Tuesday, September 28, 2021

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A new report from the U.S. State Department finds that Colombia offers relatively favorable conditions for foreign direct investment (FDI) here – even though some regulatory areas still need updating or improvements.

The new U.S. report – just one of dozens analyzing the relative strengths/weaknesses for FDI in 170 nations globally – notes that Colombia stands above most nations thanks to Free Trade Agreements with the U.S., Europe, Canada, Israel and many other countries, along with regulatory frameworks “that give stability to business,” as noted in a subsequent analysis from the Colombian-American Chamber of Commerce (AmCham-Colombia).

However, “there are pending issues to overcome in matters of intellectual property and non-tariff barriers for businesses,” AmCham cautioned.

The report “indicates that, based on the World Bank's Doing Business, in the [Latin America] region only Chile and Mexico surpass Colombia in the conditions for foreign investment,”| AmCham notes.

What’s more, “between 2018 and 2019, the flow of foreign investment to Colombia increased by 25.6%, of which about a third in was allocated to the extractive sectors [oil-and-gas, mining] and another 21% to professional services and finance in 2019.”

“Historically, the United States has been the main foreign investor in Colombia,” added María Claudia Lacouture, AmCham-Colombia executive director.

“There are currently about 450 U.S. companies in Colombia that generate just over 100,000 direct and indirect jobs. The State Department document contributes to the generation of confidence so that the presence of these companies in the country increases,” she added.

“The report highlights the improvement of security in metropolitan areas, the existence of a market of 50 million people and an abundance of natural resources along with a growing, educated middle class,” AmCham notes.

“Legal and regulatory systems in Colombia are consistent with international standards, as well as a broad legal framework for companies and FDI,” the group added.

The full U.S. State Department report on Colombia is available here: https://www.state.gov/reports/2021-investment-climate-statements/colombia.


Colombia President Ivan Duque announced this morning (July 23) that the U.S. government is shipping yet another 3.5 million doses of free Covid-19 vaccine to Colombia on Sunday, July 25 -- on top of 2.5 million doses earlier donated by the U.S. to Colombia last month.

This makes the U.S. government by far the biggest donor to Colombia in Covid-19 humanitarian aid.

According to the U.S Embassy in Bogota, the 6 million Covid-19 doses alone are worth US$52.5 million, while other forms of aid to Colombia this year to help confront the Covid crisis now total US$122.7 million.

To date, Colombia is the biggest single beneficiary of Covid-19 relief aid from the U.S. in the entire Latin American region, according to the Embassy.

Commenting on the new batch of 3.5 million Moderna vaccines coming to Colombia, President Duque stated: “We thank this gesture of solidarity by U.S. President Joe Biden with the Colombian people, which ratifies the strong relations between our countries.”

Meanwhile, Colombia just opened Covid-19 vaccinations to all residents 30-to-34-years-old, having earlier launched massive vaccination campaigns for various cohorts among those 35-years-and-older.

With Colombia already having surpassed more than 24 million vaccinations as of July 21 -- and 10 days of continuing vaccinations coming during the remainder of July -- the nation likely will have far surpassed its goal of having at least 25 million vaccinations by end-July, probably well in excess of 26 million.

While Colombia today doesn’t suffer so much from the sort of ignorant, hysterical, selfish,and politically bigoted anti-vaccine ideology as pushed by right-wing extremists in the U.S. – a phenomenon that ironically is infecting and killing thousands of people from the latest Covid-19 variation -- too many people here nevertheless have been lazy about getting their shots, as Health Ministry promotion director Gerson Bermont announced earlier this month.

As a result, only about 60% of people here between 50 to 59 years old here so far have been vaccinated, Bermont lamented.

While 20% of the entire Colombia population so far has been totally immunized, a lot of work remains to ensure that the 35 million of Colombia’s most-vulnerable populations are fully immunized by December 2021, he added.

As of July 20, 92.4% of those 80 years and older here have been vaccinated, along with 83% of people 75 to 79 years old, he said.

