/raid1/www/Hosts/bankrupt/TCRLA_Public/220321.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Monday, March 21, 2022, Vol. 23, No. 51
Headlines
A R G E N T I N A
ARGENTINA: Drought Threatens Yerba Mate Production
ARGENTINA: Prices Jumped 4.7% in Feb, Compounding Inflation Concern
B R A Z I L
BRAZIL: Central Bank Raises Base Rates to 11.75% p.a.
BRAZIL: Economy Shrinks by Almost 1% in January, Central Bank Says
C O L O M B I A
CREDIVALORES: S&P Downgrades ICRs to 'CCC+/C', On Watch Negative
C O S T A R I C A
COSTA RICA: S&P Affirms 'B' Sov. Credit Rating, Outlook Now Stable
M E X I C O
TOLUCA MUNICIPALITY: Moody's Downgrades Issuer Rating to Caa1
T R I N I D A D A N D T O B A G O
TRINIDAD & TOBAGO: T&T Dollar Overvalued by 20.4%, IMF Says
U R U G U A Y
URUGUAY: Government Appeals to Brazil to Access Fertilizers
X X X X X X X X
[*] BOND PRICING: For the Week March 14 to March 18, 2022
- - - - -
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A R G E N T I N A
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ARGENTINA: Drought Threatens Yerba Mate Production
--------------------------------------------------
Buenos Aires Times reports that in Colonia Liebig, Corrientes
Province, northeastern Argentina, the town's inhabitants number
more than 4,000. Almost all of them depend on a yerba mate farming
cooperative founded a century ago by German settlers, but a fierce
drought is killing crops, according to Buenos Aires Times. After
breaking production records in 2021, a mate slump is now looming,
the report notes.
"The plants are withered. Sixty percent are dead. Losses are in the
millions and we are still falling - we still haven't reached the
bottom. The situation is a total disaster," says Orlando Stvass,
the vice-president of the Liebig Agricultural Cooperative, producer
of the popular Playadito brand of mate, the market leader, the
report relays.
In the yerbales, or mate plantations, of Colonia Liebig, the fields
are usually a deep green. Now, the plants combine to create a brown
sea of dry bushes, the report discloses.
"They burned like they were in an oven," says agronomist Alberto
Muller as he walks through the plantation, surveying the damage,
the report ntes.
Colonia Liebig, along with areas of Misiones Province, is the prime
region in Argentina that's suitable for the cultivation and growing
of yerba mate, the leaves of which are used to prepare the
traditional infusion that is exported to Syria, China, Chile,
Lebanon, the United States and Spain, among other destinations, the
report discloses.
This new blow to producers will not reach the consumer until 2023
because yerba requires about 10 months of storage before it is
packaged, the report says.
"This year's stock is assured, but after that there will be a
shortage," warns Stvass, the report discloses.
Argentina is the leading exporter of mate and second in production
only to Brazil. Along with Paraguay, the three nations are the
world's main suppliers.
Disaster
Cultivating yerba mate requires iron-rich soils and a subtropical
climate with no dry season, the report relays. But local
production areas have not had rain for more than three months,
temperatures are running unusually high and the region is under
continued threat from the fires that have devastated 10 percent of
Corrientes Province, the report says.
"We have been suffering from a significant water deficit, [which
has been] accentuated in the last three months by high temperatures
of up to 45 degrees Celsius - four or five degrees above average,"
explains Muller, the report notes.
April is normally when the harvest season peaks, but those close by
say there are no leaves to harvest, the report relays.
"We can't yet measure the extent of the social problem. Ninety per
cent of the harvest is done manually and these people will be left
without work. I don't know what we are going to do," says Stvass,
the report discloses.
In Liebig alone, a thousand workers are directly involved in the
harvest. Thousands more will also be affected, the report notes.
"It's going to be a terrible social problem," Svatss remarks,
recalling that Liebig "boasts of having full employment" in a
country where unemployment stands at almost 10 percent, the report
discloses.
Millions in Losses
"The drought ruined a decade of research and development, the time
it takes for the plant to reach maximum production," says Muller,
the report says.
In Liebig "the plots are dry and have lost all their leaves - most
of the plants are dead, we can no longer recover them with rain,"
reports the agronomist, the report relays.
Drought also compromises seed collection and the unique 'blend'
created by each producer, the report notes.
Last year, production in Argentina produced the best yield of the
last five years with a record 882 million kilos - a jump of 8.5
percent compared to 2020 and almost 28 percent higher when compared
to 2017, the report discloses.
