his former defense minister, leads polls and his U Party has the strongest position in Congress after recent legislative elections. He is also the most closely associated with Uribe's security successes. But just ten points behind him in polls is Noemi Sanin, the Conservative Party candidate who also claims to be Uribe's heir. The election of either would guarantee the continuity that investors expect in security and pro-business policies, and analysts see little impact on the Colombian peso COP=RR and local TES bonds. [ID:nN11253191] But both Santos and Sanin would face a more divided Congress now that Uribe's alliance in the legislature has splintered.

One surprise has been the rise of independent candidate and former Bogota mayor Antanas Mockus who joined forces with former Medellin mayor Sergio Fajardo. Well-known in the capital, Mockus could challenge Sanin for the second round against Santos if he keeps up momentum, analysts say. Alliance building will be key now. Santos will look to steal pro-Uribe votes away from the Conservative and Liberal parties, Sanin will try to shore up her own party and reach out to moderate Uribe supporters while Mockus will try to build on the independent vote outside Bogota. For full election coverage, click on [ID:nCOLOMBIA].

What to watch:

-- Polls showing Santos strong but the second and third place candidates in a tighter race to face him in June.

-- Splits within the Conservative Party weakening Sanin.

-- Signs of more coalition-building within the opposition to support Mockus and Fajardo.

-- Scandals in the Uribe administration that foes would use to hit at Santos.

ARMED GROUPS, DRUG TRAFFICKERS

Uribe gained the upper hand in Colombia's long conflict with major successes against the left-wing Revolutionary Armed Forces of Colombia or FARC rebels. But broad peace talks are unlikely. Under intense pressure from Uribe's security policies, the FARC has settled into hit-and-run tactics. Now the question will be how far a new government will maintain Uribe's hard-line policies. Most candidates are playing the tough line. But there is pressure to talk to the rebels a least on a deal to free hostages, and the idea of a swap of FARC-held captives for jailed rebels has become an election issue. Authorities can still score with major rebel desertions or by capturing or killing top leaders while the FARC could seek to gain more credibility by releasing some hostages or show its force by pulling off an operation such as its kidnapping of a governor in December [ID:nN2272297].

Colombia remains the world's No. 1 cocaine producer and illegal armed groups are all engaged in drug trafficking, making the government's task more complex as rebels form alliances with drug-trafficking gangs. Despite a demobilization of paramilitaries who once fought the FARC, new groups have emerged and rights groups say they are an increasing threat. Critics say the influence of illegal armed groups and traffickers on lawmakers in the new Congress is still evident.

U.S. Democrats approving U.S. aid cash and a free trade deal for Colombia will be keeping a watch on the new government for signs of improved control of rights abuses and drug corruption among troops and lawmakers, as well as more protection for union leaders and probes into their murders. [ID:nN03255043]

What to watch:

-- Major blows to the FARC's leadership.

-- A high-profile urban rebel attack to show resurgence.

-- More rights scandals marring trade negotiations; more trims in U.S. military aid to Colombia.

VENEZUELA TENSIONS

Tensions between Uribe and Venezuela's socialist President Hugo Chavez are at their worst in a long-running feud as the two clash over a Colombian plan to allow U.S. troops more access to its bases. Chavez says the plan is a U.S. threat to his OPEC nation. Trade was always a buffer between Chavez and Uribe, but Venezuela has curbed commerce and that is hurting Colombia's economic recovery. Full-blown conflict is unlikely but some analysts say they cannot rule out a limited border incident -- even by accident -- especially as elections loom. The Dominican Republic's president, Leonel Fernandez, wants to broker talks, although Venezuela's foreign minister says ties will only be renewed after Uribe leaves. Chavez will still lash out at the base plan and use it to attack U.S. influence when needed. That will continue to be a challenge for the next Colombian president [ID:nN23149923]. Santos already says he and the Venezuela leader are like "oil and water", and relations will likely stay tense or worsen.

What to watch:

-- Fernandez brokering talks.

-- Increased nationalist saber-rattling during election campaigns in both Colombia and Venezuela.

SEARCH FOR INVESTMENT GRADE

The next government will inherit the task of bringing Colombia back to investment grade rating, lost during a 1990s fiscal meltdown. Colombia has been praised for managing the global crisis and in general for fiscal policies under Uribe. Last year, Canada-based credit rating agency DBRS raised Colombia to investment grade, citing debt management, macroeconomic policy and public security gains. That pushed up the peso and local stocks. But larger rating agencies have balked so far at giving Colombia the prized rating. Colombia's finance minister says the country needs a fiscal overhaul, based on Norway's model, before it can reach the grade and to better manage its fiscal deficits.

What to watch:

-- Proposed reforms in the fiscal system under the next government. (Editing by Kieran Murray)