Another 82% of those between 70 to 74, plus 77.4% of those between 65 to 69, have been vaccinated, while 72.9% of those 60 to 64 also have been vaccinated, he added.


Medellin-based textile giant Coltejer revealed in separate July 15 and July 17 filings with Colombia’s Superfinanciera corporate oversight agency that it has decided to suspend production of non-woven fibers and begin a process to “reinvent” its whole business model.

“Taking into account the impact that the company has suffered due to issues related to [below-cost textiles and clothing] smuggling, the [Covid-19] pandemic and recent [violent ‘Comite del Paro’ strikes and road blockades] in the country, as of this date, the productive operation of the ‘non-wovens’ line is suspended,” according to Coltejer.

“In addition to the difficulty presented, we assume the situation as a challenge that allows us to transform the business and reinvent ourselves in response to the needs of the current market.

“The company is making every effort to resume its economic activity as soon as possible, of which notice will be given in a timely manner,” the company added.

In a follow-up filing July 17 with Superfinanciera, Coltejer revealed that shuttering the non-woven fibers production line will cut its monthly corporate-wide gross income by about COP$1 billion (US$262,000), “equivalent to 49% of current income.” Monthly profit losses from the non-woven-fibers shutdown would amount to COP$600 million (US$157,000), “equivalent to 19% of sales,” according to the company.

Earlier this year, Coltejer revealed it had suffered a full-year 2020 net loss of COP$94.6 billion (US$26.8 million), worse than its net loss of COP$24.9 billion (US$7 million) in 2019 (see Medellin Herald February 11, 2021).

Sales in 2020 also dropped to COP$74.8 billion (US$21 million), down from COP$141.9 billion (US$40 million) in 2019.

Coltejer also announced late last year (see Medellin Herald December 18, 2020) that it decided to abandon its pioneering textile factory in the southern Medellin suburb of Itagui, shifting its remaining operations to Rionegro, Antioquia -- and selling the Itagui properties.

In line with that shift to Rionegro, Coltejer announced today that it signed a commercial administration trust agreement with Credicorp Capital Fiduciaria SA as part of its Itagui property sale contract with Actual Corp Colombia SAS and Constructora Capital Medellín SAS. Coltejer simultaneously obtained a new loan from affiliate Coltejer Comercial SAS totaling COP$300 million (US$78,600), the company added.


EPM general manager Jorge Andrés Carrillo Cardoso announced July 14 that the latest capital cost estimate for the 2.4-gigawatt “Hidroituango” hydroelectric dam in Antioquia now stands at COP$18.3 trillion (US$4.8 billion), up COP$2.1 trillion (US$550 million) from the prior estimate.

On the positive front, Hidroituango has now recuperated physical setbacks suffered in April 2018 when a diversion tunnel collapse flooded and wrecked costly infrastructure in the machine room.

As a result of recovery work, Hidroituango is now 84.3% complete -- the same percentage of completion as just prior to the diversion-tunnel collapse three years ago, Carrillo said.

“This increased investment [for the recovery work] will be financed mainly with the internal generation of funds and the divestment plan in subsidiaries where EPM has no control,” according to EPM.

The first two generation units at Hidroituango will come online “in the second half of 2022 and the six units remaining between 2023 and 2025,” according to the company.

In a special visit to the site yesterday, Colombia President Ivan Duque added that EPM aims to start-up the very first Hidroituango power turbine “by June 2022 and, if we continue successfully with the schedule, we will have the second one around November 2022.”

Thanks to project recovery, “the cash flow [generated from electric power sales] between the years 2022-2061 continues to have a positive incremental Net Present Value (NPV) and an incremental Internal Rate of Return (IRR) higher than the cost of capital,” according to EPM – contradicting claims made by several project critics, including former Antioquia Governor Luis Perez.

