Colombia’s peso posted the biggest three-month rally in emerging markets on speculation the government will maintain policies supporting economic growth no matter who wins the presidential vote.
Polls before the May 25 election indicate that President Juan Manuel Santos will fail to win more than 50 percent of the vote and face a runoff against former Finance Minister Oscar Ivan Zuluaga, who opposes the peace talks the government is holding with insurgents.
Policies supporting economic growth will prevail regardless of the election outcome, according to BNP Paribas and Credit Suisse Group AG.
“Colombia has strong fundamentals and strong policies,” Nader Nazmi, a Latin America economist at BNP Paribas, said in a telephone interview from New York.
“We don’t believe that in terms of the general overtone of macroeconomic policy there will be much of a difference between Santos and Zuluaga.”
The peso jumped 7 percent since Feb. 21 to 1,910.03 per dollar as of the close in Bogota, the biggest increase among 24 emerging-market currencies tracked by Bloomberg. The currency fell 0.3 percent today, paring its gain this week to 0.8 percent, after earlier rising to 1,899.70
The economy expanded 4.3 percent last year, the fastest pace among major Latin American economies after Peru, while unemployment fell to its lowest level since at least 2000 and inflation slowed to a six-decade low.
Default Risk
Traders’ perception of the risk of a Colombian default dropped the most among major South American countries since Santos took office in August 2010. Last year, yields on the nation’s 10-year peso notes decreased to a record low as the government cut taxes on foreigners’ bond profits.
Since Santos’s term began, the peso has weakened 4.9 percent. Among regional peers, the Brazilian real tumbled 21 percent, the Chilean peso declined 7.2 percent and the Mexican currency dropped 1.3 percent.
Colombia’s central bank remains the only one among major Latin American nations to purchase dollars this year to bolster international reserves.
The peso erased its advance today after rallying beyond 1,900, a level that may spur the Treasury to intervene to avoid further gains, Eduardo Bolanos, the head analyst at Positiva, a state-owned insurance company, said in an interview from Bogota.
The currency has rallied since JPMorgan Chase & Co. said in March that it will start increasing the weighting on the local bonds on May 30.
Colombia’s five-year credit default swaps fell 28 basis points, or 0.28 percentage point, since Santos took office to 86 basis points, according to data compiled by Bloomberg.
That compares with a 7 basis point drop for Chile, a 15 basis point decline in Peru and a 37 basis point increase for Brazil.
Uribe Ally
Zuluaga, who is an ally of former President Alvaro Uribe and served as finance minister from 2007 to 2010, advocates many of Santos’s economic policies including support for free-trade agreements, a “fiscal rule” to curb government deficits and central bank independence.
If Zuluaga prevails over Santos and the three other candidates, the “biggest impact” on Colombia will be in terms of the peace process, Credit Suisse analyst Juan Lorenzo Maldonado wrote in a research report to clients yesterday.
Zuluaga has attacked Santos’s policy of holding peace talks in Cuba with the Revolutionary Armed Forces of Colombia, or FARC.
He has said he will demand a unilateral cease-fire from the guerrillas before sitting down with them and opposes any deal that would grant them immunity from prosecution or allow them seats in Congress.
“If Colombia fails to sign the peace with the FARC, there should not be a downside economic impact,” Maldonado wrote. “Colombia could be forgoing medium-term growth opportunities associated with a conflict-free country, but we do not see a downside risk to our current growth forecast.”
bloomberg.com
Polls before the May 25 election indicate that President Juan Manuel Santos will fail to win more than 50 percent of the vote and face a runoff against former Finance Minister Oscar Ivan Zuluaga, who opposes the peace talks the government is holding with insurgents.
Policies supporting economic growth will prevail regardless of the election outcome, according to BNP Paribas and Credit Suisse Group AG.
“Colombia has strong fundamentals and strong policies,” Nader Nazmi, a Latin America economist at BNP Paribas, said in a telephone interview from New York.
“We don’t believe that in terms of the general overtone of macroeconomic policy there will be much of a difference between Santos and Zuluaga.”
The peso jumped 7 percent since Feb. 21 to 1,910.03 per dollar as of the close in Bogota, the biggest increase among 24 emerging-market currencies tracked by Bloomberg. The currency fell 0.3 percent today, paring its gain this week to 0.8 percent, after earlier rising to 1,899.70
The economy expanded 4.3 percent last year, the fastest pace among major Latin American economies after Peru, while unemployment fell to its lowest level since at least 2000 and inflation slowed to a six-decade low.
Default Risk
Traders’ perception of the risk of a Colombian default dropped the most among major South American countries since Santos took office in August 2010. Last year, yields on the nation’s 10-year peso notes decreased to a record low as the government cut taxes on foreigners’ bond profits.
Since Santos’s term began, the peso has weakened 4.9 percent. Among regional peers, the Brazilian real tumbled 21 percent, the Chilean peso declined 7.2 percent and the Mexican currency dropped 1.3 percent.
Colombia’s central bank remains the only one among major Latin American nations to purchase dollars this year to bolster international reserves.
The peso erased its advance today after rallying beyond 1,900, a level that may spur the Treasury to intervene to avoid further gains, Eduardo Bolanos, the head analyst at Positiva, a state-owned insurance company, said in an interview from Bogota.
The currency has rallied since JPMorgan Chase & Co. said in March that it will start increasing the weighting on the local bonds on May 30.
Colombia’s five-year credit default swaps fell 28 basis points, or 0.28 percentage point, since Santos took office to 86 basis points, according to data compiled by Bloomberg.
That compares with a 7 basis point drop for Chile, a 15 basis point decline in Peru and a 37 basis point increase for Brazil.
Uribe Ally
Zuluaga, who is an ally of former President Alvaro Uribe and served as finance minister from 2007 to 2010, advocates many of Santos’s economic policies including support for free-trade agreements, a “fiscal rule” to curb government deficits and central bank independence.
If Zuluaga prevails over Santos and the three other candidates, the “biggest impact” on Colombia will be in terms of the peace process, Credit Suisse analyst Juan Lorenzo Maldonado wrote in a research report to clients yesterday.
Zuluaga has attacked Santos’s policy of holding peace talks in Cuba with the Revolutionary Armed Forces of Colombia, or FARC.
He has said he will demand a unilateral cease-fire from the guerrillas before sitting down with them and opposes any deal that would grant them immunity from prosecution or allow them seats in Congress.
“If Colombia fails to sign the peace with the FARC, there should not be a downside economic impact,” Maldonado wrote. “Colombia could be forgoing medium-term growth opportunities associated with a conflict-free country, but we do not see a downside risk to our current growth forecast.”
bloomberg.com
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