Post by ukipa on Aug 21, 2011 7:32:20 GMT 4
Standard & Poor's lowered its long-term foreign and local currency ratings on Venezuela to 'B+' from 'BB-', reflecting its "recently revised sovereign rating methodology's heavier weight on political risk, which is a credit weakness for Venezuela" also noting that its outlook now "balances the negative impact of the government's interventionist policies on investment and growth prospects against the country's still modest fiscal and external positions."
NEW YORK -- Standard & Poor's (S&P) says that it lowered its long-term foreign and local currency sovereign credit ratings on the Bolivarian Republic of Venezuela to 'B+' from 'BB-'. Standard & Poor's also said that it revised the transfer and convertibility assessment (T&C) to 'B+' and affirmed the 'B' short-term foreign and local currency sovereign credit ratings with a stable outlook.
"The downgrade follows the implementation of Standard & Poor's revised methodology and assumptions for sovereign ratings," said Standard & Poor's credit analyst Roberto Sifon Arevalo. "The recently revised methodology assigns heavier weight to political risk, which is a credit weakness for Venezuela."
According to S&P, the 'B+' sovereign credit ratings on Venezuela are constrained by political factors and are supported by the sovereign's modest external and fiscal positions. In their opinion, "changing and arbitrary laws, price and exchange controls, and other distorting and unpredictable economic measures have undermined private-sector investment and hurt productivity -- weakening Venezuela's domestic economy." Furthermore, the recent developments regarding President Hugo Chavez's health could add to policy uncertainty.
The country's vast oil and gas reserves, which are key positives in external and fiscal performance, somewhat offset the policy uncertainty. Venezuela regularly posts current account surpluses and -- with capital outflows constrained by foreign exchange controls--records a net external asset position. The current account surplus improved to 6.1% of GDP in 2010 from 2.6% in 2009, and it likely will remain at a similarly strong level in 2011 because of higher oil prices. As a result, Standard & Poor's expects the central bank's foreign exchange reserves, which have covered seven or more months of current account payments in recent years, to remain fairly stable.
That said, recent reports about plans to repatriate the sovereign's gold reserves as well as foreign exchange add uncertainty to the actual level of those reserves.
"S&P expects that economic activity, which was hurt by several factors in 2010, to recover in 2011, fueled by government spending. As a result, real GDP per capita likely will expand by 1.4% in 2011. However, the heavy spending levels in preparation for the 2012 presidential election likely will take the general government deficit to 2.5% of GDP in 2011 and about 4% in 2012. Consequently, we expect that net general government debt will rise to 17% of GDP in 2011 and 19% of GDP in 2012, despite double-digit inflation boosting the denominator."
Venezuela's local currency ratings are equalized with the foreign currency ratings because Venezuela's monetary policy options, which underpin the sovereign's greater flexibility in its own currency, are constrained by the country's heavily managed foreign exchange rate, high inflation, and relatively undeveloped domestic bond markets.
S&P's T&C assessment is equalized with the foreign currency ratings and reflects their opinion that the likelihood of the sovereign restricting access to foreign exchange -- which Venezuela-based nonsovereign issuers need for debt service -- is similar to the likelihood of the sovereign defaulting on its foreign currency obligations. "Our assessment reflects the interventionist nature of the government, particularly its use of restrictions on access to foreign exchange," the company said.
The stable outlook balances the risks associated with interventionist government policies and the policies' negative impact on investment and growth prospects against the country's still modest fiscal and external positions.
"However, we could lower the ratings if oil prices decline significantly over an extended period and if the political situation deteriorates further," said Mr. Sifon Arevalo. "Alternatively, we could raise the ratings if fiscal and external indicators improve and if the government is able to lower inflation and adopt policies that better support investment and growth."
NEW YORK -- Standard & Poor's (S&P) says that it lowered its long-term foreign and local currency sovereign credit ratings on the Bolivarian Republic of Venezuela to 'B+' from 'BB-'. Standard & Poor's also said that it revised the transfer and convertibility assessment (T&C) to 'B+' and affirmed the 'B' short-term foreign and local currency sovereign credit ratings with a stable outlook.
"The downgrade follows the implementation of Standard & Poor's revised methodology and assumptions for sovereign ratings," said Standard & Poor's credit analyst Roberto Sifon Arevalo. "The recently revised methodology assigns heavier weight to political risk, which is a credit weakness for Venezuela."
According to S&P, the 'B+' sovereign credit ratings on Venezuela are constrained by political factors and are supported by the sovereign's modest external and fiscal positions. In their opinion, "changing and arbitrary laws, price and exchange controls, and other distorting and unpredictable economic measures have undermined private-sector investment and hurt productivity -- weakening Venezuela's domestic economy." Furthermore, the recent developments regarding President Hugo Chavez's health could add to policy uncertainty.
The country's vast oil and gas reserves, which are key positives in external and fiscal performance, somewhat offset the policy uncertainty. Venezuela regularly posts current account surpluses and -- with capital outflows constrained by foreign exchange controls--records a net external asset position. The current account surplus improved to 6.1% of GDP in 2010 from 2.6% in 2009, and it likely will remain at a similarly strong level in 2011 because of higher oil prices. As a result, Standard & Poor's expects the central bank's foreign exchange reserves, which have covered seven or more months of current account payments in recent years, to remain fairly stable.
That said, recent reports about plans to repatriate the sovereign's gold reserves as well as foreign exchange add uncertainty to the actual level of those reserves.
"S&P expects that economic activity, which was hurt by several factors in 2010, to recover in 2011, fueled by government spending. As a result, real GDP per capita likely will expand by 1.4% in 2011. However, the heavy spending levels in preparation for the 2012 presidential election likely will take the general government deficit to 2.5% of GDP in 2011 and about 4% in 2012. Consequently, we expect that net general government debt will rise to 17% of GDP in 2011 and 19% of GDP in 2012, despite double-digit inflation boosting the denominator."
Venezuela's local currency ratings are equalized with the foreign currency ratings because Venezuela's monetary policy options, which underpin the sovereign's greater flexibility in its own currency, are constrained by the country's heavily managed foreign exchange rate, high inflation, and relatively undeveloped domestic bond markets.
S&P's T&C assessment is equalized with the foreign currency ratings and reflects their opinion that the likelihood of the sovereign restricting access to foreign exchange -- which Venezuela-based nonsovereign issuers need for debt service -- is similar to the likelihood of the sovereign defaulting on its foreign currency obligations. "Our assessment reflects the interventionist nature of the government, particularly its use of restrictions on access to foreign exchange," the company said.
The stable outlook balances the risks associated with interventionist government policies and the policies' negative impact on investment and growth prospects against the country's still modest fiscal and external positions.
"However, we could lower the ratings if oil prices decline significantly over an extended period and if the political situation deteriorates further," said Mr. Sifon Arevalo. "Alternatively, we could raise the ratings if fiscal and external indicators improve and if the government is able to lower inflation and adopt policies that better support investment and growth."
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