Once fully operational at 2.4-gigawatts capacity in 2025, “the new plant will generate an average of 13,500 gigawatt hours per year [GWh/Year], with which it is expected to obtain commercial net revenues of between COP$1.5 trillion [US$394 million million] and COP$1.7 trillion [US$446 million] per year from 2025, depending on market conditions and prices,” according to EPM.

The hydroelectric plant will account for 17% of the entire nation’s power capacity, by far the single largest. Because of its zero-emissions status, Hidroituango also will provide a “significant contribution to compliance with the emission reduction commitments assumed by Colombia in the Paris agreements,” according to EPM.

“In times of drought, the new plant will substitute energy equivalent to a 750-MW thermal plant, with lower costs and cleaner energy,” the company added.

What’s more, under conditions of its tariff agreements, Hidroituango operation “will not have an impact on the rise in electricity rates, because in Colombia we are facing a competitive market,” the company added.

“With the financial strength and credit confidence of the EPM Group, the positive advances in the management of claims to insurers and reinsurers for contingencies, the internal generation of funds and the divestment plan that EPM's board and management are preparing to present to the Medellín City Council, in coordination with the municipal administration, we are able to leverage these new investments and the fulfillment of the schedule for the entry into operation and completion of the project,” Carrillo added.

To date, Hidroituango insurer Mapfre has paid EPM US$250 million under the “All Construction Risk” policy as well as another COP$16.9 billion (US$4.4 million) “Civil Liability” policy (which covers damages to third parties and community infrastructure resulting from the diversion-tunnel collapse) “and is advancing with the claim processes with the insurance and reinsurance companies,” according to EPM.

Commenting on the current construction work, EPM Vice-President William Giraldo Jiménez stated: “Among the most important works that are needed for the completion of Hidroituango are the recovery of the southern section of the machine room and the assembly of power generation units 5 to 8, as well as the definitive plugging of the right diversion tunnel and the auxiliary diversion gallery.”

In the northern section of the machine room, “progress is being made in the assembly of power generation units 1 and 2, with works such as concrete embedments and the installation of electromechanical equipment. At the site of units 3 and 4, demolition and clean-up tasks have already been completed,” according to EPM.

“The southern area of the machine room is used today for the unloading of oversized and extra-heavy equipment and, in turn, welding work is carried out with the assemblies of the ferrules.

“Since last December, replacement equipment has been arriving at the project to advance in the electromechanical assembly. Meanwhile, six of the 25 power transformers are already installed in place inside the cavern.

“We expect to start soon with the shielding of the pressure or vertical wells 1 and 2, an important work to strengthen these structures that lead the water from the catchments to the generation units,” the company added.


Colombia Finance Minister José Manuel Restrepo on July 13 unveiled a COP$11 trillion (US$2.9 billion) tax hike on wealthier corporations in order to expand and continue subsidies to especially vulnerable populations economically slammed by the Covid-19 crisis.

The proposal DOES NOT include any new taxes on middle-class people, nor does it boost the existing value-added sales tax (“IVA” in Spanish initials) -- which in any case mainly hits higher-income people rather than the poor. But it will boost the corporate tax rate to 35% and extend financial-sector income-tax surcharges to 2025.

The bill comes on the heels of two months of consultations with representatives of understandably frustrated social groups including poor people, workers, small-business people, students as well as Colombia’s leading business trade associations -- including ANDI (originally founded in Medellin).

It also comes on the heels of financially punishing Wall Street debt-ratings downgrades on government and corporations, which unfortunately cripple the government’s ability to finance subsidies to poor people, the working classes, small business and huge numbers of unemployed young people -- all slammed by the Covid-19 crisis.

Commenting on the new proposal, ANDI President Bruce MacMaster stated: “I must say that the business sector is going to support this effort. And it will do so with a patriotic, supportive, important, developed spirit . . . [We need to] generate economic reactivation, to generate reduction in unemployment, to generate more opportunities for Colombians and to address this [massive fiscal deficit] situation,” he added.

