Chile became the only Latin American country rated AA after an upgrade by Moody’s Investors Service, which cited the country’s fiscal savings and “financial resilience” in the wake of a February earthquake.
Moody’s boosted the rating one level to Aa3, the fourth- highest investment grade, from A1. The outlook on the rating is stable, Moody’s said in a statement.
Chile’s economy is recovering faster than analysts forecast from a 8.8-magnitude earthquake that smashed ports, roads and factories across an area of the country responsible for 17 percent of gross domestic product. The country’s $11 billion in an offshore copper savings would be more than enough to cover its $8.4 billion in financing needs following the quake, Moody’s said. Chile plans to tap overseas debt markets for the first time in six years to help finance the reconstruction.
“Years of solid macroeconomic policies, including a structural fiscal surplus rule meant to smooth government revenues and expenditures, positioned Chile well to deal with the global economic crisis and the financial aftermath of the earthquake,” Moody’s analyst Gabriel Torres said in a statement.
The South American country may sell as much as $3 billion of bonds and warrants, according to a filing yesterday with the U.S. Securities and Exchange Commission. Finance Minister Felipe Larrain said April 23 in New York that Chile plans to sell $1.5 billion worth of 10-year dollar and pesos bonds abroad this year. Chile’s has about $12 billion of debt, according to Moody’s.
“Chile has practically no debt and no fiscal deficit,” said Siobhan Morden, a Latin America debt strategist at RBS Securities Inc. in Stamford, Connecticut. “In a time like this Chile says, ‘Hey, maybe I’ll issue a bond.’ They can come to the market with the conditions and terms that they want.”
Chile’s economy grew at the fastest monthly pace in more than a decade in April as business rebounded following the effects of the earthquake. The economy expanded 8.2 percent in April from March, the biggest increase since 1996, and 4.6 percent from a year earlier, the central bank said last week. It was the quickest annual growth since September 2008 and double the median forecast of 10 economists surveyed by Bloomberg.
The central bank, which will publish updated economic forecasts today, raised its benchmark interest rate by half a percentage point yesterday to 1 percent.
“Despite the events of February, Chile is well positioned to face any negative impacts,” said Cesar Perez, an economist at Celfin Capital SA in Santiago. “February and March were very bad months and by April the country had reactivated.”
Chile, the world’s largest copper producer, became a net creditor in 2007 for the first time by paying down debt and hoarding savings in an offshore wealth fund.
The extra yield, or spread, investors demand to buy Chile’s 5.5 percent bonds due in 2013 instead of U.S. Treasuries fell four basis points, or 0.04 percentage point, to 125 basis points according to JPMorgan Chase & Co.
The peso jumped 1 percent to 529.75 per U.S. dollar from 535.05 yesterday. Chile’s main stock index rose 0.6 percent to a record 4,060.33.