Venezuela devaluation 'not enough': Fitch Ratings
GlobalMarkets, is part of the Delinian Group, DELINIAN (GLOBALCAPITAL) LIMITED, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 15236213
Copyright © DELINIAN (GLOBALCAPITAL) LIMITED and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
Emerging Markets

Venezuela devaluation 'not enough': Fitch Ratings

chavez-162.jpg

The recent devaluation of the bolivar is not enough to upgrade the rating outlook, especially since a new electoral cycle may begin, the agency said

Venezuela recently devalued its currencyby 32% in a widely-anticipated move, with analysts saying that over the short term the measure could have beneficial results by helping it shrink its fiscal deficit, although it could cause pain in the long term.

Analysts had forecast Venezuela’s budget deficit at more than 9% of gross domestic product this year before the devaluation, and said this would help bring it down.

But Shelly Shetty, head of Latin America sovereigns at Fitch Ratings said that it was too early to say what the devaluation would do for the economy.

Fitch rates the country B+ with a negative outlook.

“Venezuela’s devaluation doesn’t do enough to revise the outlook back to stable,” Shetty said during a roundtable at Fitch’s London headquarters. “We might be in an electoral year. We could see the election cycle interfering” and the country failing to shrink its fiscal gap.

“The problem in Venezuela is a very expansionary fiscal and monetary policy,” she added.

Last year, Venezuelan President Hugo Chavez won his third 6-year term by embarking on a spending spree that nearly tripled the budget deficit. He is currently recovering from cancer surgery in Cuba and his battle with the illness has prompted speculation that he will step down and fresh presidential elections will be organized.

In the two months since Chavez has not made a public appearance, shortages of various goods have increased in Venezuela; on the black market, the exchange rate is around 20 bolivars for one dollar, according to various reports.

SOME COMPANIES HIT

The central bank announced that it would stop selling dollar bonds in the secondary market (Sitme) as a way to provide supplementary hard currency to companies.


These transactions allowed companies in strategic sectors to get dollars with an implied exchange rate of 5.3 bolivars, worse than the pre-devaluation 4.3 but still better than the black market rate. The only supply of hard currency to the corporate sector will be dollars sold by the central bank at the official exchange rate through the Cadivi – the official government body which administers legal currency transactions.

The devaluation has impacted negatively 4 companies in Venezuela, but “not enough for downgrades,” Dan Kastholm, managing director of Latin America corporate at Fitch, said.

Arcos Dorados, the largest operator of McDonald’s fast-food outlets in Latin America, and Chilean wood panels maker Masisa are likely to look for ways to increase prices to deal with the devaluation.

Venezuelan steel maker Sidetur and the Venezuelan arm of Mexican food producer Gruma were nationalized by Chavez’s government and could see their compensation reduced because of the devaluation.

However, the devaluation “is great for PDVSA,” Kastholm said.

The state-owned oil company, which is an exporter of oil, will have more bolivars to pay its bills and to invest, without having to increase its debt issuance.

- As every year, Emerging Markets daily newspaper will cover the Inter-American Development Bank’s annual meeting, which will be held in Panama in mid-March. Pick up your copy at the meeting, read the news on our website and follow us on twitter @EmrgingMarkets

Gift this article