Foreign ownership of Colombian bonds may prevent president from making decisions
Colombians will vote for a new president on Sunday, choosing between right-wing Ivan Duque and leftist Gustavo Petro.
High foreign ownership of Colombian domestic bonds may prevent the country's new president from making decisions that affect the Andean nation's fiscal accounts, experts said on Wednesday.
Colombians will vote for a new president on Sunday, choosing between right-wing Ivan Duque and leftist Gustavo Petro, both of whom have proposals that analysts believe may negatively impact revenue in Latin America's fourth-biggest economy.
Although front-runner Duque is the market favorite, investors have reservations about how he will replace income from planned cuts in business taxes. They are also spooked by Petro's promise to gradually replace oil and mining industries with renewable energy.
A decision fund managers deem bad for clients may encourage them to start removing some of the $25.5 billion (19.12 billion pounds) they hold in local Treasury bonds, known as TES, analysts said at an economic conference in Bogota.
Foreign portfolios are Colombia's second-biggest holders of local debt with 26 percent.
"Whoever gets (to the presidency) cannot mess with these gentlemen because they will leave, so that somehow puts some restrictions on what (the government) can do," said Munir Jalil chief economist of Citibank for the Andean region.
"That's even more than the rating agencies could potentially do...These investors don't have to wait until next year to make decisions if they feel things aren't going in the right direction," he said at a conference sponsored by the Council of the Americas and ANIF think tank.
The nation is trying to reduce its fiscal deficit to 2.4 percent of GDP in 2019 from 3.1 percent this year. If it is unsuccessful, Colombia risks a cut in its credit rating.
"Any strong changes in conditions could imply a large outflow of these portfolio resources," said Leonardo Villar, director of the Fedesarrollo economic studies center.
Whoever wins, the new president will have the challenge of reducing spending and raising revenue without increasing already high debt levels, said Moody's sovereign debt director Mauro Leos during the conference.
Colombia's total debt stood at 48.5 percent of GDP in 2017.
Leos said Moody's will take at least until March to asses proposals put forward by the new government and decide how to proceed with its rating, currently at Baa2 with a negative outlook, one notch above junk.
"One thing is electoral campaign rhetoric and another is the government's plan, and for us, the important thing is the government plan, what will be the priorities," he said