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.  “

27 Responses to “S&P last to downgrade Venezuela to B level”

  1. metodex Says:

    first

  2. JMA Says:

    It will be very interesting to watch how the top three rating agencies respond to the uncertainty generated by moving the reserves to Venezuela. As the cost of acquiring more debt becomes more expensive for the Chavez’ regime, they will be tempted to use the reserves to finance public expenditure in an electoral year. It will be a vicious cycle until financial collapse. May God have mercy on our country.

  3. captainccs Says:

    All three agencies are late. I downgraded Venezuela to #FAIL when Luis Herrera bankrupted my business back around 1985/6. So have many others which is why our country has suffered from capital flight for decades.

    Poor Venezuela, having to put up with all these a$$hole politicos.

  4. captainccs Says:

    If we could export politicians instead of oil, we would fix our country. But nobody wants them. They have their own rotten sets.

  5. Gnat Says:

    Ignore the ratings change. S&P is not a good predictor of what will happen in the future. They are also very prone to making major errors and after having their errors pointed out the don’t even determine if their errors have any effect on what the rating should be. Look instead at the credit default swap prices which paint an even grimmer picture.

  6. bobthebuilder Says:

    “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”

    – i.e. they are a bunch of thieves

  7. HalfEmpty Says:

    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

    Serious question: With numbers like that why are dollars controlled? Does exchange leave for foreign banks buying nothing? Where is the exchange?

  8. Bill near Slidell Says:

    Venezuela is so rich in natural resources that every rating agency could downgrade it to the lowest rating, and it could still borrow money. All you need to say is, “Did you hear that the IEA just said that we have the largest deposit of oil on the planet? Ever hear of peak oil?” You will get the money.


    • Between Greece and Korea

      What I did like (!?) most was the S & P macroeconomic analysis. I have qualified risk for some years, private and public debt, my feeling is that to downgrade Venezuela we are in a word more or less 50:50, political and economic.
      I am not using the word macroeconomic, purposely, since the “main problem is political and economic (political economy) not a macro one. If we find a political solution and reestablish the basic rules of a democracy, balanced public institutions, particularly running an accountable fiscal and monetary policy we will have “only” the ordinary problems: how to balance the budget in a democracy, and how to run an independent monetary policy, for the reminder, leave to markets to do the job.


    • Natural resources value nothing if are not produced.

  9. Glenn Says:

    Add international intrigue on top of financial shenanigans. Some news claims there is a Venezuelan plane in Djerba, Tunisia standing by evacuation of Qaddafi family to Venezuela. It Mummar tags along that is certainly reason to sanction Venezuela and freeze overseas funds.

    http://news.xinhuanet.com/english2010/video/2011-08/20/c_131063057.htm

  10. CharlesC Says:

    Chavismo=tribalism, thus-the antithesis to democracy.
    Not that a “tribe” could not be egalitarian, democratic,
    but-chavista “tribe” certainly isn’t. Looks like -the closer
    to Chavez, the richer-therefore, out of greed and
    lust for power-many are drawn toward Chavez and
    dote and drool upon his every word and action-
    no matter how absolutely rediculous he acts
    or how many stupid things he says..a “black hole” of sorts.


  11. Between Greece and Korea

    What I did like (!?) most was the S & P macroeconomic analysis. I have qualified risk for some years, private and public debt, my feeling is that to downgrade Venezuela we are in a word more or less 50:50, political and economic.
    I am not using the word macroeconomic, purposely, since the “main problem is political and economic (political economy) not a macro one. If we find a political solution and reestablish the basic rules of a democracy, balanced public institutions, particularly running an accountable fiscal and monetary policy we will have “only” the ordinary problems: how to balance the budget in a democracy, and how to run an independent monetary policy, for the reminder, leave to markets to do the job.

  12. CharlesC Says:

    Weil is incredible!! another- Humor of Santana-

    http://www.elnuevoherald.com/2011/08/17/1005633/jueves-18-de-agosto-de-2011.html

    (thanks Alberto)

  13. Kepler Says:

    Miguel,

    I don’t doubt for a single second Venezuela’s economic situation is a complete mess. I don’t doubt it for Greece and other countries either (albeit to a lesser degree than Venezuela).

    But those agencies are just a bloody joke and they were just untouched as long as the powers that be were too touched. Firstly I saw that with Europe: German and Scandinavian media started to examine the links between such “independent” agencies and other US companies, I don’t remember the details but the whole thing was quite interesting to hear…and the US government said NADA. And then the agencies downgraded the US government and now investigations on those rating agencies are underway in the States. All those agencies are a joke and they are, in spite of their hundreds of economists and analysits not more sophisticated than, say, captainccs or me, not to mention you.

    This is very telling: they made bad calculations about the States’ debt, the US government mentioned this issue, the agency asked for a “rethinking time” of some hours and after that they admitted they made the mistake but said they downgrade the US anyway because their “new calculations” took into account political instability. What a joke…and those guys earn millions for their “analyssi”. Let’s remember what they did about Lehmann.

    Sorry: Venezuela is indeed in a mess, a whole mess, Chávez has fucked Venezuela as no president has done since Gómez or even earlier and YET: those agencies are a bad joke.

    • captainccs Says:

      Two economists go hunting. They spot a white tail deer. Both fire. One misses by a meter to the right and the other by a meter to the left. In unison they shout: “BULLS EYE!”

      On average… they got a bulls-eye. :(

  14. JMA Says:

    This pearl by Hector Navarro would be perfect for a comment (preferably sarcastic) by anyone: “Es una locura que debamos pagar porque otros nos cuiden el oro sin ganar intereses.” It would be interesting to see if any other chavista can better such an incredible display of ignorance.

  15. CharlesC Says:

    “That guy is an absolute criminal.”
    Aren’t they all?
    Seriously, thank you for your efforts for so many years, Kepler.
    Thinking how different Venezuela could be brings tears…


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