The bill would extend and expand existing Covid-19-triggered subsidy programs including the “Solidarity Income” subsidy (through 2022) and the "Payroll Subsidy" (PAEF) program (through December 2021), according to the Finance Minister.

The Solidarity Income subsidy expansion “would allow more than 731,000 Colombians living in extreme poverty who today do not receive any benefits from the state to start doing so for the first time. With this, the program would reach a total of 3.3 million households,” Minister Restrepo explained.

Cost of the Solidarity Income subsidy would hit COP$2.31 trillion (US$608 million) in 2021 and another COP$6.59 trillion (US$1.7 billion) in 2022, he said.

Meanwhile, extension of the PAEF payroll subsidy for the second semester of 2021 “would support about 459,000 employees through a scheme that encourages the hiring of young people between 18 and 28 years old, along with the rest of the population with incomes of up to three minimum wages,” he added. That cost will total COP$1.06 trillion (US$279 million).

“We will focus the program on small companies and will include individuals with businesses that employ at least two people,” Restrepo explained. As a result, another 55,000 employers are expected to apply for payroll subsidies, corresponding to 400,000 employees.

Meanwhile, the new tax bill would grant free tuition at public universities and trade schools for 695,000 students in the lower-income “1, 2 and 3” strata, along with “incentives and better conditions to users of ‘Icetex’ educational credits,” he said.

“With these measures and the social programs in force, the national government will reach more than 25 million Colombians who will benefit” via subsidies totaling COP$8.8 trillion (US$2.3 billion) in 2021 and another COP$8 trillion (US$2.1 billion) in 2022, he said.

The proposal also contains a government-austerity plan that aims to generate recurring savings of COP$1.9 trillion (US$500 million) between 2022 and 2032, on average. This includes a restriction starting in 2023 on personnel expenses along with reductions in travel expenses, vehicle expenses and mobile-phone expenses, he said.

Transfers of federal revenues to Colombia’s 34 departments also would be trimmed “without affecting those mandated by the Constitution, such as Social Security, public universities” and other legally mandated payments, he said.

Another provision aiming to crack down on tax evaders would boost revenues by some $2.7 trillion (US$710 million), he added. In addition, a new “georeferenced information system” would aim to “detect the real value of declared properties and allow income tax to be invoiced based on information from the electronic invoice and information reported by third parties,” according to the Minister.

Meanwhile, the existing “ICA” tax on corporations would be trimmed by 50%, but an income-tax surcharge on Colombia’s financial sector would be extended until 2025.

Once including all the new tax provisions, austerity measures and anti-evasion efforts, Colombia’s tax revenues would be boosted by COP$15.2 trillion (US$4 billion), the Minister added.


Antioquia Acting Governor Luis Fernando Suárez announced today (July 8) that the departmental government wants to swap its majority shareholding in the US$5 billion “Hidroituango” hydroelectric project for a minority share in Medellin’s electric-power giant EPM.

The proposed deal “seeks to avoid a judicial conflict that could also generate a prolonged and damaging confrontation between the main institutions in the region” -- that is, the Antioquia departmental government, EPM and the Medellin city government, as the city is the sole current shareholder of EPM.

The parties currently are involved in complicated lawsuits brought by EPM against the Hidroituango contractors, as well as counter-suits brought by the Hidroituango investor consortium. The suits potentially could financially cripple both EPM as well as the city of Medellin and the Antioquia departmental government.

Governor Suárez formally proposed the share swap via a letter to Medellín Mayor Daniel Quintero, EPM general manager Jorge Carrillo Cardozo and EPM’s Board of Directors.

“The government of Antioquia, the majority shareholder through [Antioquia development agency] IDEA in the Hidroituango [investors] society, is willing to sell its participation in [Hidroituango] to Empresas Públicas de Medellín (EPM), in exchange for a direct [shareholding] participation” in EPM, according to the letter.

EPM still would remain 100% publicly held, “as it should be and how everyone wants it to continue to be in Antioquia,” while corporate governance would remain “under the leadership of the Medellín Mayor’s Office,” according to the letter.

