Dec. 10 (Bloomberg) -- Venezuela’s debt rating outlook was lowered to negative from stable by Standard & Poor’s amid concern President Hugo Chavez will be reluctant to cut spending as oil revenue plunges.

S&P maintained Venezuela’s foreign debt rating at BB-, three levels below investment grade. Oil, which has fallen 69.8 percent from a July record, accounts for about 90 percent of the South American country’s exports and about half of fiscal revenue.

Chavez is unlikely to pare spending in coming months as he seeks to modify the constitution through a referendum by March that would allow him to seek another six-year term. After the vote, the president may be forced to devalue the officially pegged foreign-exchange rate, raise taxes or cut subsidies, said Alejandro Grisanti, an economist at Barclays Capital Inc.

“We’re very concerned that, given the drop in crude oil prices, Venezuela is beginning a new electoral process,” Grisanti said in a telephone interview from New York. “In this referendum, there’s not going to be winners. It’s very likely that we’re going to head into a much more radical period.”

Venezuelan bonds extended declines after the S&P announcement. The yield on Venezuela’s benchmark 9.25 percent bonds maturing in 2027 surged 1.28 percentage points to 16.44 percent in New York as the price sank 5 cents to 58.50 cents on the dollar, according to JPMorgan Chase & Co.

‘Political Considerations’

“Political considerations in Venezuela will, in our view, likely delay needed adjustments in economic policies given the sharp drop in international oil prices,” S&P said in its statement.

S&P expects Venezuela to post a current-account deficit equal to 4.3 percent of gross domestic product in 2009, compared with a surplus equal to 12.5 percent of GDP this year.

Venezuelan oil exports will average $40 a barrel next year after averaging $87 a barrel this year, S&P said in its statement. The Venezuelan oil basket, an index of the country’s petroleum exports, plunged 72.7 percent from July 18 to Dec. 5, when it closed at $34.49 a barrel.

Venezuela’s 2009 budget is based on a forecast that the country’s oil will average $60 a barrel next year. Finance Minister Ali Rodriguez said yesterday the government doesn’t plan to make any changes to the budget before the upcoming referendum.

$87 Billion

Venezuela has about $87 billion in reserves and savings, of which it can tap into about $25 billion to cover spending next year, Grisanti said.

“You can’t spend all of your reserves,” he said.

Lawmaker Ricardo Sanguino, president of the National Assembly’s Finance Committee, said today the government has enough cash left over from this year to avoid dipping into its reserves during the first quarter of next year.

“This is obviously due to Venezuela’s correlation with oil,” said Edwin Gutierrez, who helps manage $5 billion of emerging-market debt at Aberdeen Asset Management Plc in London, including Venezuelan bonds. “These guys have a huge cushion and no one is concerned with Venezuela defaulting on its debt.”

Petroleos de Venezuela SA, the state oil company, and foreign oil companies operating in the country may have to pay higher financing costs for investment projects as a result of the negative outlook from S&P, said Gianna Bern, president of Brookshire Advisory and Research Inc. in Flossmoor, Illinois.

S&P also lowered its outlook today on bonds issued by PDVSA, as the state oil company is known, to negative from stable.

‘Higher Financing Costs’

Private oil companies seeking to pump billions of barrels of oil in the Carabobo area of Venezuela’s Orinoco Belt need financing for their projects as part of a bidding process that began Oct. 30. Venezuelan oil production has fallen 15.9 percent since February 2005 to 2.33 million barrels a day, according to Bloomberg estimates.

“S&P’s revised outlook to negative on Venezuela will, undoubtedly, increase challenges associated with financing capital programs in an already tight credit market,” Bern said in an e-mailed statement. “Invariably, as the Carabobo tender proceeds, consortiums may end up paying higher financing costs.”

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net.

Last Updated: December 10, 2008 18:20 EST