Credit rating agency Standard and Poor’s moved up Colombia’s investment grade rating from BBB- to BBB on Wednesday, making long-term foreign investment more attractive in one of the Andean region’s fastest growing economies.
Moving in stride with the rating hike, the Colombian peso appreciated on speculation against the dollar by 0.3%, the greatest ever increase for the currency in a week, according to Bloomberg. The Colombian government in recent months has been enacting measures to slow the growth of the strengthining peso in order to keep Colombian products competitive in the global marketplace.
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Finance Minister Mauricio Cardenas said in a press release that the jump in investment grade was “a milestone for the country,” and explained that the better rating would “decrease financial costs and increase the availability of resources for investment; opens the door for other Colombian issuers to improve their qualification and will result in lower interest costs for all Colombians.”
As international credibility climbs, investors will settle with lower interest rates. And lowered financing costs mean a key step for Colombia since it has begun to commit to more development projects, especially in the area of transportation infrastructure, which demand public funding.
S&P, one of the three major credit rating agencies that define the quality of investment for companies and governments around the world, changed Colombia’s grade based on reducing vulnerability to external shocks, stronger tax measures, a large domestic capital market, and a positive long-term outlook for stable growth.
The rating agency also noted that Colombia has reduced its debt to GDP ratio from 40% in 2010 down to 33%. That shields Colombia from vulnerability as well.
Though much splinters Colombian politics, its economic policy has generally been met with consensus across parties in congress. President Juan Manuel Santos’ administration has largely defied the protectionist stance believed to be best by many of its neighbors, like Brazil and Venezuela. Instead, Colombia has stuck to a set of fiscal and monetary, macroeconomic policies that have sought to reel in investment, open up to international trade, and keep its currency from appreciating against the dollar.
“Our level of international credibility is increasing,” said Finance Minister Mauricio Cardenas. “This translates into lower costs of funding for Colombia. For all Colombians.”
Sources
- Agencia Calificadora Standard & Poors aumenta la calificación de Colombia a BBB (Ministry of Finance Press Release)
- Colombian currency rises most in a week after S&P rating upgrade (Bloomberg)
- Standard & Poors increases rating to BBB (El Colombiano)