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Colombia targets GDN as sovereign pares back TES issuance

Dec 2, 2013

Colombia is gearing up to issue its first global depository note to draw international investors into its local debt market, as it advances plans to curtail issuance of peso-denominated Treasury (TES) bonds next year by at least 2 trillion pesos.

Michel Janna, Colombia's head of public credit and national treasury, told LatinFinance in an interview that the sovereign could issue a GDN as soon as next year, pending an appropriate structure for dealing with the country's 14% withholding tax.

"There are a couple of banks with the idea of launching GDNs for Colombia. We encourage this: if it's done in the proper way, there will be an advantage for the local market. It simplifies the procedure for investors to tap the local market," he said.

The sovereign will consider issuing hard currency debt in the new year, though timing will depend on two events: an increase in US Treasury yields "by up to 50 basis points in the next two to three quarters" and Colombia's presidential elections in May, Janna said.

Further diversification of Colombia's funding currencies is desirable, but not imminent, he said. "It's a possibility that we could go for euro or yen transactions at some point, but not in the immediate future," Janna said.

The government is establishing a centralized treasury, where public entities with high cash balances - including the airports agency, the oil agency and the telecoms fund - will be required to deposit their excess cash, instead of in TES, as has been the norm.

"We will be managing that money and putting it in accounts in the central bank," Janna said.

The result will be a decline in TES issuance by public entities of at least 2 trillion pesos in 2014 and 6 trillion pesos thereafter. The scheme, which will be fully implemented by 2015, will not impact the TES primary market, however.

The government is seeking to reduce its total debt stock to 30.5 trillion pesos in 2013 and a further reduction of "2 trillion pesos or maybe more next year".

"This should have a positive fiscal outcome," Janna said.

In 2011 Colombia introduced a fiscal rule to reduce the structural central government deficit to 1% of GDP by 2022, from 2.4% in 2012. Since the rule's implementation, the government has met all its fiscal targets.

"The fiscal rule already forced us to have lower deficits and therefore lower debt," Janna said, noting that ratings agencies had reacted favorably to the plan to reduce total debt stock further through lower TES issuance.

The central government deficit, long at the heart of Colombia's fiscal problems, averaged 3.6% of GDP between 2001 and 2010.

The country's debt to GDP ratio stands at 33%, a sum Janna expect to reach 20% "at some point in the next decade". LF



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