TEXT-Fitch: Latin America gov't financing needs back to pre-crisis levels

Tue Jan 29, 2013 11:00am EST

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Jan 29 - Latin American government financing needs are forecasted to decline
to USD428 billion in 2013, or 7.3% of regional GDP, from an average of 9% in the
four years after the global financial crisis, according to a new Fitch Ratings
report.

'Most of the decrease in the region's borrowing requirements stems from the
reduction in domestic and external debt redemptions resulting from adept
liability management in several countries while fiscal deficits reduction
contributes only marginally to the decline,' said Shelly Shetty, Head of Fitch's
Latin America Sovereign Group.

The financing needs of some of the largest economies including Brazil, Colombia
and Mexico, are expected to fall but - except for Colombia - will remain higher
than the Latin American median of 5.9% of GDP in 2013. These countries show
lower fiscal deficits but higher amortizations than their regional peers.
However, the large absorption capacity of their domestic bond markets mitigates
financing risks.

The funding requirements of some of the smaller countries including Bolivia,
Chile, Guatemala, Peru and Uruguay, are lower than the Latin American median
thanks to their sustained growth, prudent fiscal management, low amortizations
and ample financing flexibility. Proactive debt management could further extend
government debt maturities, lower interest costs and support the development of
local bond markets in some of these countries.

Fitch forecasts Ecuador, El Salvador, Dominican Republic, Panama and Venezuela
to pose higher fiscal deficits than the regional median of 2.6% of GDP in 2013.
Argentina, Costa Rica and Jamaica are the only countries where borrowing
requirements are expected to exceed 10% of GDP in 2013.

The drive towards domestic and local currency issuance will continue in 2013,
with governments likely to raise up to 91% of their total borrowing requirements
from domestic sources. Countries will progressively lengthen maturities and
substitute floating-rate debt for fixed rate obligations to insulate their
sovereign debt portfolios from interest rate variations.

'Increasing foreign participation in government domestic debt markets will
likely continue this year given the interest rate differentials with the
developed world and stable to appreciating currencies in the region,' said Cesar
Arias, Associate Director in Fitch's Latin America Sovereign Group and co-author
of the report. 'These portfolio inflows are broadening the investor base,
enhancing market liquidity and improving debt composition.'

As a result, Fitch forecasts external bond supply to increase only slightly to
USD19.3 billion in 2013, covering a marginal 4.4% of regional financing needs.
While speculative grade sovereigns with narrower domestic investor bases are
expected to ramp up international issuance in 2013 to cover fiscal gaps and
finance infrastructure plans, placements by investment grade countries - which
use external debt primarily to diversify their funding sources and provide
liquidity to their long-term global benchmarks - could drop by 8% relative to
2012.

Fitch's special report '2013 Latin America Government Financing Needs: Back to
Pre-Crisis Levels amid Improved Debt Management' is available at
'www.fitchratings.com'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research: 2013 Latin America Government
Financing Needs
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