Investors fear that Colombia’s pension bill cause a drop in national savings as the workers abandon private pension plans and migrate to the public system, according to analysts.

(See: They are not touched: the immovable bases of the pension and labor reforms).

The pension reform proposed by President Gustavo Petro could mean around 85% of worker contributions going into the public system, which could hurt demand for local bonds and stocks.

The government has not provided clear guidance on the impact of its plans on aggregate savings, he said. Jorge Llano, vice president of market development at self-regulatory capital markets agency AMV.

In the absence of the bill, pension fund assets could reach the equivalent of about 43% by 2045, while with the reform that figure will be some 20 percentage points lower, Llano said.

The manager participated in ‘Mercado Habla Colombia’, which was held on April 12 at the agency’s office Bloomberg in Bogota. The event was also attended by Jackeline Piraján, economist at Scotiabank Colpatria; and Daniel Niño, president of the pension fund for the Colombian pilot industry, CAXDAC.

(See: Examination of the reforms I: the pension).

Petro’s proposal would create a public fund to save a part of the workers’ contributions.

The Minister of Finance, José Antonio Ocampo, said that this will create a new important player in the public debt market and will ensure that demand for local peso bonds remains strong.

«My great concern about the reform is how the operation of this fund is going to be regulated, which is going to handle very important money in the next 20 years.said Child.

«It remains, a bit still up in the air, to know how it is going to be invested and what type of profitability it is going to have,» he added.

Llano, for his part, said that it is not ideal that the government could end up running one of the main buyers of its own debt.

Colombian private pension funds have around 360 billion pesos in assets under management and owns a quarter of the $104 billion of peso-denominated government bonds.

(See: Why calculating the fiscal cost of reforms is a ‘tough nut to crack’).

risk premium The amount investors require to hold Colombian assets has fallen from the highs reached in October 2022, as the Petro administration faces pushback from lawmakers over its ambitious reform agenda, according to Scotiabank’s Piraján.

Colombian economy.

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Although the cost of insuring Colombia’s bonds against credit default will be higher than its peers in April, the nation’s bonds are still considered riskier than those of Chile, Peru, Mexico and Brazil.

Investors have been trying to gauge whether the government has support in Congress to approve its reform, which also includes changes to the health system and labor laws, with which they seek to reform Colombia’s conservative economic model.

In March, the Petro suffered its first major setback when its government was forced to withdraw a bill that sought to changes in the political system. And a high court suspended a decree seeking to cut utility bills.

(See: OECD countries support pension and labor reforms, says the Government).

«Congress and the high courts have shown that they play a key role in blocking» Some of the changes, said Piraján. Investors «they see that it is very unlikely that radical changes will happen and that, if they do, they will be very diluted«.

Colombian peso bonds have gained 18% this year, the most among its emerging-market peers, which have risen an average of 3% in the same period, according to an index of Bloomberg.

(See: Pension reform would remove 70% of the current resources from the AFPs).

Piraján predicts that Colombian instruments will continue to rise as soon as inflation shows clear signs that it has peaked, which It will allow the Banco de la República to put an end to its cycle of interest rate increases.

Bloomberg