COLOMBIAN STOCKS LEAD WORLD IN FIRST QUARTER ON URIBE CRACKDOWN ON REBELS

Bloomberg, 31 march.- Colombia's stock market has become the best performer in the world this year as President Alvaro Uribe's crackdown on a rebel insurgency has helped lure investment and spur the fastest economic growth since 1995.

The Colombian Stock Exchange Index has risen 46 percent in U.S dollar terms, the biggest gain among 59 benchmark indexes tracked by Bloomberg News worldwide. The next best performers are the Russian Trading System Index and Peru's IGVBL index, with gains of 30 percent and 23 percent, respectively.

``Colombia is not a stock-picking market at the moment; it's a country-wide play,'' said John Ditierri, who helps manage about $9 billion in emerging-market equities at Emerging Markets Investors Corp., an Arlington, Virginia-based firm. ``Uribe is doing the right thing.''

Companies such as Bancolombia SA and Suramericana de Inversiones SA, the index's two most valuable members, have benefited from falling inflation and interest rates along with the accelerating economy.

This year's performance is a turnaround from last year, when Colombia was South America's worst performer. The benchmark rose 46 percent in dollar terms as Argentina's Merval, Brazil's Bovespa and Venezuela's General Index all more than doubled.

Positive Sentiment'

Share trading in Bogota, the home of the country's stock exchange, has surged to $7 million a day from about $500,000 a year ago.

Domestic investors seeking to boost returns after yields on treasury bills fell to historic lows are driving the rally, said Santiago Isaza, an analyst at Medellin, Colombia-based Suvalor SA, the nation's largest brokerage.

``We see very positive sentiment from national investors who believe in the economic reactivation of the country and that growth will continue to be strong this year,'' Isaza said. ``Domestic investors show more confidence than foreign investors.''

Investment in Colombian stocks from outside the country rose 7 percent, to $246 million, in January. Foreign investment in Colombian peso-denominated bonds climbed more than fivefold to $141 million, the stock exchange regulator said.

The government last week sold bonds due in May 2005 at a yield of 8.79 percent, the lowest ever at a debt auction.

Taking Control

Uribe, 51, took office in August 2002. He has bolstered confidence with an offensive against a four-decade insurgency by guerrillas seeking to topple the state, as well as paramilitary groups that protect businessmen and drug traffickers.

Security forces captured 67 middle- and high-ranking guerrilla leaders last year, according to the government. His administration has taken control of 157 of the country's 1,100 counties from armed groups. Attacks on towns plunged 84 percent and the murder rate fell 20 percent in 2003, according to the National Planning Department. Kidnappings dropped 26 percent.

The economy expanded 3.6 percent last year, and government reports point toward further growth this year. Retail sales in January rose 8.9 percent from a year earlier, the fastest pace in a decade, according to the national statistics agency.

Colombia's annual inflation rate was 6.3 percent for the 12 months through February and may be below 10 percent for a sixth consecutive year, according to the government.

Uribe has kept government spending in check. Colombia's budget deficit narrowed to 2.8 percent of gross domestic product last year from 3.6 percent the year before, and the government has forecast it will cut this year's gap to 2.5 percent of GDP.

Cocaine Legacy

Drug-related crime is also a deterrent, said Edward Bozaan, who manages $20 million for the Waterford Partners hedge fund in New York and holds Bancolombia shares.

Colombia is the world's largest producer of cocaine, supplying about 90 percent of the drug that enters the U.S., and a major source of heroin, according to the White House Office of Drug Control Policy.

Businesses in Colombia paid $1 billion in extortion and ransom payments to insurgents and criminals between 1995 and 2002, according to the country's government.

The U.S. has spent $2.8 billion since 2000 to attack the drug trade and its funding of illegal armed groups. Cultivation of coca, the raw ingredient of cocaine, has declined 21 percent from late 2002, figures compiled by the White House show.

``There is still the legacy of drug trafficking and money laundering,'' Ditierri said. ``But if things continue as they are now, there will be a lot more attention'' to Colombia's stock market.