Moody's upgrades Colombia's bond ratings

New York, May 31, 2011 -- Moody's Investors Service has upgraded the Colombian government's foreign- currency bond rating to Baa3 from Ba1. The outlook is stable.

The action also raises Colombia's foreign-currency bond ceiling to Baa2 from Baa3 and the foreign-currency bank deposit to Baa3 from Ba2. The outlook on both ratings is stable. The short-term foreign-currency bank deposit ceiling is raised to P-3 from NP. The Baa3 government bond local-currency rating and A1 local-currency bond and bank deposit ceilings remain unchanged.

RATINGS RATIONALE

The main reasons for the ratings upgrade are:

• Colombia's proven ability to deal with internal and external shocks, as evidenced by the government's recent economic and financial performance and the country's long history of timely debt payments. Additionally, steady reductions in the systemic threat posed by guerrilla groups and organized crime point to the ability of the state to deal with non-economic shocks over time.

• Moody's view that the country's institutional framework is well placed to deal with an expected commodities-driven revenue increase in coming years. While the ratings change is not predicated on a drop of current debt ratios, we anticipate continued fiscal and macroeconomic stability.

Colombia's general government debt level fell 10 percentage points of GDP from 2003 to 2007, and, since the onset of the world economic crisis, has stabilized at around 37%. This compares favorably with the median from Baa-rated sovereigns. The economy has also shown resilience with median GDP growth in the last decade higher than the Baa average.

Security concerns, historically a major issue for Colombia, have not disappeared but have been waning after several major government wins against domestic guerrilla groups. Moody's expects defense spending to remain high for the foreseeable future but reduced security problems will continue to bolster economic growth through greater investment.

The Santos administration is pushing for several important fiscal and budgetary reforms in its first year in office. Tax reforms were approved in December, leading to close to 1% of GDP increase in revenues. By the end of June further fiscal reforms, including rules to deal with a forecast increase in oil-related revenues, are expected to become law. Approval and full implementation of these fiscal rules would be a further credit positive for the sovereign.

PREVIOUS RATING ACTIONS AND METHODOLOGIES

The last rating action affecting Colombia was on September 9, 2010, when Moody's placed on positive outlook Colombia's foreign-currency government bond rating and the foreign-currency bond and bank deposit ceilings.

The principal methodology used in rating Colombia was Moody's Sovereign Bond rating methodology published in September 2008. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Fuente: Moody's