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Colombia's Credit Rating Raised to Ba1 by Moody's

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.''

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

By Ctg Bound on Jun 20, 2008, 05:39 in Friendly Talkzone.

Ctg Bound says on Jun 20, 2008, 05:40:

Bump

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GregYohn says on Jun 20, 2008, 08:15:

Hola!

Its been almost a year since my IRA started with $8,000 & it just made $76!

Yeah! I will have made over 200,000 pesos on a personal loan of 800,000 pesos since March 15, if I can finally get repaid back! Well, so now it's been a hassle, but I am just down 100,000 pesos from receiving back my original principal not including the DOLLAR falling 100 pesos per dollar in that time.

I am ready to go and invest in Colombian bonds! They are not looking at going bankrupt anytime soon. It sure beats $76 of interest or 1% interest!

12VOIP.com gives free calls to Colombia.Greg

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rocinante says on Jun 20, 2008, 08:49:

About a month ago some ass of an analyst at Citi said Colombia's credit rating ain't going nowhere. Remember that post? I have to find it now....

"World economic indicators point to a democrat winning 2008. It will surely be Obama. Peso 1400 by November" Feb 5, 2008

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rocinante says on Jun 20, 2008, 08:51:

Thanks CTG for posting this!

Here is the Citidiot: http://poorbuthappy.com/colombia/post/citibank-thinks-colombia-is-the-...

"World economic indicators point to a democrat winning 2008. It will surely be Obama. Peso 1400 by November" Feb 5, 2008

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BillBigD says on Jun 20, 2008, 19:50:

Rocinante,
You did see the another news yesterday that msci might drop Colombia's rating? Causing the 3.3% drop.
MSCI Inc., whose equity gauges are used by managers overseeing a combined $3 trillion, will consider dropping Colombia from its emerging market classification ``unless significant improvements in the relevant capital flow restrictions are observed,'' MSCI said in a statement yesterday.

``Speculative investors are trying to anticipate that foreigners will exit'' if Colombia becomes a so-called frontier market, Marcela Giraldo, head of equities research at Bogota- based brokerage Corredores Asociados, said by phone today.

So-called frontier markets typically have less-developed economies and financial markets than emerging markets, and have more restrictions on foreign stock ownership.

Investors buying Colombian stocks and bonds with foreign capital must deposit 40 percent of the value of their purchase in cash with the central bank for six months, according to rules Finance Minister Oscar Ivan Zuluaga implemented in May.

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