Posted on 03/18/2002 12:26:53 PM PST by Cincinatus' Wife
NEW YORK, March 18 (Reuters) - Standard & Poor's said on Monday it revised its credit outlook on Venezuela to negative, indicating that a ratings downgrade may be on the way if critical economic reforms are held hostage to the political tension gripping the country.
``The current situation has led to political polarization and a sense of frustration among the population at large, including the business and labor sectors, the Catholic church, and the military,'' S&P said in a statement.
``This, in conjunction with presidential statements about the possibility of nationalizing banks ... and the danger of exchange controls or a state of emergency, have created an environment that is not conducive to investment and growth.''
The ratings agency affirmed Venezuela's single-B long- and short-term foreign currency sovereign credit ratings. At single B, the ratings are five notches below investment grade.
A downgrade would increase the cost of borrowing for the world's No. 4 oil exporter at a time when President Hugo Chavez is facing stiff domestic opposition to his leftist agenda and authoritarian style.
The ratings were placed on CreditWatch with negative implications on Feb. 11 ``due to the sovereign's deteriorating political situation and looming fiscal crisis, indicating that there was a strong probability that the rating would be downgraded if the government failed to restore investor confidence.''
Venezuela's ratings are constrained by weak institutions and excessive concentration of political power, S&P said.
"President Chavez largely controls the legislative and judiciary branches of the government. He also appoints the
attorney general, ombudsman and president and four other board members of the central bank,`` S&P said. ''Thus, the institutional framework provides no real system of checks and balances."
A tough-talking Chavez said on Sunday he was ready to ``militarize'' the country's state-owned oil company, PDVSA, if the company's operations were brought to a halt by a possible strike.
PDVSA dissidents, numbering several thousand out of the company's 40,000-strong workforce, are demanding the resignation of five board members appointed by the president. They argue the appointments were based on political loyalty to Chavez and his self-proclaimed ``revolution,'' not on professional merit.
They are also seeking the nomination of a new board.
Venezuelan bonds dipped 0.15 percent on Monday, with DCB bonds 3/8 weaker to bid 81-4/4.
``Venezuela is down a little bit, but that is more related to Chavez's comments about PDVSA that the S&P news,'' one trader said.
The country's overall growth prospects, public finances and balance of payments are heavily reliant on oil price swings, S&P noted. ``Resulting 'boom-and-bust' cycles are not conducive to sustained development of the country,'' the ratings agency said.
Meanwhile, about 80 percent of the population lives in poverty, S&P noted.
S&P also said Venezuela's ratings were supported by ``a comparatively strong debt and debt-servicing position.'' The country's external public-sector debt totaled 26 percent of gross domestic product in 2001, S&P said.
"No other voice could be better than yours to defend the interests of the (Group of) 77. ... You will have the possibility of putting forward the point of view of the progressive people of the world," Castro added.
Chavez, hosting a special 100th edition of his "Hello President" show lasting nearly seven hours, also received calls of congratulation from Guatemalan President Alfonso Portillo and the Dominican Republic's president, Hipolito Mejia.
The Cuban leader's public praise for Chavez was certain to infuriate political opponents of the Venezuelan leader and his self-proclaimed "Bolivarian Revolution". [End Excerpt]
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