Fitch Ratings-New York-February 1, 2005: Fitch Ratings has issued a special report, 'Latin American Sovereign Review: January 2005,' with Fitch's forecast for sovereign credit trends in Latin America for 2005. The report is available on the Fitch Ratings web site at 'www.fitchratings.com'.
'As long as Latin America continues to perform well, economically and from the policy perspective,' said Roger Scher, Managing Director, Fitch Sovereign Ratings, 'then further positive rating or Outlook actions are possible in 2005. But, the risks on the horizon, higher global interest rates, greater risk aversion, lower commodity prices, are not negligible.'
Sound macro policy frameworks and improved economic performance drove upgrades in five of the 16 emerging market sovereigns Fitch rates in the Western Hemisphere in 2004 (Brazil, Venezuela, Peru, Uruguay, and Ecuador), as well as two positive Outlook revisions (Chile and Colombia). Only one sovereign in the region was downgraded last year (the Dominican Republic). GDP expanded a rapid 5.2% last year, the region's strongest performance since 1997. Likewise, inflation remained low, the current account posted a surplus, net external debt moved lower, and international reserves reached US$207 billion in aggregate for the sovereigns Fitch rates in Latin America.
'A sharp and disorderly decline of the U.S. dollar that causes risk aversion and investors to reduce positions in the emerging market asset class is the most significant risk we see for Latin American sovereign bonds this year,' said Scher.
Scher went on to say that the best way to insulate themselves from external shocks was for Latin American governments to redouble their reform efforts, focusing on public finances and microeconomic reforms.
'The main indicator that deteriorated in the region since the late 1990s is the government debt-to-GDP ratio,' said Scher. 'It is here that more work needs to be done in terms of higher primary budget surpluses and tax, social security, and revenue-sharing reform. Likewise, a lack of GDP growth has been the region's main weakness. Structural reforms that will raise the region's low savings and investment rates could help in this regard.'
The Fitch report features articles on the impact on the region of the end of textile and clothing quotas with the phasing out of the Multi-Fiber Agreement and the comparison of two bellwether sovereigns, Brazil and Turkey, as well as country updates on key sovereigns in the region and a discussion of the rating implications of a bond restructuring in Argentina and one likely to occur in the Dominican Republic.
The Fitch report is available on the Fitch Ratings web site at 'www.fitchratings.com'.