March 16 (Bloomberg) -- Colombia’s credit rating was boosted to investment grade by Standard & Poor’s, 11 years after it was cut to junk in the midst of an insurgency, as violence recedes and growth prospects improve.
S &P raised Colombia one step to BBB-, from BB+. The increase puts Colombia’s rating in line with that of Brazil and Peru. Moody’s Investors Service and Fitch Ratings rate Colombia one level below investment grade.
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 government forecasts the economy grew 4 percent last year and estimates gross domestic product will rise 4.5 percent this year.
“This is a certificate of good behavior,” President Juan Manuel Santos said in a statement on the presidential website. The rating increase “allows many companies, funds and institutions with considerable resources to invest in Colombia,” he said.
Yields on Colombia’s 7.375 percent dollar bonds due in 2019 fell 14 basis points, or 0.14 percentage point, to 4.20 percent, the lowest since Jan. 13, according to data compiled by Bloomberg.
“A lot of people expected it for a very long time,” said Alberto Bernal, head of fixed-income research at Bulltick, a Miami-based brokerage that focuses on Latin America. “I expect Moody’s to move very fast after this. They’ve been very vocal on the possibility of an upgrade coming for Colombia.”
Budget Deficit
The government forecasts the budget deficit will equal 4.1 percent of GDP this year, up from 3.9 percent in 2010.
“Deepening domestic capital markets and improving external liquidity should continue to reduce the level of vulnerability embedded in the sovereign’s debt burden,” S&P said in a statement.
Colombia lost its investment grade rating with Moody’s and S&P in 1999, when violence and a banking crisis helped trigger six straight quarters of contraction beginning in 1998.
Santos, who took office in August, and Uribe, his predecessor, have drawn investment by improving security and weakening rebel groups, including the Revolutionary Armed Forces of Colombia, or FARC. Foreign direct investment more than quadrupled in the past decade, to $7.2 billion in 2009 from $1.5 billion in 1999.
“If Santos’s policies continue to be market friendly, and if they are able to hold onto gains that have been achieved in security, there will be further upgrades,” Bernal said.
Colombia’s rating outlook is stable, S&P said.
By Boris Korby and Helen Murphy
