Key Points
The Colombia debt strategy that stunned markets last year is now being dismantled at speed. Public credit director Javier Cuéllar confirmed that the government has begun unwinding a $9.3 billion total return swap in Swiss francs, with the goal of closing the operation entirely before May’s presidential election — two months ahead of schedule, The Rio Times, the Latin American financial news outlet, reports.
How the Colombia Debt Swap Works
The mechanics are complex but consequential. Colombia exchanged 7.5 billion Swiss francs for $9.3 billion with a consortium of international banks, using the dollars to build a portfolio of sovereign bonds — TES in pesos, TCO short-term notes, and global dollar bonds — as collateral. The structure functioned as a massive balance-sheet maneuver: borrowing in one currency to retire and restructure debt in others.
As the swap unwinds, the bonds pledged as collateral are being cancelled from public debt rather than returned to the market. Cuéllar told Bloomberg that this process alone will reduce Colombia’s gross debt by approximately $28 billion on paper — a dramatic improvement to headline indicators that matters enormously in an election year.
The Numbers Behind the Claim
Colombia redeemed 20% of the swap earlier this week and is preparing to pay off an additional 15% in coming days. Cuéllar estimates the local-currency portions will generate profits exceeding $400 million, with total savings — including fiscal benefits — reaching $3.7 billion. He said he already has the dollars in hand and is simply waiting for the optimal market window.
The swap was the centerpiece of an unconventional debt strategy that also included a $6 billion private placement of peso bonds with a foreign investor, the first eurobond issuance in nearly a decade, and aggressive buybacks of both local and global bonds. Cuéllar confirmed there will be no further swap operations before the current government ends.
Pre-Election Fiscal Engineering
The timing raises inevitable questions. Cuéllar was explicit in his Bloomberg interview: his goal is to cancel the swap before the election. The operation will produce a sharp improvement in Colombia’s debt-to-GDP ratio just as voters head to the polls, and a planned buyback of approximately COP$10 trillion ($2.6 billion) in TES will further reduce the visible debt stock.
Critics have argued since the swap’s inception that it carried excessive currency and rollover risk — exposing Colombia to fluctuations between the dollar, euro, and Swiss franc simultaneously. The structure’s complexity made it difficult for analysts and rating agencies to fully assess the net fiscal impact.
Cuéllar has defended the approach, noting that without his debt management operations, the fiscal deficit would have exceeded 8% of GDP and debt could have surpassed 64% of GDP. Both Moody’s and S&P downgraded Colombia’s sovereign credit rating after the government suspended its fiscal rule.
What Comes Next for Colombia’s Fiscal Outlook
The local yield curve has inverted, with 2030 bonds trading at 14.2% while longer-dated paper sits roughly a point lower. Cuéllar said the ministry is considering issuing bonds linked to the overnight interbank rate to benefit from eventual rate cuts rather than locking in 30-year fixed rates at current levels.
The Colombia debt strategy will ultimately be judged by its successor. Whoever wins in May inherits a balance sheet that looks cleaner on paper but faces the same underlying pressures: a widening fiscal gap, elevated borrowing costs, and an economy growing below potential. The swap may be unwinding, but the fiscal reckoning it was designed to defer has not gone away.