The U.S. could be facing a possible reduction in their risk rating, due to levels of national debt and government deficit.
Democrats and Republicans have been debating in the United States Congress trying to reach an agreement that will raise the debt ceiling and secure public finances for the future, avoiding a potential cessation of payments or a reduction in the country’s risk rating.
The speed of government borrowing is threatening economic stability.
Improvements in the way money is spent and not unnecessarily increasing the tax burden seems to be the best options available to the Guatemalan government for solving the problem of growing debt, as recommended by experts in the field.
Overall, the internal and external debt of the country amounts to $5,000 million, a high figure that represents the sum of public debt of the three previous government administrations.
Lack of flexibility in the loan approval in Congress is forcing the government to resort to other measures.
The Guatemalan government has announced that it will release short-term treasury bills, usually considered a financing tool for emergency liquidity due to their characteristics.
The decision to issue the bills, which are very short with terms of less than a fiscal year, is being based on the fact that loans available for use have not yet been approved by Congress.
The Ministry of Public Finance has placed more than $50 million in dollars and quetzals on the market.
The treasury bonds have been issued both in quetzales and dollars, each for various time periods.
A report by Byron Dardón to La Prensa Libre states: "Of the total registered bonds, 81.8% are from the private sector and 18.2% from the public sector .
The Ministry of Finance issued $ 10.5 million in dollar-denominated securities and $ 103 million in Quetzales (Q802 million).
Most of the placement was made at 12 and 15 years, $ 66 million and $ 16 million, respectively, paying interest of 8.8% and 9% respectively in Quetzales.
As reported by Prensalibre.com, 67% of the issuance was sold to the private sector.
At the end of 2011 the country will increase its public debt by $ 4,966 million compared to 2007.
The recently approved budget debt is $ 11,957 million compared to $ 6,991 in 2007.
Mario Cuevas, president of the National Economic Research Center (CIEN), commented that "the trajectory of debt is unsustainable and seeing the rate at which public debt has increased, this will explode in a few years, so there has to be a correction soon."
The country's macroeconomic strength contrasts with its credit weakness and low tax base, which Fitch Ratings believe keep its ratings below investment grade.
Fitch Ratings recently affirmed Guatemala's local and foreign currency Issuer Default Ratings as BB+. The main positive factors contributing to this risk evaluation are its history of macroeconomic stability and debt repayment combined with low debt burden.
In the auction held on Tuesday, the Finance Minister issued $28.38 million worth of bonds with terms of 11 and 15 years, paying interest of 8.6% and 9.0% respectively.
The event, which took place in the local exchange, saw the minister receive offers for a total of $39.64 million, with 96% coming from private investors and the rest from the public sector.
In the first half of the year, a slight drop in credit card portfolios was reported relative to the end of 2009.
According to Guatemala's banking regulator (SIB), in June 2010 there were approximately 1.5 million credit card holders with $800 million worth of debt, lower than the $845 million reported at the end of December 2009.
"Banks and card issuers report stagnation in their portfolios in the first six months of the year with customers being more careful with their debts," reports Elperiodico.com.gt.
The finance ministry confirmed that it will sell $213 million in bonds to replace securities issued years ago and due on 2010.
Such bonds will be in addition to $560 million issued recently. The proceeds of the sale will be used to pay a series of “Peace Bonds” (Bonos Paz) due in 2010.
The ministry assured that “this has no effect on our debt ceiling or the fiscal deficit.
After the first auction, the finance ministry issued just $48 million in bonds, even though domestic investors demanded $308 million.
In a press release, the ministry explained that “interest rates offered by investors were not adequate”.
Authorities only placed 15-year securities, paying a 9% interest rate in local currency. 72% of the market’s demand was focused on 10 and 15-year securities.
On June 15 the Finance Ministry will start selling $560 million in Treasury Bonds in the domestic securities market.
They will use an auction-based method to sell the securities, and they are currently considering whether to offer the bonds in the international market.
“The issue will be split in 2-year, 5-year, 7-year, 10-year and 15-year securities, and the interest rates will be defined by the market.
Central American countries alleviated much of the effects of the global crisis by issuing public debt; they now face the challenge of keeping it at reasonable levels.
Capitales.com analyzed the relation between debt and GDP for each country in Central America. They noted that although Costa Rica, Guatemala and Honduras are within acceptable levels, they are dangerously close to surpassing them.
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