Analysis: Santos to inherit tricky Colombia-Venezuela feud

BOGOTA (Reuters) - Colombian President-elect Juan Manuel Santos will inherit a feud with neighbor Venezuela when he takes office next month, but he is expected to work to mend ties with Caracas to salvage strategic bilateral trade.

Santos, viewed as more pragmatic than outgoing President Alvaro Uribe, will try to balance Colombia's proactive security policy -- which touched off Venezuelan President Hugo Chavez's decision to break bilateral ties on Thursday -- with the need to restore the vital commercial relationship, analysts say.

Uribe triggered the latest fight with his long-time leftist foe Chavez when he accused Venezuela of sheltering outlawed Colombian guerrillas. Chavez responded by cutting diplomatic relations and declaring an alert on the border.

Santos, who served as defense minister under Uribe, will assume the presidency on Aug 7. He is just as conservative as his former boss, once describing himself as a "war hawk" and saying that he and Chavez were like "oil and water".

But, mindful that Colombia's close alliance with the United States risks isolating it in a region of left-leaning governments, he has called for dialogue with neighbors while Uribe fires his final diplomatic shots at Chavez.

The outgoing president, born into a tight-knit farming community, has based his career on defeating the guerrillas who killed his father in a 1980s kidnapping attempt.

Santos, from an elite Bogota family, is known for a more cerebral style.

"Santos is a pragmatic politician who knows that it will be very important to reestablish relations with Venezuela for economic reasons," said Jimena Blanco, Colombia analyst at The Latin American Newsletters in London.

"It is also in his interest to reverse the diplomatic isolation that Colombia has experienced under Uribe."

Uribe says he has evidence showing drug-running Colombian guerrillas are camping out openly in Venezuela's jungles, where Bogota alleges they are free to regroup and plan attacks.

His approach during his eight years in office has been to address security concerns first, as a condition for trying to improve ties with Chavez. Santos leans toward trying to improve relations as a way of tackling the security issue.

"It will be a slow process, but the next government will put a high priority on re-establishing ties with Venezuela," said Bogota-based security analyst Alfredo Rangel.

Santos, who won this year's election on the back of Uribe's high popularity, inherits a country much safer than when Uribe first took office in 2002. A U.S.-backed security push has battered Colombia's four-decade-old insurgency.

FRESH START?

Venezuela used to be Colombia's second biggest trade destination after the United States. But Chavez shut down commerce last year in protest at a deal between Washington and Bogota allowing increased U.S. use of Colombian air bases.

In the first five months of 2010, Colombian exports to Venezuela plunged 71 percent, and the European Union became Bogota's second biggest commercial partner.

The stagnation of cross-border business -- which totaled more than $7 billion in 2008 -- has slowed Colombia's recovery from the global doldrums of 2009, and increased unemployment.

"Santos will try to make a fresh start, but will be hamstrung by Uribe's latest bomb and perhaps more importantly, Chavez's desire to keep playing the Colombia threat card at a time when he is under growing criticism at home," said Patrick Esteruelas, an analyst with the Eurasia Group in New York.

Venezuela's economy is hurting after 11 years of Chavez's state-centric rule. Local inflation is about 30 percent, the highest in the Americas. As legislative elections approach in September, critics accuse Chavez of focusing attention on outside threats to distract voters from domestic woes.

TENSIONS TO REMAIN

Colombia's gross domestic product expanded 4.4 percent in the first quarter this year, despite reduced Venezuela trade.

"The decision to break ties means we will probably see further deterioration in trade with Venezuela, but that had already been factored into most economists' predictions," said Camilo Perez, chief economist at Banco de Bogota.

He sees bilateral trade at about $1 billion this year.

Chavez has said he hopes to improve relations with Colombia under Santos. But despite Santos' softer diplomatic style and as much as he wants to restart trade, the incoming leader will not ignore the threat posed by rebels camped over the border.

"Santos will try to reset the relationship," said Alberto Ramos, an emerging markets analyst at Goldman Sachs.

"But there will be deep differences between these two regimes in terms of the way they look at the world, politically, philosophically and economically," he said. "We expect relations to remain tense for the foreseeable future."

(Editing by Pascal Fletcher and Mohammad Zargham)