Colombia’s Credit Rating Improved to Investment Grade

By: EW News Desk Team   Date: 28 June 2011

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28 June 2011

The Colombian economy received a massive boost last Wednesday, as Fitch Ratings became the third major credit rating agency this year to upgrade the nation’s investment grade – to BBB-, the minimum standard required for a country to be deemed as credit-worthy. 

"Colombia's upgrade to investment grade is supported by its track record of prudent economic policies, demonstrated resilience to external and domestic shocks, as well as the improvement in its external credit metrics," stated a press release. Fitch also applauded efforts by Colombian President Juan Manuel Santos and his government for "bolster(ing) the credibility and predictability of public finances and enhanc(ing) the country's growth trajectory.”

The news came after both other major credit rating agencies, Standards & Poor and Moody’s, had upgraded Colombia’s investment grade earlier in the year. Standards & Poor gave Colombia a similar BBB- rating, while Moody’s rated the country at Ba1 – one step below investment quality.

The Colombian peso responded to the news positively as it received a modest boost to its value. Furthermore the cost of insuring against the country’s default is likely to decrease, with premiums well below those of other higher-rated countries like Italy.

Significantly, the result also underlines the economic, social and political progress that the country has made in the past decade.

After losing its investment grade in 1999 due to an economic crisis prompted by the 1997 Asian Financial Crisis, Colombia faced a period of political and social turmoil as the country struggled to recover from a major downturn in the economy.

However, US$6 billion worth of aid from the US coupled with strong government policies enabled the country to tackle social ails such as guerrilla attacks and cocaine violence.

"What we've seen in the last two years is the recognition by international markets of greater political stability in Colombia, and the new policies by the central bank and the government to control inflation and budget deficits," said fixed-income analyst Daniel Lozano of Serfinco, a Bogota brokerage, to Reuters.

Alberto Bernal, head of research for Bulltick Financial, told CNN.com that the upgrade was a significant step for Colombia towards gaining international recognition as well as for improving conditions in the country.

"Colombia is the only Latin America country that has never defaulted on an external debt commitment," Bernal said. "The return to investment grade implies that good policies pay-off in time. Good policies, meaning policies that respect the premises of low inflation and stable business cycles, are the only ones that can consistently reduce poverty in an emerging country. "
 

Story from Reuters


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