"We expect that cushion to soften the fall," Stvass hopes, the
report says.
During the last two years, Argentina has imported yerba from Brazil
to meet growing domestic demand and maintain its international
expansion, which has mainly been in Arab countries where the
infusion was brought in by the return of Syrian immigrants who had
come to Argentina in the last century, the report relays.
"This year we saw a 30 percent drop in the total production of
yerba mate in Argentina, which is extremely important and will be
passed onto [consumer] prices," Stvass predicted, the report
notes.
According to the National Institute of Yerba Mate (Instituto
Nacional de la Yerba Mate), Argentines consume around six kilos of
yerba per person per year, with mate present in around 90 percent
of households, the report says.
"Mate for me is a daily thing, at breakfast, at snack and after
dinner, I never miss it," says AgustÃn Litwin, a 20-year-old
student worried about the effect the drought will have on the
prices of his favorite brand, the report relays.
Preliminary estimates put the losses to the economy at four billion
pesos (about US$35 million), the report notes.
"We haven't had a drop of water since November 15 and we don't know
how much longer it will continue. It's not over yet," Stvass warns,
the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
Standard & Poor's credit rating for Argentina stands at CCC+ with
stable outlook, which was a rating upgrade issued on Sept. 8,
2020.
Moody's credit rating for Argentina was last set at Ca on Sept.
28, 2020. Fitch's credit rating for Argentina was last reported on
Sept. 11, 2020 at CCC, which was a rating upgrade from CC. DBRS'
credit rating for Argentina is CCC, given on Sept. 11, 2020.
As reported by The Troubled Company Reporter - Latin American, DBRS
noted that the recent upgrade in Argentina's ratings (September
2020) follows the closing of two debt restructuring agreements
between the Argentine government and private creditors. The first
restructuring involved $65 billion in foreign-law bonds. The deal
achieved the requisite participation necessary to trigger the
collective action clauses and finalize the restructuring on 99% on
the aggregate principal outstanding of eligible bonds. DBRS added
that the debt restructurings conclude a prolonged default and
provide the government with substantial principal and interest
payment relief over the next four years.
DBRS further relayed that Argentina is also seeking a new agreement
with the International Monetary Fund (IMF) to replace the canceled
2018 Stand-by Agreement. Formal negotiations on the new financing
began in November 2020. Obligations to the IMF amount to $44
billion, with major repayments coming due in 2022 and 2023.
ARGENTINA: Prices Jumped 4.7% in Feb, Compounding Inflation Concern
-------------------------------------------------------------------
Buenos Aires Times reports that prices in Argentina jumped 4.7% in
February, government data revealed, as officials vowed to step up
efforts to tackle runaway inflation.
According to data published by the INDEC national statistics
bureau, prices rose 8.8% in just the first two months of the year
with Argentina's inflation rate over the last year now standing at
52.3% - one of the highest rates in the world, the report notes.
Prices had risen by 3.9% in January, indicating that inflation is
on the rise, according to Buenos Aires Times.
The highest monthly increases in February were seen in food and
non-alcoholic beverages, with prices up 7.5 %, despite the
introduction of a number of government-imposed price freezes on
staple products, the report notes. Food prices soared particularly
in the Buenos Aires metropolitan area (AMBA), rising 8.6%, the
report relays.
In a press release, the Economy Ministry attributed the rise to the
effects of the war that broke out between Russia and Ukraine,
although it should be remembered that the conflict only began on
February 24, the report discloses.
Drilling down further into food prices, the highest increases were
observed in products that are not linked to international trade but
to domestic dynamics: lettuce (up 72.7% from previous month),
tomatoes (40.8%), onions (30.8%) and eggs (22.5%), the report
relays.
Lower House Speaker Sergio Massa described inflation as "the most
harmful poison" and called for a "new economic and social agreement
to defeat inflation," the report notes. He also said small and
medium-sized businesses should be given greater assistance to
ensure their survival, the report discloses.
Tackling inflation is one of the main aims of the US$45-billion
financing program agreed between Argentina and the International
Monetary Fund (IMF), which is to be ratified by Congress, the
report relates.
"I hope that we can begin to put order in the issue of the
tremendous debt we inherited," President Alberto Fernandez said,
noting that, if the agreement is approved by Congress, "the war
against inflation and speculators will truly begin," the report
relays.
New Measures, Outlook
According to government sources quoted in local outlets, the
national government planned to make a series of "announcements,
measures and agreements" outlining its anti-inflation plan in the
coming days, President Alberto Fernandez anticipated earlier, the
report discloses.
