ANALYSIS-Colombia and its investors face life after Uribe

By Manuela Badawy

NEW YORK, March 11 (Reuters) - Colombians vote for a new president in late May and many investors will be keeping a close eye to see if Alvaro Uribe's successor will maintain his successful economic and security policies that have won them over.

Under the hugely popular Uribe, the Colombian peso has appreciated 7.3 percent against the U.S. dollar so far this year, and has gained 26 percent in the last 12 months, while the Bolsa de Valores de Colombia has posted returns of more than 120 percent for the same period.

"You can see the strength of the Colombian peso. There is no investor concern right now. More money is going in to Colombia than is going out," said David Rolley, vice president of Boston-based Loomis, Sayles & Co., with $142 billion in assets under management.

Investors would like to keep it that way.

Little is known about the presidential candidates' positions on the country's inflexible spending policies. But what's for certain is that the next president will be faced with a fiscal straitjacket that has hindered the country's progress toward obtaining an investment-grade credit rating. The central government is required by law to send growth-indexed payments to state and local governments every year.

Colombia had been in line to be the next recipient of a high creditworthiness rating in South America, but with the global financial crisis and generous public spending, fiscal deficits have increased.

"We are viewing the next election as a mix of known and unknowns," Erich Arispe, credit analyst at Fitch Ratings, told Reuters. "We have to see what the specific proposals of the candidates are going to be, and you have the factor of time that is conspiring against that."

URIBE'S ALLY IS FRONT RUNNER

It was just two weeks ago that Colombia's constitutional court ruled against President Uribe running for a third term. The ruling eliminates longer-term fears that Uribe could increase his sway over the political process and government spending, while weakening the credibility of institutions. Uribe is credited with making the country safer by cracking down on rebels and cocaine traffickers.

With the court ruling, the election has been thrown wide open, with only three months before the May 30th vote.

Leading the presidential race is former defense minister Juan Manuel Santos, a close ally of Uribe and popular for his tough stance against the guerrillas and the success he achieved on that front as defense minister.

"However, governability going forward might not be as strong as seen under the eight years of President Uribe's presidency as few other candidates enjoy such a high level of political capital and leverage over a traditionally fractured Congress," said Alberto Ramos, senior economist at Goldman Sachs.

Colombia is likely to grow at the lower end of a 2 percent to 4 percent range this year, but collapsing exports to Venezuela should drag on the economy.

Trade with neighboring Venezuela has dropped dramatically because of a dispute with President Hugo Chavez over a Colombian plan to let U.S. troops have more access to its military bases, something Chavez, a fierce U.S. critic, sees as a threat.

Exports to Venezuela could fall off 50 percent to 80 percent in 2010. Colombia's central bank estimates the current account deficit will widen between 2.6 percent and 3.3 percent of gross domestic product this year, from a deficit of 2.2 percent of GDP the bank forecast for last year.

"Colombia is in a good situation in terms of trade. The economics story looks very good. But there is still a structural problem that must be fixed, having to do with mandated distributions to the provinces, that has been inherited from prior administrations," said Rolley of Loomis Sayles.

Even still, that has not stopped Rolley from holding Colombia securities. (Reporting by Manuela Badawy; Editing by Jan Paschal)