Colombia’s benchmark IGBC stock index rose 0.25% on Monday, defying expectations that the market would be troubled by Friday’s court ruling that President Uribe cannot run for another term in office.
There were predictions that the market would fall due to the new uncertainty about Colombia’s future. Uribe has been in power in Colombia since 2002, and has overseen a dramatic increase in security in the country, increasing its attraction for investors, as well as pursuing business-friendly policies.
But on Monday, local brokerage Interbolsa said the market had already come to terms with Uribe’s departure.
“By the time we got to Friday the market had well and truly priced in new President in August,” Interbolsa said in a report. “Even the weakness last week appears to be more related to continuing concerns about 2010 [fiscal deficit] funding as opposed to politics.”
Daniel Lozano, an analyst with local brokerage Profesionales de Bolsa, told Dow Jones the court’s decision would reduce political risk by strengthening the country’s institutions.
“You cannot give a high investment grade to a country that practically depends on one person,” Lozano said. “This shows there is a good system of checks and balances in the political system, which naturally is favorable news. And it seems that is how the market is interpreting it.”
The Wall Street Journal on Friday quoted an analyst from Medellin-based Asesores en Valores as saying “It won’t be a huge fall, but I would say the market could lose 200 points or more on Monday and Tuesday.”
The IGBC index in fact closed 0.25% up on Monday, at 11,753.52 points.
The Colombian peso was also up, gaining 0.6% to reach a level close to its recent four month high of 1,908.80, reports Bloomberg.
The gains made by the IGBC index and the peso could be explained by the fact that, far from casting the future into doubt, the Constitutional Court’s decision on Friday could be interpreted as bringing to an end a long period of uncertainty in Colombia. Until Friday it was not known whether Uribe would stay in power for another term, and several candidates for May’s presidential elections could not begin their campaigns in earnest for fear of offending the president. Now the possibility of another term for Uribe has been ruled out, politics as usual can resume.
In addition to this, the decision may be perceived by markets as demonstrating the strength of Colombia’s democratic institutions, and their independence from the president.
The markets’ resilience can also be explained by the fact that Uribe’s high level of popularity in Colombia means that a number of the candidates try to emphasise their similarities to the incumbent, and have declared their intention to protect his achievements.
The current front-runner for the presidency is a close associate of Uribe, his former Defence Minister Juan Manuel Santos. He has pledged to build a “grand coalition” of Uribe supporters, to ensure that the popular president’s policies are continued after he leaves power.
“The continuity of President Uribe’s policies are at stake,” said Santos after Friday’s ruling, in a speech confirming his candidacy. “We can’t re-elect him, but let’s re-elect democratic security, social cohesion and investor confidence.”
Colombia’s Constitutional Court on Friday ruled against holding a referendum to allow Uribe to run for a third term in power, bringing to an end a period of several months of indecision, in which it appeared likely to many that the president would win his re-election bid.