Governor Suárez added that the proposed deal would ensure that the Antioquia departmental government and the city of Medellin both enjoy a “fair and adequate proportion” of EPM’s profits, which currently provide nearly 25% of the city of Medellin’s annual budget.

“The minority participation of the [Antioquia] government, in addition to enabling synergies in the territory, would be a convenient reflection of the reality of a very important presence of EPM throughout Antioquia and would stimulate the strengthening of corporate governance,” the letter adds -- an oblique reference to severely compromised corporate governance as a result of Mayor Quintero’s bizarre handling of EPM’s top management and the resignation of EPM’s entire former Board of Directors last year.

The proposed shareholding swap arose because EPM, “as the constructor of the Hidroituango project within the framework of the BOOMT [build-own-operate-maintain-transfer] contract, has obligations with the Hidroituango [investor group] Society which have not been fulfilled and are the reason for several lawsuits," according to the letter.

Governor Suárez added that while he awaits a response from EPM, financial, legal and technical teams would be formed to “design the pertinent aspects and details and the future implementation” of the proposed swap.

Hidroituango construction continues apace, with the first power-output units scheduled to come on-line in late 2022 or possibly early 2023, followed by subsequent, additional power units scheduled to come on-line in 2023 and 2024. Once complete, Hidroituango would produce 2.4 gigawatts of power, by far Colombia's largest single electric producer.


Colombia’s national infrastructure agency INVIAS announced July 6 that Antioquia highway toll-booth worker Luis Fernando Álvarez Correa has just died of massive burns suffered as a result of a terrorist “protester” attack on the “Los Llanos” highway toll booth in Antioquia last month.

The 38-year-old Álvarez is just the latest of thousands of victims of the “Comite del Paro” and the “Primera Linea” strikes and blockades, both of which arose in April supposedly in reaction to a proposed tax bill that (ironically) had already been withdrawn by the Colombian government.

Colombia’s Health Minister Fernando Ruiz has estimated that thousands of Covid-19 victims here unnecessarily died as a result of “Comite del Paro” mass-spreader events, road blockades and terrorist attacks on delivery vehicles, ambulances and their drivers, which prevented the timely delivery of crucial oxygen tanks, medical supplies and patients to hospitals and clinics in many parts of Colombia.

Rather than a protest over a non-existent tax bill, the violent protests, road blockades, massive destructions and burnings of buildings, vehicles, public transport infrastructure and injuries to thousands of police and demonstrators can be seen as largely the result of cynical left-wing politicians organizing and manipulating hundreds of thousands of understandably frustrated unemployed youths who have lost their jobs because of the Covid-19 crisis – tricked by an all-too-human frailty of blaming “the government” – a government that ironically has gone deep into debt with massive subsidies to the poor and working classes to help them survive the Covid crisis.

Unfortunately, excessive force by some riot police – rather than justifiable force in reaction to certain rioting and violent blockades by protesters -- has prompted Colombia’s Attorney General to investigate and/or bring charges against at least 105 policemen so far for abuse of authority, as well as for possible culpability for 16 civilian deaths during the riots and blockades, according to the National Police.

Beyond the more than 1,000 protesters who have reported injuries during the May-to-June marches, road blockades, Molotov-cocktail attacks, shootings, burnings, lootings and destructions of hundreds of buildings, buses and private vehicles, 1,564 police also have been injured -- and three police murdered by rioters -- according to the National Police.

In addition, 24 violent protesters so far have been captured for attempted murders of police, including an attempt to burn-to-death several policemen trapped inside just one of the 121 police stations destroyed by protesters during the riots, according to the latest National Police statistics.

What’s more, the National Police have detected and reported at least 94 fake-news reports -- mainly disseminated through social media -- including cleverly edited videos that only show police attacking “innocent” protesters (and in a few cases, some nearby news reporters).

