Tuesday, 17 March 2009

Locombia? Golombia? The War-Torn Country's Occasional Fiscal and Debt Bulletin

Last Fort of Neoliberalism in the Americas!

Golombia: Consolidated Public Sector Posted 0.1 Percent of GDP Fiscal Deficit in 2008. Better Than Expected, But Does It Mean Colombia Has Fiscal Room For Salvage Package?

The government scored a goal last year. Government 1 - Market Skeptics 0. The consolidated public sector posted a 0.1 percent of GDP deficit in 2008, smaller than the 0.8 percent deficit forecast. It was narrower than the deficit posted in 2007 -- about 0.8 percent or so of GDP. The central government posted a 2.3 percent of GDP shortfall that was partially offset by a surplus at the state owned enterprises of 0.2 percent and a 1.1 percent surplus at provinces and municipalities. Does it mean Colombia can do the crazy things that Brazil is doing? NO. Eroding fiscal revenue will deprive President Alvaro Uribe of his second favourite weapon (the number 1 is violence and war) to stimulate the economy. Government 1 - Market Skeptics 1.

Locombia: New Debt Swap

The Finance Ministry will offer to swap tomorrow as much as $25 billion of peso-denominated fixed-rate TES and UVR-linked bonds maturing between 2009 and 2018 for new fixed-rate bonds maturing in 2012, 2014, and a new paper maturing in 2024. This new bond will lengthen the local curve to a 15-year maturity, lovely isn't it? Will the government be able to improve its debt profile? Probably yes, TES yields are falling considerably these days, so better prices should favour holdings of TES. Now, is it good for the long part of the curve? For those looking to play long TES bonds, yields might already be rather low. Despite the rally in the peso in the current month (almost a 7 percent gain), for those who want to be TES long with long maturities and are also active in other regional debt markets such as Mexico or Brazil, the Colombian yield compression is reaching its limits, according to an analyst. Anyways, amid the current monetary easing (markets are expecting another 100 basis point reduction in the Repo rate this Friday, the government should succeed in its attempt to revamp its debt profile.

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