Venezuela Outlook Cut by S&P to Negative on Election DisputeNathan Gill
Venezuela’s credit outlook was cut to negative by Standard & Poor’s five days after late President Hugo Chavez’s handpicked successor won elections that are being disputed by opposition parties.
S&P, which maintained the country’s credit rating at B+, four levels below investment grade, cited increased political risk after results of the April 14 vote showed Nicolas Maduro defeating opposition candidate Henrique Capriles Radonski.
Violence erupted in the country this week after Maduro, who was sworn in today, refused Capriles’s request for a full ballot recount and accused him of inciting a coup. The electoral commission said yesterday it would complete an electronic audit of the 15 million votes cast after street protests led to eight deaths.
“The outlook revision reflects growing political uncertainty that could weaken the implementation of economic policies and possibly undermine governability following the presidential elections,” S&P analyst Sebastian Briozzo wrote today in the statement. “The negative outlook signals the possibility that a politically weakened president and administration may pursue less pragmatic, more interventionist policies that increase imbalances in the economy and result in greater instability.”
Yields on Venezuela’s benchmark bonds due in 2027 fell 15 basis points, or 0.15 percentage point, to 9.63 percent as of 5 p.m. in New York, according to data compiled by Bloomberg. The securities have rebounded over the last three days after yields spiked 128 basis points in the two days following the election. They are still up 46 basis points since the ballot.
Yields on sovereign debt moved in the opposite direction of what ratings suggested in 53 percent of 32 increases, decreases and changes in credit outlook last year, according to data compiled by Bloomberg published in December. Investors ignored 56 percent of rating and outlook changes by Moody’s Investors Service and 50 percent of those by S&P. That’s worse than the longer-term average of 47 percent, based on more than 300 changes since 1974.
Tensions in Venezuela have eased after Capriles canceled a rally in Caracas planned for April 17 following reports of protester deaths and a speech by Maduro in which he vowed to use a “firm hand” against the opposition. Maduro, who won 50.8 percent of the vote to Capriles’s 49 percent, had said he holds Capriles personally responsible for the deaths.
While the opposition questions his legitimacy, Maduro also faces a raft of economic challenges left behind by Chavez, whose spending led to a 2012 fiscal deficit for the central government and state oil company of 14.5 percent of gross domestic product, according to Bank of America Corp. Even after the government devalued the currency by 32 percent to 6.3 bolivars per dollar in February, BofA said it expects a deficit of 9.7 percent this year.