Archive for August 19th, 2011

S&P last to downgrade Venezuela to B level

August 19, 2011

So, S&P decided to downgrade Venezuela’s debt to B+ today.

Let’s put this in perspective first, there are three large rating agencies which people follow (there are more, but they generate less noise): Fitch, S&P and Moody’s. Of the three, the only one that still had Venezuela at the “BB” level was S&P. The other two had Venezuela at B+ (Fitch) and B2 (Moody’s). The latter rating, B2, is exactly one notch below B+ and is equivalent to S&P’s and Fitch’s “B”.

Thus, S&P was the first of the agencies to downgrade the US to AA+, but it was the last to downgrade Venezuela to B+ (Six levels below that of the USA, so much for Giordani’s claim of a crisis in the USA, ignoring his)

In any case, part of the reason that S&P cites for downgrading Venezuela is that it actually has changed its methodology and is giving more weight than it used to, to political risks. But it does mention that both Chavez’ illness and the repatriation of the country’s reserves had an important influence on the decision.

In any case, Venezuela trades with yields that are more like CCC or CC than B.

The rest? Well, nothing you don’t know about, but here is the economic part in the S&P report:

“In our 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. We expect 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.  “