Moody’s Investors Service is “optimistic” on Colombia because President-elect Juan Manuel Santos plans to create a fiscal stabilization fund and enjoys “strong” support in Congress, analyst Alessandra Alecci said.
“All these factors have us optimistic about the country and we are going to be looking at it very carefully in the next few months,” Alecci said in a phone interview today from New York. “There is definitely potential for Colombia to move towards investment grade.”
Moody’s rates Colombia’s foreign debt Ba1, or one level below investment grade. It has a stable outlook on the rating. Standard & Poor’s rates the nation’s foreign bonds at BBB-, the lowest level of investment grade, and the government at BB+, one step below. Colombia is rated BB+ by Fitch Ratings.
Colombia’s peso bond rose, pushing benchmark yields to their lowest level since April 2006, on speculation an upgrade would lure more foreign investors to the country’s debt, according to Julian Cardenas, head analyst at Bogota-based brokerage Corredores Asociados SA.
The yield on Colombia’s benchmark 11 percent bonds due July 2020 fell nine basis points, or 0.09 percentage point, to 7.75 percent, according to Colombia’s stock exchange. That’s the lowest level on a closing basis since April 3, 2006. The bond’s price jumped 0.698 centavos to 122.127 centavos per peso.
‘Very Strong Support’
The peso rose the most in seven weeks, jumping 1.1 percent to 1,900.11 per U.S. dollar, from 1,920.35 yesterday.
Santos’s “very strong” support in Congress will help the South American nation pass reforms that will allow it to address a widening budget deficit, according to Alecci. Santos will take over a government on Aug. 7 that’s forecast to have a consolidated budget deficit of 3.6 percent of gross domestic product, the biggest since 2002.
Santos named former cabinet colleague Juan Carlos Echeverry as finance minister on June 21, charging him with balancing the budget by 2014. Echeverry has said the new administration will create a stabilization fund using royalties from oil and coal sales.
After Colombia’s Conservative and Radical Change parties endorsed Santos following the first-round vote, Santos has about 70 percent of backing in Congress, according to Credit Suisse Group AG.
(Andrea Jaramillo, Bloomberg)