Guatemala Faces Four Risks

Guatemala´s BB+ sovereign risk rating and stable perspective, which is so close to the desired “Investment Grade,” is facing four threats.

Thursday, June 25, 2009

According to an article by C.Véliz and J. Gramajo in, Mauricio Choussy, the director of Fitch Central America, notes that four weaknesses persist in the country: “Low tax revenue, weak social indicators, social instability, and high levels of delinquency.”

Guatemala’s sovereign risk rating still hasn’t been lowered due to its fiscal history and fulfillment of its international obligations to repay debt as well as its low level of debt.

In addition to increasing the cost of the money the government would have to borrow to continue running, a lowering of the sovereign risk rating would imply other consequences. Among them is a correlative decline in the ratings of the banks in the country, just as what happened to the main banks in El Salvador after that country’s rating fell.

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El Salvador's Debt Lowered to Junk

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"Since last year, El Salvador has been subject to severe shocks that have exposed underlying vulnerabilities associated with its condition as a small open economy with a high dependence on the U.S.