However, in some (but not all) cases, police counter-attacks often came in response to protesters throwing of rocks, Molotov cocktails, small bombs, bricks and sometimes shooting bullets at police.

But some of these violent protester attacks -- followed by police counter-attacks -- were cleverly edited-out by the fake-news propagandists, according to 94 documented cases reported by the National Police.

Several extreme left-wing politicians -- aiming to manipulate certain voters and especially naïve youth – also have reposted these fake-news videos via Tweets and Facebook pages, aiming to stir-up hatred against Colombia’s moderate-centrist, democratic government.

Fake videos also have aimed to trick some of the international news media into unbalanced “human rights violation” stories that unfortunately failed to investigate or report extreme left-wing political forces -- including the narco-communist ELN and reFARC terrorist groups, as well as Venezuelan government agents – who in part are financing and promoting this violence.


Colombia this week will surpass 20 million Covid-19 vaccinations -- and seems likely to surpass its goal of 25 million by end-July, according to latest Health Ministry forecasts.

Meanwhile, more than 1.25 million employees of nearly 6,000 private companies nationally this week are starting to get free Covid-19 shots thanks to massive investments by member-companies of Colombia’s biggest industrial-commercial trade association, ANDI (founded in Medellin).

“This is the most robust public-private alliance that has been achieved in the history of Colombia, where the national government made available its entire mechanism for the acquisition of vaccines, and companies are investing more than COP$285 billion (US$74.6 million) to reach Colombian workers and households,” ANDI President Bruce MacMaster explained.

In Antioquia, more than 150,000 workers at more than 450 member companies of ANDI are already lined-up for free, employer-paid vaccinations, according to ANDI-Antioquia director Alejandro Olaya. Among the first getting vaccinations: workers at Medellin-based utilities giant EPM, banking giant Bancolombia and clothing manufacturer Offcors, among many others.

Antioquian companies have already invested COP$40 billion (US$10.5 million) in free Covid-19 vaccines for their employees and their families, with each shot costing about COP$220,700 (US$58), including costs of Bogota-to-Medellin air transport, vaccine refrigeration and local distribution, Olaya added.

Beyond the new, private-sector vaccinations, Antioquia alone has already exceeded 2.9 million public vaccinations as of July 5, with Medellin accounting for 1.4 million of those doses.

Colombia has now moved into phase-four of its national public-vaccination campaign, offering free shots to people between 40 and 44 years old – having already vaccinated most people 45 years and older, including crucial cohorts such as front-line health workers, public safety workers and – in the next few days – the completion of vaccinations for the entire cohort of school teachers, as Colombia reopens in-person schooling July 15.


Wall Street bond rater Fitch Ratings announced July 20 that it has added Medellin-based multinational financial/insurance giant Grupo Sura and banking giant Bancolombia to a growing list of Colombian companies and municipalities suffering debt-ratings downgrades because of Colombia-wide economic problems resulting from the Covid-19 crisis.

"This decision on the part of Fitch Ratings follows a review of the average credit quality of the company's portfolio and the transitory effects that the pandemic has had on the stream of dividends obtained from its investments in the financial and related services industry," including the Suramericana insurance division and the Sura Asset Management division with its pension, savings, investment and asset management subsidiaries, Sura explained.

The credit downgrade "is supplemented by [Grupo Sura's] interests as the main noncontrolling shareholder of Bancolombia," the company added, noting that Fitch has cut Bancolombia's long-term international rating to "BB+" with a "stable" outlook.

These downgrades were a "consequence of Colombia's sovereign rating being downgraded from “BBB -to “BB +” and its effect on the country's leading bank and other financial entities," Sura noted.

 Earlier, Fitch announced a downgrading of the debt ratings of Medellin-based utilities giant EPM to "BB+" from "BBB-" and maintained its "Negative Rating Watch." 

