Colombian stocks and bonds will fall if market-friendly President Alvaro Uribe is barred by the courts from running for a third term next year, a ruling that would upset investors but create buying opportunities.
The conservative leader is admired by voters and market players for his U.S.-backed crackdown on Marxist rebels.
If the courts block his bid for a second re-election, investors would fret at least briefly about policy continuity and take profits on stocks and bonds that have risen this year on increased global risk appetite.
“Colombia is not a country play. It’s an Uribe play,” said Walter Molano, analyst at BCP Securities in Connecticut.
“Most investors see his re-election as a foregone conclusion. If they wake up to news one morning that Uribe will not be a candidate, there could be a big sell-off in Colombian financial assets,” Molano said.
However, the sell-off could be short lived as investors shift focus to Colombia’s list of alternative presidential candidates, most of whose policies barely differ from Uribe’s.
Uribe alternatives
Vowing to crush Colombia’s 45-year-old insurgency, Uribe has used billions of dollars in U.S. military aid to push the rebels onto the defensive, making the country safer for investment.
Recent allegations of corruption in a government agricultural program have pushed his popularity to an all-time low 64 percent just as the Constitutional Court weighs whether to strike down a bill passed by Congress calling for a referendum on allowing Uribe to run again in 2010.
The judges are expected to decide on the referendum bill early next year. The court says it will not be swayed by public opinion but some analysts say Uribe’s lower ratings could embolden the nine judges to rule against him.
Colombia has a deep bench of market-friendly politicians willing to take Uribe’s place, such as former defense minister Juan Manuel Santos, who places a distant second to the president in some polls.
But this might not stop prices from diving if the bespectacled incumbent is barred from running again or decides not to in the face of rising concern that another term would throw off Colombia’s democratic balance of powers.
“The initial market reaction would be negative because it would create a period of uncertainty,” said Alberto Ramos, who analyses Colombia for Goldman Sachs.
“If the market dips too much, it might create a buying opportunity because someone else will likely step in who looks a lot like Uribe in terms of policy formulation,” Ramos said. “Any viable candidate would have to endorse a very similar platform to Uribe’s.”
Chavez factor
Another factor is the diplomatic crisis with neighboring Venezuela, where leftist President Hugo Chavez caused a stir on Sunday by telling his army to get ready for war with Colombia.
The tensions have cut down on bilateral trade and could help spur selling should Uribe be kept from running again.
“If there is any sort of military problem with Venezuela, investors would not want Colombia to change its leadership in the middle of that,” said Bertrand Delgado, senior economist at RGE Monitor in New York.
Chavez says a military cooperation deal inked in October by Washington and Bogota could set the stage for a U.S. invasion of Venezuela from Colombian territory, a claim that the United States and Colombia dismiss.
The market has so far disregarded Chavez’s war rhetoric.
This week, the price for Colombia’s benchmark global bonds due 2020 have edged higher to a bid price of 144.68 , and a yield of 5.88 percent. In the last year the bonds have recovered ground lost in the depths of the global economic crisis as recovery scenarios take shape.
Vote-getting
Uribe remains the most popular politician in Colombia.
No other candidate has come close to replicating the connection with voters that has defined Uribe. His father was killed in a botched rebel kidnapping in 1983 and he has come to personify the fight against the widely-despised guerrillas.
The president has nonetheless been stung by allegations of corruption in his government.
The agriculture minister is fighting a movement in Congress to have him fired over a scandal in which millions of dollars in subsidies were, according to the opposition, improperly weighted toward Uribe campaign contributors.
A beauty queen and former Miss Colombia was offered one of the agricultural subsidies despite not owning any farmland. (Reuters)