PRESIDENTIAL DIRECTIVE NO. 05 OF 2025: A STEP BACKWARD FOR LEGAL CERTAINTY IN STATE AND INVESTMENT ARBITRATION IN COLOMBIA
By Daniel Peña Valenzuela, Partner Peña Mancero Abogados
- Introduction
Over the past two decades, Colombia has emerged as a regional leader in the development of arbitration as a reliable and sophisticated mechanism for resolving commercial disputes. The adoption of Law 1563 of 2012 marked a decisive step toward harmonizing domestic arbitration practices with international standards, fostering a legal environment conducive to investment and economic growth. Arbitration has become particularly relevant in contracts involving public infrastructure, energy, and public-private partnerships, where the complexity and scale of disputes demand specialized adjudication and procedural efficiency.
This institutional progress has been instrumental in enhancing Colombia’s attractiveness as an investment destination. Investors—both domestic and foreign—value not only the substantive legal protections afforded by the law but also the procedural guarantees that arbitration offers: neutrality, flexibility, enforceability, and, crucially, predictability. In this context, the issuance of Presidential Directive No. 05 of 2025 (July 16) introduces a new regulatory framework for public entities’ participation in arbitration. While the directive is framed as a measure to improve transparency and accountability, it raises significant concerns regarding its potential to erode legal certainty and investor confidence.
- Critical Appraisal of Presidential Directive No. 05
Presidential Directive No. 05 is not a law in the formal sense, but rather an administrative instrument issued unilaterally by the Executive Branch. Unlike legislation, which is subject to deliberation, amendment, and approval by Congress, a presidential directive reflects the immediate policy preferences of the sitting administration. While such directives are legally binding within the Executive and can serve as important tools for governance, they lack the institutional counterweights and participatory legitimacy that characterize the legislative process.
This distinction is crucial when evaluating the directive’s impact on arbitration. By centralizing control over how public entities engage in arbitration—particularly through procedural mandates and restrictions on international forums—the directive imposes a top-down vision that may not reflect a broad consensus among stakeholders, including legal practitioners, investors, and the business community. The absence of legislative debate or judicial review in its formulation raises concerns about the durability and neutrality of the policy.
Moreover, the directive appears to be shaped by a political ideology that views international arbitration with skepticism, associating it with the erosion of national sovereignty or the imposition of foreign interests. While such concerns are not without historical precedent, they risk conflating legitimate investor protections with undue external influence. This framing can lead to regulatory overcorrections that undermine Colombia’s credibility as a jurisdiction committed to the rule of law and international legal norms.
It is important to recognize that legal certainty for investors does not equate to a surrender of sovereignty. On the contrary, a sovereign state exercises its authority most effectively when it creates stable, predictable, and transparent legal frameworks that foster trust and investment. Arbitration, particularly when governed by internationally recognized standards, is not a threat to sovereignty but a tool for managing complex disputes in a manner that is fair, efficient, and enforceable.
By embedding ideological assumptions into a directive that governs technical and legal matters, the Executive risks politicizing the arbitration process. This not only affects the perception of neutrality in disputes involving the State but also introduces uncertainty into the legal environment. Investors may begin to question whether future changes in administration will bring abrupt shifts in policy, thereby increasing the perceived risk of doing business in Colombia.
The directive imposes a series of procedural constraints and substantive limitations that, although well-intentioned, may undermine the very attributes that make arbitration an effective tool for dispute resolution. Chief among these is the prohibition on submitting international commercial disputes to ICSID, a forum widely recognized for its neutrality and enforceability. This restriction is justified in the directive as a means of preserving national jurisdiction and avoiding the externalization of disputes involving public interests. However, such a blanket prohibition risks sending a message of institutional retrenchment, suggesting that Colombia is retreating from its prior commitments to international legal frameworks.
It is important to challenge the underlying assumption that investor protection and national sovereignty are inherently in conflict. In fact, legal certainty for investors is not antithetical to sovereignty; rather, it is a manifestation of a mature legal system that honors its commitments and provides predictable rules of engagement. Sovereignty is not diminished by allowing disputes to be resolved in neutral forums—it is exercised through the deliberate choice to adhere to international norms and to offer credible dispute resolution mechanisms. By restricting access to ICSID and similar institutions, the directive may inadvertently weaken Colombia’s credibility as a rule-of-law jurisdiction.
Moreover, the directive introduces a highly centralized and bureaucratic process for the appointment of arbitrators, requiring multiple layers of approval from executive agencies. While oversight is necessary to prevent conflicts of interest and ensure public accountability, the current design risks politicizing the process and delaying the constitution of arbitral tribunals. This is particularly problematic in time-sensitive disputes, where procedural delays can translate into significant financial and reputational costs for both the State and its counterparties.
The directive also imposes rigid requirements on the composition of arbitrator lists, including gender quotas and prohibitions on pre-constituted panels. While the promotion of gender equity and diversity in arbitration is a laudable goal, it should be pursued through capacity-building and institutional incentives, not through inflexible mandates that may limit the parties’ ability to appoint the most qualified professionals. Arbitration thrives on party autonomy, and any regulatory framework that unduly restricts this autonomy risks undermining the legitimacy and effectiveness of the process.
- Concluding remarks
In light of these concerns, it is imperative to reconsider the regulatory approach embodied in Presidential Directive No. 05. Regardless of the political orientation of future administrations, Colombia’s arbitration policy should be reoriented toward a model that balances institutional oversight with legal certainty and procedural flexibility.
A revised directive should allow for case-by-case assessments of the appropriateness of international arbitration forums, rather than imposing categorical prohibitions. The role of oversight bodies such as the National Agency for Legal Defense should be reframed to provide technical guidance and risk analysis, rather than acting as gatekeepers with veto power over arbitrator appointments. Procedural safeguards can and should coexist with a robust commitment to party autonomy and investor protection.
Ultimately, Colombia’s long-term economic development depends on its ability to offer a stable and predictable legal environment. Arbitration is not merely a procedural tool—it is a signal of institutional maturity and a cornerstone of investor confidence. Preserving its integrity should be a priority of public policy, not a casualty of regulatory overreach.