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S&P downgrades Venezuela citing political inertia

June 17, 2013

WASHINGTON, D.C. – Standard & Poor’s cut Venezuela’s credit rating one notch to “B” on Monday citing the first post-Hugo Chávez government’s lack of action on the deteriorating economy.

The downgrade “reflects the government’s diminishing ability to implement measures to reverse declining GDP growth, rising inflation, and weakening external liquidity in the context of growing political disagreements within the administration,” Sebastian Briozzo, an S&P analyst, said in a statement. “Growing political uncertainty is weakening the implementation of economic policies and may possibly undermine governability.”

The previous rating, B+, already characterized Venezuelan debt as “highly speculative” or junk status.

Venezuela’s economy is still growing helped by its large oil and gas reserves and low government debt, S&P noted.

But it warned that growth is on the verge of stalling and that surging inflation might reach 40 percent by the end of the year.

S&P put the outlook on the current rating as “negative”, suggesting a possible further downgrade if political and economic conditions continue to worsen.

“In a more extreme and remote scenario, the political situation could deteriorate to the point of disrupting the administration’s ability to govern and, thereby, impair its ability to service its debt. We could lower the rating by more than one notch under such a scenario,” S&P said.

Elected on April 14, President Nicolas Maduro, the successor to the late strongman Chávez, has struggled to fend off challenges from the opposition and as well to garner support in his own government for a clear economic path.

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