REUTERS SUMMIT-Colombia to tweak tax rules, hunt foreign investors

Thu May 23, 2013 9:21am EDT

* Foreign participation in TES market is about 4.5 pct

* Gov't hopes tax clarification will boost foreign interest

* Official hopes Colombia reaches levels closer to Peru, Mexico

By Helen Murphy and Nelson Bocanegra

BOGOTA, May 23 (Reuters) - Colombia hopes to attract more foreign money to its local bond market when it clarifies the text of a recent tax reform that investors have criticized as over-complicated, the head of the government's public credit office said.

Congress approved an overhaul of the tax code last year that reduced duties on foreign portfolio investment to 14 percent from 33 percent. Some players have said the wording on withholding tax remains too hard to interpret, discouraging them from increasing their presence in the Treasury bond, or TES, market.

International participation in the TES market has almost doubled to near 4.5 percent in the last 18 months, and some tweaking of the tax reform wording may help increase that further, Michel Janna told the Reuters Latin America Investment Summit on Wednesday.

The clarifications, which likely will be ready within a month, may allow the government to attract additional foreign participation in the TES market and lift it closer to levels seen in Peru and Mexico, of about 15 percent, he said.

"What we see clearly is that when we compare participation of foreigners in Colombia's TES market with what happens in other countries like Mexico or Peru, we are below," Janna said in an interview at his Bogota office.

"Eventually, we believe that with modifications, we could reach levels similar to our peers."

Some 157 trillion pesos ($85 billion) worth of TES was in circulation during the year through May 3.

BORING STRATEGY

Janna, who joined the finance ministry from investment bank Goldman Sachs in February, said the government's strategy is to be "boring" as far as fiscal risk is concerned and allow investors to see what is on the cards over the long term.

"We have a strategy of debt issuance that seeks to be predictable, transparent and boring, and where clearly we are specifying over the next 30 years which securities we are going to issue, when we are going to reopen certain bonds and where we want to be in terms of the fiscal deficit."

The government may reopen an existing global bond for the remaining $600 million it has earmarked in its financing plan for this year, said Janna.

Once an investment outcast where investors feared their cash could be swallowed up by banking crises, Colombia is now attracting record foreign investment into industries and capital markets.

Decent economic growth and security advances against Marxist rebels and criminal groups have helped the country clinch three investment grade credit ratings from major Wall Street agencies.

Janna will participate in routine meetings with credit rating agency Moody's in the coming days to go over the nation's financial books. He hopes to convince it to increase its credit rating a notch to BAA2 this year.

Last month, the government rolled out a series of measures to help bolster economic growth and businesses which have struggled with a strong currency.

The plan, known as PIPE, has boosted the likelihood Colombia's economy will grow between 4.5 percent and 4.7 percent this year, said Janna, just shy of the 4.8 percent potential sought by Finance Minister Mauricio Cardenas.

"The government doesn't have a specific goal, it has a range and basically 4.5 percent is the number we can be comfortable with. We'd like to grow at 4.8 percent and the potential of the economy is 4.8 percent."

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