New York, January 15, 2013 -- Moody's Investors Service today changed Venezuela's outlook to negative
from stable and affirmed the B1 local currency and B2 foreign currency
government bond ratings.
The negative outlook reflects increased political uncertainty and associated
risks to the Venezuelan economy and government finances following President
Chavez's failure to attend his inauguration ceremony on January
10. Notwithstanding the government's decision not to call
new elections, as was arguably required by the Constitution,
a political transition appears to be imminent -- if it is not underway
already.
RATINGS RATIONALE
Venezuela is heavily exposed to transition risk because of the weakness
of its institutions coupled with the concentration of power in the person
of President Chavez. While this risk is already incorporated in
the current ratings, the negative outlook reflects the increased
likelihood of a downward rating migration should transition risks crystallize,
resulting in a deterioration of other credit fundamentals.
The current situation has revived the possibility that an opposition candidate
may take over the presidency and with it begin to usher in economic reforms
that could improve Venezuela's credit picture in the medium term.
However, regardless of who succeeds Chavez, and which part
of the political spectrum they represent, this potential opportunity
is outweighed in the shorter term by risks associated with the political
transition.
The transition comes at a particularly challenging time for the Venezuelan
economy, which experienced a marked deterioration in a number of
key macroeconomic indicators last year, particularly the fiscal
deficit. Increased spending in advance of last year's presidential
and regional elections has left the government highly overextended.
Moody's estimates that the 2012 fiscal deficit equaled nearly 11%
of GDP, up from 4% in 2011. While GDP grew by 5.5%,
this was driven in large part by the increase in spending. In addition,
the currency is increasingly overvalued, as reflected in the sharp
rise in the black market exchange rate. With Chavez' successor,
whoever he may be, likely to face significant challenges to his
authority, Moody's believes it will be difficult for him to
make the economic policy adjustments necessary to address these growing
imbalances.
The negative outlook also considers the risk of civil unrest. The
longer the current impasse remains, the more likely this becomes.
The opposition will not stand idly by if they perceive the Chavistas to
be attempting to solidify their grasp on power through extra-constitutional
means.
Depending upon the pace at which events unfold going forward, the
rating and outlook could potentially be revisited well before the expiration
of the 12-18 month time horizon normally associated with an outlook.
The rating could face further downward pressure if the next president
fails to implement meaningful policy adjustments to reduce macroeconomic
imbalances and distortions, or if civil unrest threatens the stability
of the government. The outlook could be stabilized if the new president
demonstrates that he has firmly established his authority and implements
changes to current policies sufficient to stabilize the economy.
The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2008. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Aaron Freedman
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes Venezuela's rating outlook to negative
