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Colombia's Credit Rating Raised to Ba1 by Moody's (Update2)

From Bloomberg.com

Colombia's Credit Rating Raised to Ba1 by Moody's (Update2)

By Andrea Jaramillo

June 19 (Bloomberg) -- Colombia's foreign credit rating was raised to within one level of investment grade by Moody's Investors Service as the fastest economic expansion in three decades lures capital and narrows the budget deficit.

Moody's raised the rating to Ba1 from Ba2, putting Colombia on the verge of regaining the investment-grade rating it lost in 1999. Moody's said its outlook on Colombia's rating is stable.

Colombia's economy expanded 7.5 percent last year, the most since 1978, as President Alvaro Uribe's crackdown on guerrillas and drug traffickers boosted investor and consumer confidence. The expansion has buoyed tax receipts, helping pare the government's net debt to 28 percent of gross domestic product last year from 48 percent in 2002, the year Uribe took office.

``The dramatic progress with respect to Colombia's once- precarious security situation has spurred a sustainable recovery in domestic demand and generated a virtuous cycle that has significantly improved debt dynamics,'' Moody's senior analyst Alessandra Alecci said in a statement.

Uribe has taken advantage of a five-year rally in the peso to pay down dollar debt and make the country's finances less vulnerable to declines in the currency. Colombia's foreign debt fell to about 28 percent of total debt last year from 52 percent in 2002, according to the Finance Ministry.

`Terrific News'

The government forecasts it will have a budget deficit equal to 1.4 percent of GDP this year, less than half the deficit of 3.6 percent of GDP in 2002.

Foreign direct investment in Colombia rose more than fourfold to $9.03 billion last year from $2.13 billion in 2002.

The average yield gap on Colombia's dollar-denominated bonds over U.S. Treasuries narrowed 9 basis points, or 0.09 percentage point, today to 1.72 percentage points, according to JPMorgan Chase & Co.'s benchmark emerging-market debt index.

``This is terrific news,'' said Arthur Byrnes, who manages $1 billion at Deltec Asset Management in New York. ``The government has done a great job and I'm glad that's being recognized.''

The peso slipped 0.5 percent today to 1,677 per dollar. It has soared 20.5 percent this year and 69 percent over the past five years.

The increase puts Colombia's rating from Moody's on par with Brazil's rating. Brazil, Latin America's biggest economy, has higher ratings, though, from Standard & Poor's and Fitch Ratings. Both those companies boosted Brazil to BBB-, the lowest investment grade rating, in the past two months while Colombian debt is rated BB+, one level below investment grade.

Capital Controls

Government-imposed capital controls, aimed at slowing capital flows that are driving up the peso, will hurt Colombia's chances of getting an investment-grade rating, said Benito Berber, a strategist at RBS Greenwich Capital Markets in Greenwich, Connecticut.

The Finance Ministry last month raised deposit requirements on new portfolio investment in the country, such as the purchase of bonds and stocks, to 50 percent from 40 percent. Foreign investors must make the deposit with the central bank for six months, or pay a fee. The ministry also said on May 30 multinationals will be required to keep foreign direct investment in Colombia for a minimum of two years.

Moody's ``upgrade is a testimony to Colombia's progress in terms of fiscal prudence,'' said Berber. ``But as long as capital controls are in place, the chances of investment grade are greatly diluted.''

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1 at bloomberg.net

Last Updated: June 19, 2008 17:36 EDT

Link to Article: http://www.bloomberg.com/apps/news?pid=20601086&sid=aherA87vhGUg&refer...

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Regards,

Plato

By Plato on Jul 2, 2008, 11:49 in Friendly Talkzone.

BillBigD says on Jul 2, 2008, 13:34:

OLD NEWS

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LDW says on Jul 2, 2008, 13:43:

Maybe it's old news, but it's good news.

The rescue of those hostages will not hurt Colombia's credit rating either. Hugo Chavez must be crying in his beer right about now.

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Plato says on Jul 2, 2008, 14:53:

Good point LDW. This is VERY big, Colombia's credit rating and the hostage rescue within a couple of weeks of each other. Awesome!

Plato

The hottest places in hell are reserved for those [liberals] who, in time of great moral crisis, maintain their neutrality.--Dante Alighieri, (1265-1321)

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