Colombia President Roils Markets With Plans to Shuffle Cabinet

Maria Elena Vizcaino and Zijia Song
·3 min read
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(Bloomberg) -- Colombia’s currency and bonds led losses in Latin America as President Gustavo Petro said he was preparing a cabinet shakeup following a series of legislative setbacks.

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The peso slid as much as 1.8% versus the greenback to 4,592 per dollar Wednesday morning, the weakest level in over two weeks. Dollar bonds from the South American nation were among the worst performers in emerging markets, with notes due in 2041 sinking as much as 1.8 cents to 79 cents on the dollar, before paring losses, according to indicative pricing data compiled by Bloomberg. The cost of insuring the nation’s debt against default jumped the most in a month.

Investors are concerned about a cabinet shuffle after Petro said his majority coalition is disintegrating. The changes may include Finance Minister Jose Antonio Ocampo.

“Chaos that leads to uncertainty is never good,” said Thierry Wizman, a currency and interest-rate strategist at Macquarie Capital in New York.

  • Read more: Colombian Bonds and Peso Drop as Ruling Coalition Disintegrates

Here’s what others on Wall Street are saying:

Hari Hariharan, the chairman and chief executive at hedge fund NWI Management

  • “The institutional pillars in Colombia will hold. The fact that he’s offering the cabinet to resign is within his prerogative. If he were using special powers, then it’s a different conversation. He’s expressing intense frustration.”

Juan Prada, a currency strategist at Barclays

  • “Petro going on his own and managing to advance the health reform, plus political noise will be challenging for Colombian assets”

Alejandro Cuadrado, global head of FX strategy at BBVA in New York.

  • “Initial knee-jerk reaction is expected, Ocampo confirmation should limit the move; and lower prospects for reforms can eventually offset some of the higher-risk premia and potential for more persistent noise”

Jackeline Pirajan Diaz, an economist at Scotiabank Colpatria wrote in a note.

  • These “developments increase the political uncertainty since the government is struggling to find consensus, which could lead to a more radical measure calling people out to the streets”

  • “For now, we think Minister Ocampo will remain in the government, but we must wait for the changes to assess how the government’s strategy could change”

Esteban Tamayo and Laura Bertran, economists at Citigroup Inc.

  • “This more explicit break in the coalition further hinders the government’s ability to pass far-reaching reforms”

  • “The move may be read as a strategy by the president to pressure parties into voting in favor of the reform agenda, but given the insistence of party leadership to vote against, it could also also ultimately imply a shift to the left in cabinet composition”

Ramiro Blazquez, head of strategy at BancTrust & Co. in Buenos Aires

  • “We could see his reforms facing further delays, lowering the chances of structural changes in sensitive matters such as the pension reform bill.”

  • “Expect more volatility in the short term as Petro will likely take a stronger stance toward the intended reforms.”

Santiago Tellez, economist at Goldman Sachs & Co LLC

  • “General cabinet reshuffles do not necessarily imply the effective resignation of all ministers, as some are reappointed while others change posts”

--With assistance from Vinícius Andrade.

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