Opposition leaders slammed the government's inability to tackle
runaway price increases, with lawmaker Maria Eugenia Vidal
observing that Argentina had accumulated more inflation in the last
two months than "129 countries did in 2021," the report relays.
She argued that Argentina's inflation rate was now outpacing
Venezuela's, with her coalition colleague Senator Alfredo Cornejo
declaring that the government had to form "a plan" and leave
"improvisation" behind, the report notes.
Argentina has suffered from high inflation for years, with the
problem pre-dating both the current and former government, the
report says.
In 2021, prices rose 50.9% in the calendar year, while in 2020 - a
year of economic paralysis due to the Covid-19 pandemic - inflation
reached 36.1%, the report relates.
In 2019, in the final year of the Mauricio Macri administration,
which preceded Fernandez's government, prices had risen 53.8%, the
report relays.
According to the fine print of the proposed IMF program, inflation
this year is projected to be between 38 and 48%, the report
discloses.
In the agreement, Fernandez's government has pledged to reduce
Argentina's fiscal deficit from its current rate of 3% of GDP to
2.5% in 2022, before dropping to 1.9% in 2023 and 0.9% in 2024, the
report notes.
Argentina's next presidential election falls due in late 2023, the
report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Alberto Angel Fernandez is
the current president of Argentina after winning the October 2019
general election. He succeeded Mauricio Macri in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
Standard & Poor's credit rating for Argentina stands at CCC+ with
stable outlook, which was a rating upgrade issued on Sept. 8,
2020.
Moody's credit rating for Argentina was last set at Ca on Sept.
28, 2020. Fitch's credit rating for Argentina was last reported on
Sept. 11, 2020 at CCC, which was a rating upgrade from CC. DBRS'
credit rating for Argentina is CCC, given on Sept. 11, 2020.
As reported by The Troubled Company Reporter - Latin American, DBRS
noted that the recent upgrade in Argentina's ratings (September
2020) follows the closing of two debt restructuring agreements
between the Argentine government and private creditors. The first
restructuring involved $65 billion in foreign-law bonds. The deal
achieved the requisite participation necessary to trigger the
collective action clauses and finalize the restructuring on 99% on
the aggregate principal outstanding of eligible bonds. DBRS added
that the debt restructurings conclude a prolonged default and
provide the government with substantial principal and interest
payment relief over the next four years.
DBRS further relayed that Argentina is also seeking a new agreement
with the International Monetary Fund (IMF) to replace the canceled
2018 Stand-by Agreement. Formal negotiations on the new financing
began in November 2020. Obligations to the IMF amount to $44
billion, with major repayments coming due in 2022 and 2023.
===========
B R A Z I L
===========
BRAZIL: Central Bank Raises Base Rates to 11.75% p.a.
-----------------------------------------------------
Rio Times Online reports that amid the impact of the war in Ukraine
on the global economy, the Central Bank (CB) has further tightened
its monetary policy belt, according to Rio Times Online. The
Monetary Policy Committee (Copom) unanimously increased the Selic
rate, the economy's prime rate, from 10.75% to 11.75% per annum,
the report notes. The decision was expected by financial analysts,
the report relays.
In a communique, the central bank said that caution is needed in
the current situation, the report relays. Copom indicated that the
next hike will also be by 1 percentage point, but that it may
review the pace of monetary tightening as needed, the report
discloses.
The rate is the highest since April 2017, when it was 12.25%, the
report says. This was the ninth consecutive adjustment of the
Selic rate, the report relays. Despite the high level, the central
bank reduced the pace of monetary tightening, the report notes.
After three consecutive increases of 1.5 percentage points, the
rate was raised by one point, the report adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Jair Bolsonaro is the current president, having
been sworn in on Jan. 1, 2019.
Standard & Poor's credit rating for Brazil stands at BB- with
stable outlook (April 2020). S&P's 'BB-/B' long-and short-term
foreign and local currency sovereign credit ratings for Brazil were
affirmed in December 2021 with stable outlook. Fitch Ratings'
credit rating for Brazil stands at 'BB-' with a negative outlook
(November 2020). Fitch's 'BB-' Long-Term Foreign and Local
Currency Issuer Default Ratings (IDRs) has been affirmed in
December 2021. Moody's credit rating for Brazil was last set at
Ba2 with stable outlook (April 2018). DBRS's credit rating for
Brazil is BB (low) with stable outlook (March 2018).
