Characterized by youthful populations, growing middle classes, relatively low debt and dynamic economic expansion,  Colombia is poised to grab a bigger share of the region’s growth and attract more money from international investors.

Not too long ago, most investors looking to put money into Latin America had a relatively simple choice: Brazil or Mexico, or maybe Chile.

But not anymore. A new group of countries in the region is emerging as a viable alternative.

Standing out in this group of Latin America’s “New Tigers,” Colombia and Peru are growing at a fast clip and are expected to continue doing so. Their currencies are solid and stable, they have a grip on inflation, their credit ratings are stronger or steadier than most, and their governments have shown themselves willing to step up to the plate when things begin to come apart. Read full story about Peru and Colombia consumers drawing investor interest.

“So far we have been doing well — unexpectedly well,” said Juan Jose Echavarria, a governor of Colombia’s central bank.

Last year, Colombia grew 5.9% . In 2012, Colombia’s real gross domestic product is forecast to grow 4.7% according to the International Monetary Fund.

Colombia has a strong credit ratings, rranked in the bottom rung of investment grade by Fitch, Moody’s and Standard & Poor’s, better than many in the region. Only Chile ranks above Colombia in Latin America, and its ratings put them on par with Brazil and Mexico, and some European countries like Italy and Ireland.

Colombia is also among only six countries in Latin America to win a coveted “low risk” rating from Euler Hermes, a subsidiary of global insurance firm Allianz.

While Brazil, Chile and Mexico still have stronger credit ratings, more diverse trade, and stronger capital markets, they no longer demonstrate many of the characteristics of “emerging markets” that once made them the darlings of international investors surveying the region.

Although interest in Colombia is running high among investors, there are risks. The commodities boom has lifted both economies over the past decade and both are vulnerable to a potential decline in energy and metals prices, which has already begun. But positive underpinnings  countries could help withstand a long-term decline in commodities if it does in fact occur.

A reprieve from war and violence

The war with the FARC rebels is still simmering today, and the drug trade is likewise still active. But by strengthening its military and reducing bombings and kidnappings, and by going after the leaders of the drug trade, Colombia appears to have convinced foreign investors that the changes are here to stay.

And, the growth in Colombia’s economy has a lot to do with the reduction in violence.

Colombia’s economy has been lifted by the commodities boom. Colombia doesn’t rely on metals much, and instead has a large contribution from energy and agriculture.

If the government manages to lift oil production from the current level of about 1.1 million barrels per day to about 1.5 million barrels per day within five years, and if oil and energy prove to be one of several commodities that buck a downward price trend, Colombia could see substantial growth from the energy sector.

“We see the oil boom expanding over the next three to five years,” said Jose Fernando Restrepo, chief analyst at InterBolsa S.A. in Medellín.

Also, while agricultural commodities have underperformed other industries over the past decade, some analysts do see a recovery in food commodities. Finance Minister Juan Carlos Echeverria is one of those. “Colombia is the only Latin American country that didn’t have an economic miracle. Colombia has cocoa, palm oil, rubber and cattle — any one of those could be [that miracle].”

Colombia has also built a middle class that has propelled industries such as retail, manufacturing, telecommunications, housing, transportation and tourism. It also has a youthful population — a key factor in driving growth. Forty percent of the total population is below 20 years old, and 80% is below 50 years old.

Colombia’s government has also pledged to spend $100 billion over the next 10 years on rebuilding infrastructure. The government of President Juan Manuel Santos has also promised to build 100,000 homes and give them away free to the poor, and pledged to make 140,000 mortgages available to low-income families.

What are the risks?

Colombia’s foreign direct investment (FDI) grew to 4.1% last year and is on track to beat 4.5% of GDP this year and 5% next year, according to forecasts by InterBolsa.

But a slowdown in demand for commodities, especially from China, could thwart FDI, as could a resumption in the war and violence. Colombia has an impoverished part of the country which hasn’t benefited from the economic boom. Indeed, Colombia’s unemployment rate of 10.8% is one of the worst in Latin America.

“My guess is if China keeps growing at least 7%, we will be OK,” said Echavarria of the central bank.

“We don’t want to repeat the ’70s, when everyone wanted to prop the economy up and we got inflation. The counties that survived and prospered are those that saved and invested in long-term growth,” Finance Minister Echeverria said.

Investors looking at these countries might consider leading stocks such as Colombian oil company Ecopetrol ECOPETROL +0.91% or financial services company BanColombia BCOLOMBIA +0.30% CIB -0.80% or any one of the infrastructure companies in Colombia. Read full story about Colombia’s building sector.

Or they may consider exchange-traded funds like the iShares S&P Latin America 40 ILF -0.61%, which is tilted heavily toward industrials. The SPDR S&P Emerging Latin America GML -0.31% has a broader basket of about 100 stocks as does the Market Vectors Latin America Small-Cap Index ETF LATM -0.76%. LATM’s 80-company portfolio is also slightly tilted toward the consumer sector, which is a plus for investors looking to get away from large-cap industrial and commodity-driven companies.

Other options include the Global X FTSE Andean 40 AND -0.83%, the Global X FTSE Colombia 20 GXG -0.44% or the MSCI All Peru EPU -1.11%.