"EPM's ratings reflect strong ownership and control by its owner, the City of Medellin ('BB+'/Stable), which was downgraded to 'BB+'/Stable from 'BBB-'/Negative," according to Fitch. "The company's business risk is low resulting from its diversification and characteristics as a utility service provider. The company's ratings also reflect its somewhat aggressive growth strategy and solid credit protection measures supported by moderate projected leverage, healthy interest coverage and an adequate liquidity position.

"EPM's Negative Watch reflects continued uncertainty regarding the closure of Hidroituango's blocked Auxiliary Diversion System since April 28, 2018, and final cost over-runs of the [US$5 billion Hidroituango hydroelectric] project," according to Fitch. "The possibility of major flooding downstream from the project exists until the diversion tunnel is closed. While the likelihood of this is remote, the environmental, financial and reputational damage to the company could be significant. Fitch's expectation is that 300-MW of the project will be online by mid-2022." 

The downgrading of EPM debt came on the heels of Fitch's similar rating cuts for Medellin-based electric-power giants ISA and Isagen as well as Medellin-based telecom-internet giant UNE-EPM (aka “Tigo-Une”), plus the city of Medellin's municipal bonds.

The corporate and municipal debt-rating cuts follow on the heels of downgrades to Colombia’s sovereign debt -- all caused by the Covid-19 crisis that triggered a huge decline in the national economy and employment, slashed tax receipts and forced massive government subsidies aiming to help the poor and working classes deal with the crisis.

Colombia’s national government had tried in early April to address this huge fiscal imbalance with a proposed tax hike on wealthier individuals and corporations.

But a clientelist-oriented Congress, which routinely hands out tax breaks to various interests in exchange for campaign contributions (as in all democratic nations) -- and left-wing politicians who cynically stoked violent protests in May and June -- weeks after the government had already discarded the tax proposal – have left the President Ivan Duque administration now trying to bring forth revised fiscal legislation, with a proposal due July 20, but carrying uncertain prospects.

Also hit by the new Wall Street debt-ratings-cuts are Colombia’s mostly stated-owned oil company Ecopetrol and its pipeline affiliate Ocensa, according to Fitch.

“The downgrade of Isagen’s and Tigo-UNE’s FC-IDRs [foreign currency issuer default ratings] reflects the cap imposed by the country ceiling of Colombia ('BBB-'), as these companies do not have substantial assets, offshore credit facilities, or cash held or generated abroad to reduce transfer and convertibility risk,” according to Fitch.

However, Fitch affirmed Isagen’s and UNE-EPM’s local currency IDRs, “which remain one notch above Colombia’s country ceiling,” according to the company.

“The downgrade of ISA’s FC and LC IDRs reflect its linkage with the Republic of Colombia, which owns 51.4% of the company. Fitch considers ISA’s two-notch differential above its parent appropriate.”

The main reason for the downgrades “reflects the deterioration of public finances with large fiscal deficits in 2020-2022, a rising government debt level, and reduced confidence around the capacity of the government to credibly place debt on a downward path in the coming years,” according to Fitch.

“Colombia’s gross general government debt-to-GDP is forecast to reach 60.8% in 2021, more than double the 30% level when Fitch upgraded Colombia back to the 'BBB' category in 2011.

“Fitch expects debt to continue to rise through 2022 and does not expect significant debt reduction over the medium term, leaving Colombia vulnerable to shocks. Fitch sees significant risks to the government’s fiscal consolidation plan, given the reliance on tax administration efforts and divestments, as well as the uncertainty of the impact of the pending tax reform,” the ratings agency added.


Wall Street bond rater Fitch Ratings announced last night (July 1) that it has downgraded Colombia’s “Long-Term Foreign-Currency” (LTFC) and local currency “Issuer Default Ratings (IDR)” to ‘BB+’ from ‘'BBB-,’' but Colombia’s debt outlook is now revised to “stable,” up from the prior rating of “negative.”

“The [LTFC] downgrade reflects the deterioration of the public finances with large fiscal deficits in 2020-2022, a rising government debt level, and reduced confidence around the capacity of the government to credibly place debt on a downward path in the coming years,” according to Fitch.

