Colombia has made "remarkable improvement" in its key indicators over the past four years, and after a ratings upgrade last month is just one notch away from joining Mexico and Chile as Latin America's only investment-grade economies, the New York-based debt ratings agency said in a statement.
 
Citing new research, S&P said "consolidation of reform could propel Colombia on a path to sustained economic growth, growing fiscal flexibility, higher exports and declining debt burden, which would strengthen creditworthiness and lead to an investment-grade rating."
 
The upbeat assessment was unable to reverse a moderate stock sell-off Tuesday, as Colombia's benchmark index fell 0.8 percent after Bear Stearns downgraded its recommendation on local equities amid concerns about inflation and an ongoing scandal linking the government to illegal right-wing militias.
 
S&P also noted that 12-month inflation accelerated to 5.78 percent in March -- above the Central Bank's target of 4.5 percent and much higher than regional peers such as Peru, Brazil and Chile.
 
Spurred by a sharp drop in violence and a wave of privatizations, Colombia has attracted a flood of foreign and local investment since President Alvaro Uribe took office in 2002. Its economy grew a record 7 percent last year.
 
As the economy has expanded, the country's debt-to-GDP burden has fallen to 31 percent, one of the region's lowest. But to reach investment-grade status, further reforms to cut spending and improve tax collection would be needed, S&P cautioned.
 
"Comparative analysis with several investment-grade peers indicates that improvement in both the fiscal and external indicators is needed to achieve further improvements in creditworthiness," said S&P credit analyst Richard Francis.
 
S&P said the trade agreement signed with the United States last year also could boost nontraditional exports such as textiles and manufactured goods. The conservative Uribe is currently lobbying the U.S. Congress to ratify the deal.
 
But Democrats on Capitol Hill have been reluctant, expressing concerns about human rights practices as well as the arrest of several Uribe allies for allegedly collaborating with illegal right-wing militias responsible for bloody massacres.