Colombian investors are reeling from the ouster of the man who did more than anyone else to bolster their faith in the country under its first-ever leftist government: finance chief Jose Antonio Ocampo.
(Bloomberg) — Colombian investors are reeling from the ouster of the man who did more than anyone else to bolster their faith in the country under its first-ever leftist government: finance chief Jose Antonio Ocampo.
The sudden shuffle by President Gustavo Petro sank markets Thursday. The currency slid as much 3.4%, the yield on local peso bonds rose and dollar bonds extended declines for a second day. The cost to insure the nation’s debt against default rose, as did swaps.
After some initial turbulence, the longer-term investor reaction will likely depend on whether the new minister, Ricardo Bonilla, can serve as a moderating force in the president’s administration.
Ocampo, probably Colombia’s best-known economist, had a status that allowed him to repeatedly rein in more radical proposals from officials, including Petro himself, on everything from oil policy to capital controls.
Time after time, Petro would float a controversial idea that caused bonds to drop until Ocampo walked it back. It’s less clear if Bonilla, who ran the city of Bogota’s finances from 2012 to 2015 while Petro was mayor, would take a similar approach.
“Ocampo was known to the market and had a name to protect, which gave him certain independence from the president,” said Benito Berber, an economist at Natixis. “Bonilla seems less independent.”
Ocampo’s respect for the central bank’s independence and the nation’s fiscal rule helped underpin Colombian asset prices in recent months, said Juan Pablo Espinosa, vice president of risk at Proteccion SA, one of the nation’s two largest private pension funds.
In radio interviews Thursday morning, Bonilla vowed to maintain the bank’s independence and stick to the rule, which aims to reduce the budget deficit. He added that the oil-exporting nation doesn’t need more crude exploration contacts.
“We are committed to maintaining economic stability, giving peace of mind to the market, and watching how the exchange rate behaves,” he said in one interview. “There will not be price controls.”
Analysts from Wells Fargo and Natwest Markets are saying the weakness in Colombian markets Thursday is an opportunity to load up on the country’s assets.
“The fact that the government’s congressional coalition has disintegrated should be seen as a positive for local assets, as it actually reduces the chances of significant policy shifts,” said Alvaro Vivanco, head of emerging-market strategy at NatWest Markets. “The policy trajectory is now much narrower whether Ocampo is there or not.”
Several key groups in congress ordered their members not to back the government-proposed health reform initiative, in another blow for Petro this week.
Bonilla is an economist who has taught at the National University in Bogota, among other institutions. He has also served on the board of natural gas distributor Grupo Energia Bogota SA, and most recently was head of the state development bank Findeter.
His appointment was part of a wider shake-up of cabinet ministers by Petro, who took office in August. Other cabinet changes include the ministries of health, agriculture and transport. Energy Minister Irene Velez, whose anti-oil stance has alarmed some investors, will remain in her role.
As mayor, Petro had a large turnover of staff in key positions, but he never fell out with Bonilla, suggesting that the pair have a close relationship. In his time as Bogota’s finance chief, Bonilla oversaw a drop in the city’s debt load, while Fitch Ratings praised the city’s “sound financial performance” and “conservative debt policy.”
During last year’s presidential campaign, Bonilla said in an interview that Colombia needed to boost tax revenue to simultaneously fund social programs while cutting the fiscal deficit.
Market Slump
The selloff that started when Petro asked his cabinet to resign Tuesday night, continued on Thursday. Citigroup strategists downgraded their recommendation on the country’s dollar debt to neutral from overweight as Bonilla’s appointment is a sign “Petro is radicalizing,” strategists including Esteban Tamayo wrote in a note.
“This is bad news for Colombian assets,” said Andres Pardo, a strategist at XP Investments. “Bonilla is much more aligned with Petro’s economic vision than with Ocampo’s.”
Ocampo said he will stay in the role for a few more days. The central bank is set to hold its next policy meeting Friday, and the finance minister is a voting member of the board. Goldman Sachs economists are now expecting a 25 basis-point hike amid the “highly unsettled” political and policy backdrop.
Petro has complained about the central bank’s interest rate increases in recent months. Ocampo repeatedly ignored the president’s wishes and voted for monetary tightening to curb a surge in inflation.
–With assistance from Patricia Laya, Oscar Medina and Ezra Fieser.
(Updates market moves in second paragraph, adds context starting on the 10th)
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