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Over the last decade Colombia has been transformed from a conflict-ravaged and seemingly lawless nation to one of South America’s most stable governments. Relationships with the US and other superpowers have strengthened considerably as the South American nation’s presence on the global stage has increased. Drug cartels and leftist guerrillas have seen their influence and operations pummeled by tough government policies. And the Colombian economy has experienced tremendous growth, benefiting from a commodity boom and sound policies that stimulated growth.

The man responsible for much of this progress is Alvaro Uribe, the rancher-turned-president who has run the country for the last eight years. As Colombians prepare to head to the polls this Sunday to elect Uribe’s successor, the country’s political and economic future is very much in doubt. The leading candidates, who are locked in a too-close-to-call race, are polar opposites in many ways. Juan Manuel Santo, a candidate from Uribe’s party and former head of finance and commerce ministries, is seen as a safe choice and continuation of Uribe’s administration. Jose de Cordoba writes:

On the other side is Green Party candidate Antanas Mockus, a philosopher-turned-politician who served two terms as mayor of Bogotá and who sports a prophet-type beard. But some wonder if the famously eccentric Mr. Mockus, who once showered with his wife on live TV to show residents how to save water, can handle the tough cast of characters that still lurk in the country’s jungles.

The two candidates are similar in many categories on investors’ report cards. Both are pro-US and generally seen as market-friendly, and both have pledged to continue the assault on the Revolutionary Armed Forces of Colombia, or FARC. Although the insurgency group has been weakened considerably in recent years, it still maintains about 8,000 fighters, and flexed its muscle last week by killing nine Colombian soldiers in an attack on a marine patrol.

Colombia ETF in Focus

The selection of the next Colombian president could have immediate and significant economic ramifications. Uribe currently serves as the leader of a seven-member central bank board responsible for setting interest rates and other high level economic policies – akin to president Obama also taking on the duties of Fed chairman Ben Bernanke in the US. Moreover, Colombia’s economic future depends heavily on the resolution of a diplomatic dispute with Venezuela, formerly the second-largest trade partner. Trade with Venezuela collapsed last June following a dispute over the presence of the US government in Colombia. According to the national statistics agency, exports to Venezuela were down nearly 70% in March from the same period a year earlier.

Elections in emerging markets often have a significant impact on local stock markets, especially when key races are tight as voters head to the polls. Last year, India’s stock markets surged more than 20% in a single session following the election of the pro-business Indian National Congress. With the major candidates running neck-and-neck in Colombia at a pivotal point in the country’s economic development, the results from this weekend could give the Global X/InterBolsa FTSE Colombia 20 ETF (NYSEARCA:GXG) direction in coming sessions.

GXG tracks the FTSE Colombia 20 Index, a cap-weighted benchmark that consists of the largest and most liquid stocks in the Colombian stock market. Like many emerging market ETFs, GXG gives its largest weightings to financials and energy companies; these sector make up about 60% of total holdings. Despite the adverse impacts of the Venezuelan trade standoff, the Colombia ETF has been one of the best performing equity funds in 2010; GXG is up more than 12% on the year.

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Source: Colombia ETF in Focus Ahead of Tight Election