BRAZIL: Economy Shrinks by Almost 1% in January, Central Bank Says
------------------------------------------------------------------
Rio Times Online reports that the index of economic activity
(IBC-Br) fell by almost 1% in January compared to December last
year.
According to the Index of Economic Activity (IBC-Br) published by
the Central Bank (BC), the decline was 0.99%, the report notes.
With this change, the indicator closed the month at 138.48 points,
according to Rio Times Online.
In addition to the tax volume, the IBC-Br also includes information
on the activity level of the three economic sectors: Industry,
Trade and Services, and Agriculture and Livestock, the report
discloses.
The index for the level of activity in the three sectors of the
economy fell by 0.99%, the report says.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Jair Bolsonaro is the current president, having
been sworn in on Jan. 1, 2019.
Standard & Poor's credit rating for Brazil stands at BB- with
stable outlook (April 2020). S&P's 'BB-/B' long-and short-term
foreign and local currency sovereign credit ratings for Brazil were
affirmed in December 2021 with stable outlook. Fitch Ratings'
credit rating for Brazil stands at 'BB-' with a negative outlook
(November 2020). Fitch's 'BB-' Long-Term Foreign and Local
Currency Issuer Default Ratings (IDRs) has been affirmed in
December 2021. Moody's credit rating for Brazil was last set at
Ba2 with stable outlook (April 2018). DBRS's credit rating for
Brazil is BB (low) with stable outlook (March 2018).
===============
C O L O M B I A
===============
CREDIVALORES: S&P Downgrades ICRs to 'CCC+/C', On Watch Negative
----------------------------------------------------------------
On March 17, 2022, S&P Global Ratings lowered its long-term global
scale issuer credit and issue-level ratings to 'CCC+' from 'B', and
its short-term global scale issuer credit rating to 'C' from 'B' on
Credivalores. At the same time, S&P placed the ratings on
CreditWatch negative.
Rationale
Credivalores' funding and liquidity profile deteriorated amid
rising refinancing risk. Given worsening funding conditions for
NBFIs in the region, in which the international debt markets are
currently partly closed, the company is struggling to seek
alternative funding sources. Nearly 70% of Credivalores' funding
profile consists of two international market debt issuances. The
remainder of its funding profile consists of secured credit lines
(12%), ECP notes (12%), unsecured banking lines (4%), and local
bonds (2%) guaranteed by Fondo Nacional de Garantias. As a result
of difficult financing conditions, the company is seeking out
alternative funding sources that now rely on obtaining securitized
debt. S&P said, "In our view, given that Credivalores will have to
use the bulk of its loan portfolio as collateral, this will
undermine its financial flexibility and liquidity. Therefore, we're
revising our assessments of Credivalores' funding and liquidity to
weaker categories."
The company has a debt maturity in July for one of its two
international issuances for nearly $164 million (28% of its total
debt). In this sense, Credivalores recently obtained secured credit
lines from Citibank Colombia and other domestic lenders that
totaled nearly $107 million to serve that maturity. However, this
amount still falls short of the total maturity and funds needed for
Credivalores' expected growth, compromising its liquidity profile.
The company is still negotiating additional secured alternatives.
Credivalores' operating profile has been deteriorating during the
recent years, taking a toll on its overall credit profile. An
increasing cost of risk, reflected in sharply lower profitability,
has depressed the company's overall credit profile. The latter
results from a shift in the loan portfolio from payroll
loans--mainly granted to government employees-- towards credit
cards. In past years, credit cards accounted for 29% of total
portfolio, but their share has risen to about 45% as of 2021. This
shift, along with the pandemic's economic fallout, raised
Credivalores' cost of risk and has failed to improve margins, given
a riskier portfolio.
S&P said, "We believe that the greater share of credit cards in the
portfolio will keep asset quality metrics weaker than historical
figures. We expect non-performing assets (NPAs) and net charge-offs
(NCOs) to remain high, reaching about 13.5% and slightly below 1%,
respectively, for 2022.
"Finally, we believe that the overall impact of the cost of risk
will erode its ROAA to about 0.3% in 2022 from 1.4% in 2016. This
will continue reducing Credivalores' risk-adjusted capital (RAC)
ratio--that has been already decreasing for the past few
years--towards projected level of about 5.5% for the next 24
months."
CreditWatch
The CreditWatch negative listing reflects the possibility of a
further downgrade in the next 90 days if refinancing pressures
increase, jeopardizing the payment of the upcoming debt maturity.
