Colombia's government has no immediate plans to increase sales of local or international debt

Colombia's government has no immediate plans to increase sales of local or international debt to finance reconstruction after floods left thousands homeless and destroyed roads, German Director of Public Credit, said Arce.

The initial cost for humanitarian assistance may be 1 billion pesos ($ 525,000,000), Arce said in an interview in his Bogota office. The government will decide in the coming months if the additional sales of debt is needed after assessing the damage to infrastructure and determine the costs, he said.

"We are not considering selling more debt for the first two stages, which are humanitarian and rehabilitation" of roads, bridges and other infrastructure, Arce, 38, said. The government is considering raising taxes to finance part of the rehabilitation phase, while a loan of $ 150 million World Bank will be used for humanitarian aid, said Arce.

Yields on benchmark peso bonds pared losses after Arce's comments. It had risen this week on speculation that the government can issue more debt to finance the local costs of recovery, and the concern that the worst rains in 30 years would increase food prices and add to inflation. The rains in recent weeks caused flooding and landslides, killing nearly 200 people, destroying roads and damaging crops such as coffee.

2011 Financing Plan

11 percent by 2020 bond fell 0.39 cents to 122.604 centavos per peso at 3:02 pm, New York. Declined as low as 122.298 cents earlier in the day. The yield rose 5 basis points, or 0.05 percentage point to 7.59 percent. The peso strengthened 1.4 percent, the biggest daily gain since May, to 1881.85 per U.S. dollar.

Arce said that the Treasury will not announce changes in its financial plan for 2011 this month. The country aims to sell 28 billion of bonds in the local market next year, 18 billion pesos of which will be sold at auction. Also plans to issue 2.24 billion U.S. dollars in foreign bonds next year.

The ministry in January is likely to issue bonds indexed to inflation in the longer term, known as TES UVR, and sell new fixed rate bonds, known as TES, said Arce.

In its last auction of this year, the Ministry of Finance sold TES bonds maturing in July 2024, June 2016 and April 2013 and TES UVR by February 2023 and May 2017.

New peso bonds

Colombia plans to have at least three "hot spots" in the TES and TES UVR curves in order to have reference points in the medium and long-short, he said.

"We need a benchmark and UV radiation," said Arce. He said the government is likely to replace at least two of the three TES bonds sold this year.

"This is something we are currently discussing with market makers, but the idea is to start the new year with new references," Arce said.

Maple also said he is considering holding a "couple" debt swap in 2011.

From next year the government plans to reduce the amount of bonds in dollars in the short term, known as TCO, gives back to the levels that were sold before the sale of debt increased in October. The increase in emissions between October and December TCO was performed to compensate, in part, by the dollars that the government maintains abroad this year to facilitate the concentration of weight.

Echeverry said Oct. 29 that the government keep $ 1.5 billion abroad "at least during the first months of 2011" instead of bringing money to Colombia and its conversion to pesos.

Flood

Finance Minister Juan Carlos Echeverry, said yesterday that the cost of repairing damage to roads and aid to victims of heavy rains could surpass 4 billion pesos. The government said the above average rainfall last until the first quarter.

Colombia, the second largest producer of Arabica coffee, will see its fall in crop production by at least 7.6 percent next year as the rain hurts plant growth, Hector Falla, executive director of the province of Huila, the nation growing area's second largest, said last week. The National Federation of Coffee Growers also said that production will decline, without giving a figure.

Chairman Juan Manuel Santos, declared on 7 December economic and social emergency that will enable the government for the next 30 days - extendable to 90 days - to find new sources of income. Options include raising taxes or issuing more debt, according to Andrew Brown, chief analyst at the Corporación Financiera Colombiana SA in Bogota.

Deficit Outlook

Consumer prices rose 0.19 percent last month, nearly double the median forecast of an increase of 0.10 percent of the 20 economists surveyed by us. Correval SA brokerage said in a report Monday that monthly inflation expected to accelerate to 0.3 percent in December due in part to food prices.

Annual inflation accelerated to 2.59 percent in November, within the central bank's target this year from 2 to 4 percent.

Colombia hopes that the central government deficit reduced to 4.1 percent of gross domestic product in 2011 from 4.3 percent this year. The consolidated budget deficit was reduced to 3.2 percent of GDP next year from 3.6 percent last month said Echeverry.

Both Moody's Investors Service and the rate of Standard & Poor's Colombia one level below investment grade with a positive outlook.