By Daniel Bases
NEW YORK, June 17 Standard & Poor's downgraded
Venezuela's sovereign foreign currency credit rating by one
notch on Monday, citing political turmoil as an impediment to
enacting meaningful reforms in order to stop a slide in economic
S&P's move to a B rating from B-plus on the OPEC nation
brings it in line with Moody's Investors Service's current
rating of B2, while Fitch Ratings remains one notch higher at
B-plus. Both Moody's and Fitch have negative outlooks on the
"Growing political uncertainty is weakening the
implementation of economic policies and may possibly undermine
governability," S&P said in a statement. The outlook on the
credit is negative, meaning another downgrade could occur
between six months to two years.
S&P said the narrow election victory of President Nicolas
Maduro, the ensuing challenge by opposition lawmakers and signs
of internal government disagreement make it more difficult to
contain inflation and ease inflationary pressures.
Maduro, successor to the late Hugo Chavez, faces a complex
economic panorama of slowing growth, widespread shortages of
basic products, and the highest inflation rate in the Americas.
Economic growth slowed sharply to 0.7 percent during the
first quarter of this year, from 5.9 percent in the same period
in 2012, while a lack of hard currency means businesses are
struggling to import key consumer products.
"GDP (gross domestic product) growth is decelerating sharply
in 2013 and we expect it to approach zero. Inflation is
increasing and may reach close to 40 percent by year-end," S&P
"Growing restrictions on external liquidity as a result of
(state oil company) PDVSA's lower oil production and a more
uncertain outlook for oil prices will continue to limit
Venezuela's ability to deal with growing domestic political and
economic challenges," it added.
Maduro's administration is targeting 6 percent growth this
year - although most local economists have predicted a slowdown
as government spending drops off following the sky-high outlays
in 2012 that helped Chavez win re-election.
Meanwhile, inflation hit a record monthly high of 6.1
percent in May, bringing the annualized rate to 35.2 percent.
Opposition leaders want to see a gradual transition away
from the Chavez-era policies of frequent nationalizations and
rigid price controls to convince private businesses to resume
investment in the South American country.
But Maduro's slim election victory in April gives him little
room to reverse the main planks of his predecessor's self-styled
socialist revolution, which included dramatic state takeovers
and confrontations with businesses.
Last week Venezuela's election council confirmed its audit
of votes from April's election, declaring Maduro won by 1.5
percentage points over opposition leader Henrique Capriles.
Capriles, the 40-year-old governor of Miranda state, accuses
the electoral authority of being under the thumb of the ruling
Socialist Party. But he has told his supporters to continue
working toward municipal elections scheduled for December.
Government officials say Capriles failed to present evidence
of election-day irregularities, and accuse him of fomenting
post-vote violence that the government says killed 11 people.