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Wednesday, February 1, 2023

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Foreigners ignore electoral risk and buy Colombian debt

Foreign investors are re-entering Colombia’s peso debt market, shrugging off the risks that Gustavo Petro, a candidate who wants to overhaul the nation’s economic model, could be elected president this year.

In February, foreign funds — which hold around a quarter of Colombia’s local debt — were net buyers of 1.6 trillion pesos ($423 million) of local government bonds known as TES. It is the largest amount recorded in six months, according to data from the Ministry of Finance.

Colombia is very attractive, there is no bond that pays higher interest with that credit rating”, said Ana Vera, chief economist at IN ON Capital, based in Panama, by telephone. “The polls still show a high percentage of people undecided about the vote for president, so they do not take it for granted that the leftist candidate Gustavo Petro can win.”.

Foreigners currently own approximately 100 billion pesos in these bonds, equivalent to around 8.5% of gross domestic product (GDP), according to a tweet from the director of Public Credit, Cesar Arias.

Colombia lost its investment-grade status last year after the pandemic sent fiscal deficits soaring, with government debt rising to more than 60% of GDP.

Senator Gustavo Petro, a candidate who has promised to stop oil exploration and tax the wealthiest, is leading in major polls ahead of the May 29 election.

Last month, Bank of America Corp raised its recommendation for foreign debt from Colombia to overweight from underweight, citing a more competitive presidential race and estimating that “bonds are already trading in significant fundamental deterioration”.

The peso has advanced 8.6% against the dollar during the last month, the best performance among the main emerging markets.

Source: Gestion

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