The rating agency raised its foreign currency government bond rating on Guatemala to Ba1 from Ba2.
In a statement, Moody’s said that the outlook on the ratings is stable. The Ba1 rating moves Guatemala one step away from investment grade.
“Moody's cited a stable macroeconomic environment supported by prudent fiscal and monetary policies. However it also noted comparatively low levels of economic development, challenges in raising taxes, and substantial social and infrastructure needs”, reported Reuters.com.
The Finance Ministry will meet with potential investors this week and will decide how much to set aside for the domestic and international markets.
Decree 19-2010 was published in the official government newspaper, thus authorizing the Finance Ministry to issue the securities.
Juan Alberto Fuentes, Finance Minister, told newspaper Elperiodico.com.gt that “Guatemala is well regarded internationally for its excellent payment reputation.
Since 2009, Colom’s administration had been pushing for a tax reform to improve the country’s tax revenues.
Since 2009, Colom’s administration had been pushing for a tax reform to improve the country’s tax revenues.
“As such proposal was met negatively by the opposition, this is the only short term alternative to get funds”, said Mario Taracena, president of the Finance Committee.
The Government risks failing to comply with the current Stand-By Agreement with the International Monetary Fund, as its fiscal deficit would reach 3.9%.
However, Fernando Delgado, IMF representative for Guatemala, stated that “if the Government provides strong reasons for increasing the deficit, the Fund could maintain the Stand-By Agreement”.
Meanwhile, the Guatemalan Congress is awaiting the opinions of the Monetary Board and the Public Finances Ministry to decide if they approve the issue of $563 million to $876 million.
The Finance Commission of the Legislative approved to issue the bonds and increased them to $874 million.
Originally, the Executive had proposed to issue debt for 4500 million quintals ($562 million), but this figure was increased by the Finance Commission.
The project was conceived to fund the State’s budget, and will now be discussed by Congress.
The main business chambers of the country argue that issuing additional bonds will jeopardize macroeconomic stability and drive prices up.
Jorge Montenegro, president of Cacif, a committee that includes agricultural, commercial, industrial and financial associations, called on congressmen to act with responsibility.
“With smoke and mirrors of municipal projects they have convinced many congressmen to support projects that must be paid issuing additional debt”, added Montenegro.
A proposal will be sent to Congress next week, reported Juan Alberto Fuentes, Finance Minister.
The Monetary Board, part of the Central Bank, has green lighted this operation. It is now in the hands of Congress to decide if the country should issue these bonds.
“Miguel Gutierrez, analyst from think tank CABI explained that if the Government decides to move forward with this transaction, it must do so in the next four months, before the U.S.
The global economic crisis forced Guatemala to increase its debt, but the country must now try to reduce it.
Economists are worrying for Guatemala’s foreign and domestic debt levels. “Eventually, it will be unsustainable, and the country won’t be able to pay it back. It will not happen right now, but in the medium term”, said Miguel Gutiérrez, analyst at Central American Business Intelligence.
Fitch Ratings warned that although Central American sovereigns have resisted the global crisis pretty well so far, they now require fiscal consolidation in order to maintain their credit ratings.
Summary
Fitch‐rated Central American sovereigns have thus far withstood the destabilizing effects of the global economic and financial crisis, despite monetary and exchange rate policy challenges.
Fitch downgraded Mexico's Issuer Default Rating (IDR) from 'BBB+' to 'BBB' in foreign currency and from 'A-' to 'BBB+' in domestic currency.
Both ratings have a 'Stable' outlook. Additionally, the country's ceiling was reduced to 'A-' from 'A'.
Fitch downgraded Mexico's ratings because the country's fiscal situation has gotten worse with the financial crisis and a reduction in Mexican oil production.
Demand for $363 million in Treasury Bonds has been such that in two sessions $243 million have been sold.
$42.5 million were issued in 3 year bonds, paying 7.2%, whereas $9.7 million were sold in 5 year bonds, paying 7.9%. The bulk was $141 million in 11 year securities, which pay 9%.
From Sigloxxi.com: "$25.53 million were demanded in 8 year bonds at 8.75%, but authorities decided not to sell for that term".
In the first day of the public offering the market demanded $220 million, with $50 million sold after analysis.
18% was bought by public entities and the remaining 82% by private investors.
"As tender offers were too high, we didn't closed deals through that channel. We closed them through bidding and the Stock Exchange", said Luis Alejandro Alejos, from the Finance Ministry.
When changing the financing scheme to sovereign debt, BCIE suggested Guatemala to do its bidding process again.
The original public bid, won by its sole participant Solel Boneh FTN, stated that the winning company was responsible for obtaining financing for the project, which in this case was provided by the Central American Integration Bank (BCIE) to the company.
The Finance Ministry presented the issue plan to bankers and investors.
Starting September 1st, public auctions will be carried out in the Stock Exchange, in which state companies, banks and private investors will participate.
"Those intending to invest in this securities have two options: they can approach the Central Bank and purchase bonds by themselves, with a minimum of Q10.000 ($1.214), or they can go to a stock broker and invest a minimum of Q5.000 ($607). In both cases, the investment can increase in multiples of Q100 ($12)", reported Prensalibre.com.
The legislature approved issuing 3 billion Quetzals in debt ($363 million) in Treasury Bonds.
In addition to endorsing issuing new bonds, the modifications to the Budget Law included dispositions forbidding the transference of funds to entities not specifically listed in the decree.
Representative Mario Taracena explained that "this measure is to prevent those resources destined to investment, debt or operations to end up being spent on different things", reports ElPeriodico.com.gt. "Within these limitations, the Finance Ministry has one transference available, in order to ensure execution of the funds".
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