Colombia’s Credit Rating Raised to Investment Grade by Moody’s; Peso Gains
Colombia’s credit rating was raised to investment grade by Moody’s Investors Service, matching a move by Standard & Poor’s two months earlier, as economic growth accelerates and the threat posed by guerrilla groups and organized crime recedes.
Moody’s upgraded Colombia to Baa3, the lowest level of investment grade, from Ba1. The move puts Colombia’s rating on par with Brazil, Peru and Panama. The outlook is stable. Colombia was boosted to BBB- by S&P on March 16.
“Security concerns, historically a major issue for Colombia, have not disappeared, but have been waning after several major government wins against domestic guerrilla groups,” Moody’s said in a statement accompanying its decision.
The yield on Colombia’s 6.125 percent dollar bonds due January 2014 fell 14 basis points, or 0.14 percentage point, to 5.52 percent at 2:41 p.m. New York time, according to Bloomberg prices. That its lowest level on a closing basis since November. The peso jumped 1.1 percent to 1,788.85 per dollar while the IGBC stock index rose 1 percent to 14,537.90.
Colombia recovered its investment-grade ratings from Moody’s and S&P 11 years after it was cut to junk when insurgent violence and a banking crisis helped trigger six straight quarters of economic contraction between 1998 and 1999. Fitch Ratings rates Colombia’s foreign bonds BB+, one level below investment grade.
Following the upgrade by S&P, a second investment-grade rating was needed by either Moody’s or Fitch for Colombian assets to be included in most investment-grade portfolios.
“We will probably see new money coming into Colombia,” Donato Guarino, a strategist at Barclays Capital Inc., said in a phone interview from New York. “There is marginal upside for Colombia dollar bonds as the passive index tracker investor demands more” Colombia securities, he said.
Following the peso’s jump today, Finance Minister Juan Carlos Echeverry told reporters that Colombia will continue to monitor gains in the currency and said the government “has tools” to ease gains.
Colombia has cut its homicide rate by almost half since 2002, when former President Alvaro Uribe took office, and boosted investor confidence by cutting debt levels, maintaining stable inflation and increasing economic growth.
The nation grew at its fastest pace in three decades in 2007 and attracted a record $10.6 billion in foreign direct investment in 2008. The government expects the economy to grow as much as 6 percent this year, while forecasting foreign direct investment to reach $8 billion this year.
Hernando Jose Gomez, the head of Colombia’s National Planning Department, told reporters today that the upgrade will likely help foreign direct investment rise to $14 billion by 2014.
A bill known as the fiscal rule, that seeks to reduce debt, limits spending and helps ease gains in the peso by creating a stabilization fund abroad is currently being discussed in Congress. The measure is scheduled for a vote before the current session of Congress ends in June.
President Juan Manuel Santos has said Colombia will have a balanced budget by the end of his term in 2014. The government forecasts the central government will have a budget deficit equal to 4.1 percent of gross domestic product this year, up from 3.8 percent in 2010, while the consolidated budget deficit will widen to 3.5 percent, up from 3.2 percent last year.
The upgrade comes a day after the Peruvian, Chilean and Colombian stock markets began integrated trading, the first such arrangement between bourses in Latin America.
The move will further spur investment in Colombia from the combined pool of savings in Chilean and Peruvian pension funds, said Camilo Rubiano, head of research at brokerage Afin SA.
“We’ve recovered the world’s confidence -- they see us in a better light after all the violence we lived through,” Rubiano said, “We’ve done our homework on fiscal policies and we’ve protected ourselves against global risks.”
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