“Colombia’s gross general government debt (GGGD) to GDP is forecast to reach 60.8% in 2021, more than double the 30% level when Fitch upgraded Colombia back to the ‘'BBB’ category in 2011.

“Fitch expects debt to continue to rise through 2022 and does not expect significant debt reduction over the medium term, leaving Colombia vulnerable to shocks. Furthermore, Fitch sees significant risks to the government’s fiscal consolidation plan, given the reliance on tax administration efforts and divestments, as well as the uncertainty of the impact of the pending tax reform,” the bond rater added.

The Covid-19 pandemic caused a 6.8% GDP contraction in 2020, caused the government debt-to-GDP ratio to hit 58.3%, up from 44.7% in 2019. “Fitch now expects government debt to GDP to continue to rise over the forecast period to 64.4% of GDP by 2023,” the analyst added.

While the Covid crisis caused a big jump in unemployment along with contractions in GDP, private-sector income and government tax revenues, “the pace of [Covid-19] vaccinations is now picking up, with around 23% of the population receiving a least one jab according to Our World in Data, and unemployment has fallen to 15% as some of the hardest hit parts of the economy begin to reopen,” Fitch noted.

Following a failed tax proposal in April that aimed to tax wealthier people and corporations in order shore-up government finances and extend benefits to Colombia’s poorest populations, “Fitch expects the government to reintroduce a revised tax reform package in July 2021 when the new session of Congress commences, and is targeting a benefit of around 1.2% of GDP on a net basis,” the analyst noted.

“However, Fitch believes that the majority of the fiscal benefit will be obtained only in 2023 --given reliance on corporate income tax measures -- while the government extends some pandemic related spending such as cash transfers into 2022,” the analyst added.

However, “the passage of any reforms will be difficult to achieve given the growing social pressures, the government’s low popularity and the upcoming elections, with congressional and presidential elections scheduled for March 2022 and May 2022 respectively,” Fitch noted.

Combined with further extension of government subsidies to the poor, “Fitch forecasts central government deficits of 8.2% in 2021 and 6.9% of GDP in 2022,” up from lower amounts in the last decade, the analyst added.

If the government succeeds in selling some state assets, then fiscal deficits could be reduced, Fitch added.

In addition, “the government has outlined an updated fiscal rule to be presented with its new tax reform proposal that will include a debt anchor of 55% of GDP with a limit of around 70% of GDP,” Fitch noted.

On a positive note, “Fitch has raised its GDP growth forecast to 6.3% in 2021, up from Fitch’s previous forecast of 4.9%. Fitch sees some upside to even the revised forecast if the Coronavirus pandemic outlook improves and social protests remain subdued, albeit there is a greater than usual degree of uncertainty surrounding forecasts,” the company added.

Inflation expectations likewise look good, Fitch added.

Meanwhile, foreign direct investment (FDI) “historically has covered around 70% of the current account deficit (CAD) and Fitch expects the favorable financing of the CAD to continue during the forecast period,” the analyst found.

On another positive front, “Colombia’s external liquidity has improved markedly over the last three years as a result of the central bank’s international reserve accumulation policy,” according to Fitch.

“International reserves rose to US$58.5 billion at year-end 2020, up significantly from US$52.7 billion in 2019. As a result, Fitch’s external liquidity ratio rose to 108% in 2021 from 89% in 2019. Additionally, Colombia maintains access to a flexible credit line with the International Monetary Fund for US$12.2 billion (out of a total program of US$17.6 billion),” the analyst concluded.


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Medellin Herald is a locally produced, English-language news and advisory service uniquely focused upon a more-mature audience of visitors, investors, conference and trade-show attendees, property buyers, expats, retirees, volunteers and nature lovers.

U.S. native Roberto Peckham, who founded Medellin Herald in 2015, has been residing in metro Medellin since 2005 and has traveled regularly and extensively throughout Colombia since 1981.

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