FACTBOX-Key political risks to watch in Colombia

BOGOTA, June 21 (Reuters) - President-elect Juan Manuel Santos' policy choices in areas such as rebel and drug violence, the push for an investment grade credit rating and tensions with Venezuela are all points to watch in Colombia this year.

SANTOS NEW GOVERNMENT

Juan Manuel Santos, a former defense minister and finance minister has won the race to succeed his former boss Alvaro Uribe. Investors are applauding the results as a sign Uribe's tough security line against rebels and his pro-business policies will continue. Santos is also in a strong position in Congress to push through fiscal reforms after securing support from the Conservative and Cambio Radical parties. Colombia's peso COP=RR rose slightly the day after Santo's victory, in part because of the win. [ID:nN21230480]

The next step is to see who the experienced technocrat names to key positions, including finance, energy, foreign and defense ministries. Santos is well-known for handpicking talented advisors. His choice for finance minister is likely Juan Carlos Echeverry, a U.S.-educated former planning minister already well known to Wall Street.

Santos will take office in August with a solid mandate after securing more than 9 million votes. But without Uribe's huge popularity, he will also have to manage his new alliances carefully to ensure he maintains his strong hand before Congress. That may involve naming some of his allies from other parties to government posts to glue together his coalition.

Santos must try to distance himself from the scandals over rights abuses and corruption that blemished Uribe's government. A probe into whether state agents illegally wiretapped Uribe's opponents, reporters and judges crept closer to the presidency without involving Uribe. More than 3 million people voted for Santos' rival in the election, Antanas Mockus, because of his appeal for clean government. Santos has to make that anti-corruption issue his own now.

What to watch:

-- Appointments to key postings such as finance, energy

-- How Santos manages his new "unity government" alliance

ARMED GROUPS, DRUG TRAFFICKERS

Uribe gained the upper hand in Colombia's long conflict with successes against the left-wing Revolutionary Armed Forces of Colombia, or FARC, rebels. Santos has promised to continue the tough line, saying "time is up for the FARC." Peace talks are unlikely in the short term. Under intense military pressure, the FARC has settled into hit-and-run tactics. On election day, seven police officers were killed in a rebel ambush.

Santos as former defense minister is well equipped to ensure continuity, adapt policy where needed and also manage relations with Washington as the White House steadily reduces military aid. 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 operations such as its kidnapping of a governor in December [ID:nN2272297] and an attack that killed nine marines [ID:nN24194130].

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 crime groups have emerged and rights groups say they are an increasing threat. U.S. Democrats who have final say over approving U.S. aid and a free trade deal for Colombia will watch 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 rights workers and probes into murders.

What to watch:

-- Major blows to the FARC's leadership.

-- Urban rebel attacks to show resurgence.

VENEZUELA TENSIONS

Tensions between Colombia and Venezuela's socialist President Hugo Chavez are at their worst as the two countries clash over a plan to allow U.S. troops more access to Colombia's military bases to help combat drug trafficking. Chavez says the plan is a U.S. threat to his OPEC nation. Venezuela has curbed trade and that is hurting Colombia's economic recovery. Some analysts say they cannot rule out a limited border incident -- even by accident. Santos calls himself and Chavez "oil and water" but says he could work with Chavez if there was respect. Venezuela has cautiously congratulated Santos, but a Santos presidency will likely keep tensions high as Chavez calls the candidate a threat and Santos says he will stop Chavez spreading his socialist revolution to Colombia. Chavez will likely still lash out at the base plan and use it to attack U.S. influence especially if his popularity at home sinks before a September election. [ID:nN28225132]

What to watch:

-- Increased nationalist saber-rattling by Chavez.

-- How Santos manages Venezuelan rhetoric.

NEW, OIL MINING INVESTMENTS

Thanks to its political stability, better security and pro-business environment, Colombia is now Latin America's No. 4 oil producer, a major coal exporter and a growing player in gold investment. Canadian companies like Pacific Rubiales (PRE.TO) and other foreign operators are making headway in exploring Colombia's once-abandoned oil fields. Risks from guerrilla attacks on oil operations remain and the country needs more infrastructure [ID:nN23202379].

But it hopes production will reach more than 1 million barrels per day next year and an oil block auction on Tuesday will measure interest. Mining is also growing, with particular interest in gold. Some companies have faced resistance in receiving environmental permits, including AngloGold Ashanti (ANGJ.J). But Canada's Greystar Resources GSL.TO recently won an appeal over an environmental permit. Santos says he wants to better manage the country's royalties and also to create an offshore savings account for boom revenues and to ensure exporters in other industries are protected from "Dutch disease," in which the manufacturing sector declines as a result of natural resources exploitation that raises the value of the currency and makes manufactured goods less competitive..

What to watch:

-- Santos policies to handle royalties in energy, mining

-- Results of June auction of 200 oil and gas blocks.

INVESTMENT GRADE

Santos, a former finance minister who once helped bring Colombia out of a fiscal crisis, says creating jobs and generating economic growth are key parts of his new government. He says he will not increase taxes but instead increase the taxpayer base to bolster state revenue to help fight the budget deficit -- one of the key reasons Colombia does not have investment grade rating. 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 so far balked at giving Colombia the prized rating. Colombia says the country needs a fiscal overhaul, based on Norway's model, before it can reach the grade. The government now says it will leave the sale of the state's share in energy supplier Isagen to Santos, opening questions over budget financing and paving the way for more foreign debt issuance. The announcement of the Isagen delay in the sale hit TES debt and the peso. [ID:nN18146934]

What to watch:

-- Santos' fiscal reform push

-- More debt sales, local or international.

-- How Santos handles Isagen sale.

(Editing by Cynthia Osterman)