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Three risk rating agencies have Colombia with investment grade

Monday, June 27th 2011 - 05:26 UTC
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President Juan Manuel Santos President Juan Manuel Santos

Fitch Ratings raised Colombia to investment grade last week, becoming the third Wall Street agency to elevate the country this year to the coveted status, opening the door to a broader range of investors.

Colombia now joins at least five other countries in Latin America to earn investment-grade status from three rating agencies.

Investment-grade status implies the view of default risk as minimal. This lowers borrowing costs.

When granted by at least two rating agencies, investment-grade status unlocks potential investment by foreign funds barred from buying bonds with “junk” or speculative-grade status, such as Colombia's was before this year.

News of the widely anticipated Fitch upgrade prompted a modest rise in the Colombian peso and bonds and cut the cost of insuring against the country's default, at premiums well below those of some higher-rated peers like Italy.

Once seen as a state on the brink of failure, battered by relentless guerrilla attacks and cocaine violence, Colombia has improved security with counter-insurgency and anti-narcotics campaigns backed by 6 billion in U.S. aid since 2000.

Fitch cited Colombia's “impeccable” debt-repayment record when upgrading it to BBB-, the lowest rung on the investment- grade ladder, as well as the passage this month of fiscal reforms aimed to chop deficits and build a rainy-day fund.

“The administration of President Juan Manuel Santos has moved forward an extensive reform agenda to bolster the credibility and predictability of public finances and enhance the country's growth trajectory,” Fitch said.

Within the past three months, Standard & Poor's and Moody's also lifted Colombia to investment grade after the country's bonds wallowed in junk status for over a decade.

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