Referendum result might mean credit rating agencies ‘yellow card’ Colombia

The result of the referendum that would give way to the peace agreement between the Colombian government and the FARC guerrillas took the world by surprise. Most polls showed that the populace would display widespread acceptance towards the deal, however on a split decision Colombian voters decided to reject the peace deal.

The truth seems to be that investors were ready to pounce onto Colombia as soon as the peace deal got signed, but the victory of the ‘No’ meant they would have to hold back their capital.

Credit agencies, key players in determining which countries are ripe for investment, were also disappointed on the decision. And although it is still uncertain whether peace will bring big rewards to investors, rating agencies have been swift in their decision: uncertainty is bad for business.

“Some credit agencies have given us a yellow card” said Sergio Clavijo, president of the Colombian Association of Financial Institutions (ANIF).

It should come as no surprise, just as it happened in the United Kingdom once the Brexit vote was cast, in Colombia the feeling of unpredictability regarding political and economic conditions will naturally take its toll on stock prices.

Stock prices, like they did in the UK, should bounce back, it is only natural that they fluctuate in response to large political shifts. Credit ratings, however, are a more sensible issue. Once they change, it can take a very long time for them to get revised.

Credit agencies haven’t yet manifested their disillusionment by lowering Colombia’s rating, but surely they are keeping a much closer eye on Colombia’s political situation.

Juan Carlos Mora, president of Colombia’s largest bank, Bancolombia also commented on the subject, stating that “What we have to strive for, as a country, is to advance and resolve the issue of peace as quick as possible to reduce the feelings of uncertainty and allow us to keep walking our path.”

This seems to be the consensus among bankers and financial executives, the issue of peace is something that must be solved hastily. Every week that goes on in this political limbo is interpreted by credit rating agencies as another week of weakening institutions, lack of political resolve and polarization; all of which are not taken to kindly by investors.

Time is of the essence, if Colombia fails to earn the trust of rating agencies then the challenge of building prosperity upon peace becomes a nearly unsurmountable task.

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