WASHINGTON: Standard & Poor’s cut Venezuela’s credit rating by one step Friday and put the country on watch for another downgrade, citing the “growing radicalization of economic policy.”
“We expect the results of the December 8 municipal elections to reinforce the recent trend toward more government intervention in the economy, creating greater uncertainty,” S&P said.
S&P cut the rating to “B-,” already well into junk-bond territory, and added a “negative outlook” to the rating.
The agency said it foresees the continuation of “erratic” economic policies by the government of Nicolas Maduro, seven months after he took the presidency following the death of socialist strongman Hugo Chavez, his longtime mentor.
In November, the National Assembly granted Maduro power to rule by decree for one year to fight corruption and respond to what he has called an “economic war” unleashed by the opposition with US support.
He quickly rolled out a series of measures to force price cuts, notably on household appliances and cars, and threatened speculators with prison.
But S&P pointed to a sharp rundown in the country’s international reserves over the past two months as the government tries to get inflation under control with price-control programs.
That has left Venezuela even more dependent on oil income, and weakens the government’s ability to endure any financial shocks, the agency said.
“The recent political shift overturns an earlier initiative that had taken place in mid-year to introduce more pragmatic economic policy,” it said.
S&P said it expected Caracas to continue confronting fiscal pressures by devaluing the bolivar, increasing the local currency value of oil receipts.
Even so, it expects further deterioration of the situation, which “could increase the risks of a government debt default over the next two years.”
Maduro survived the first major test of his rocky seven-month-old presidency Sunday, as the ruling Socialists won a majority of votes in Venezuela’s local elections.
But the opposition won in five of the country’s most populous cities, including Caracas, increasing pressure on Maduro.