Fitch Cuts El Salvador Long-Term Ratings
Deeper Into Junk
Fitch Ratings cut El Salvador's long-term
ratings one notch deeper into junk
territory, saying that nation's economy is
expected to shrink 2.5% this year.
The move to BB matches the one handed out
last month by Standard & Poor's Ratings
Service. Fitch lowered its ratings outlook
on the country to negative in October, where
is remains even after the downgrade, meaning
further cuts aren't out of the question.
Like many countries, El Salvador's deficit
and debt are expected to increase this year.
Financing needs for 2010, said Fitch,
depends on the nation's fiscal prudence,
being able to maintain domestic investor
confidence and continued multilateral
support. In 2011, El Salvador could require
international aid, especially with a $650
million Eurobond maturing then.
Political and economic uncertainty in El
Salvador have led to delays in potential
investments, hurting growth prospects, and
the country is starting from a worse
economic position than others with the same
ratings, Fitch noted. However, the financial
system was resilient during the recent
pre-electoral period and "notably smooth
political transition," the firm added.
Leftist Mauricio Funes was elected president
in March, but he has said he doesn't plan to
turn the country away from closer ties to
the U.S., where more than two million
Salvadoran expatriates live.
Casey Reckman, associate director in Fitch's
sovereign group, said reductions in money
sent into the nation and reduced demand have
"demonstrated El Salvador's vulnerability to
the U.S. downturn."
In the past five years, billions of dollars
have flooded into El Salvador from
international giants such as Citigroup Inc.
(C), which has snapped up local financial
groups to get a piece of El Salvador's
growing wealth. Wal-Mart Stores Inc. (WMT)
and Millicom International Cellular SA (MICC)
also recently made big investments here,
drawn by El Salvador's devaluation-proof
currency, the U.S. dollar, which replaced
the local colon in 2001. |