S&P said, "We could lower the ratings in the next 90 days if
Credivalores' refinancing plan falls behind schedule and it's
unable to secure enough funds to cover its upcoming maturity in the
next few months. On the other hand, we could take Credivalores off
CreditWatch negative if it secures enough funding to cover its
entire maturity and to support its expected growth and ensure the
business continuity."
===================
C O S T A R I C A
===================
COSTA RICA: S&P Affirms 'B' Sov. Credit Rating, Outlook Now Stable
------------------------------------------------------------------
S&P Global Ratings revised its rating outlook on Costa Rica to
stable from negative. S&P also affirmed its 'B' long- and
short-term foreign and local currency sovereign credit ratings. The
transfer and convertibility assessment remains 'BB-'.
Outlook
S&P said, "The stable outlook incorporates our assumptions that
fiscal consolidation efforts and slow advancement of some policy
measures included in the IMF program will continue over the next
year, irrespective of who wins the presidential election on April
3. We believe maintaining access to official external financing
amid more challenging and uncertain global economic conditions is
key to sustaining funding flexibility and maintaining confidence in
the local and global capital markets."
Downside scenario
S&P could lower the ratings over the next 12 months if
implementation setbacks or policy reversals threaten to worsen
local market conditions and raise debt management risk. In 2021,
deficit financing relied almost wholly on the local market, and
space provided by official lenders--or potentially global capital
markets--could prove important in 2022. While funding needs have
declined as deficits have come down, they remain high.
Setbacks could include challenges in securing congressional
approval for external financing, be it from capital markets or
official creditors. Under such a scenario, recourse to the central
bank or other unconventional financing could cause S&P to view the
country's institutional framework and ability to support public
finances less favorably--despite widespread checks and balances and
a solid democratic tradition--and lead us to lower the ratings.
Upside scenario
Conversely, S&P could raise the ratings over the next 12 months if
the government and Legislative Assembly continue to advance
concrete measures that anchor fiscal policy in line with the
Extended Fund Facility (EFF), alongside execution of the public
employment bill and 2018 fiscal reform. Such steps would likely
support investor confidence, sustain fluid access to local market
and official borrowing as well as foreign direct investment (FDI),
and reduce the country's external vulnerability.
Rationale
The ratings on Costa Rica reflect its long-established democracy,
which has brought political stability amid solid checks and
balances, and its generally prosperous economy and standards of
living compared with regional peers. However, they also reflect
persistent fiscal slippage over the past decade, as a result of a
policy response that was not as proactive and timely as that seen
in higher-rated sovereigns and that led to a doubling of government
debt as a share of GDP even before the COVID-19 pandemic.
Costa Rica's fiscal and external profiles are complicated by
rigidities and long-standing vulnerabilities in the government's
debt management procedures. The Legislative Assembly has often held
back approval for the government to borrow externally, forcing it
to rely on a small domestic market. Such political obstacles
weighed on the predictability of debt management and reduced the
government's financial flexibility.
Despite solid FDI inflows that have generally covered the current
account deficit (CAD), vulnerabilities associated with securing
approval for external debt financing are rating weaknesses.
Monetary policy credibility and execution, in contrast, have
benefited from an inflation-targeting regime, exchange rate
flexibility, and some decline and stabilization in the level of
dollarization in the financial system.
Institutional and economic profile: A strong democratic tradition
has supported a prosperous economy, but the country's record of
addressing fiscal weaknesses is not timely
-- Costa Rica's stable political system and social indicators
compare positively with those of peers.
-- However, political fragmentation has slowed progress in
redressing long-standing fiscal weaknesses that the current
administration hoped to turn around by engaging with the IMF.
-- S&P expects real GDP growth to average about 3.4% in 2022-2024,
after posting a 7.6% rebound in 2021, on continued dynamism in
exports and investment and a recovery in tourism.
S&P's assessment of Costa Rica's institutional effectiveness
reflects its strong democratic tradition of stable political
institutions, high social indicators, and overall predictable,
albeit slow, policymaking. The country's low poverty and low crime
compare positively with its Central American peers. However, the
country's fragmented decision-making process gives even small
numbers of representatives in the Legislative Assembly the ability
to stall approval of legislation. This dynamic has slowed, and at
times impeded, progress on fiscal measures that have been debated
under multiple administrations.
Fiscal pressures amid the pandemic led the current administration
to prioritize bolstering policy credibility and securing financing
via an EFF. It took about six months of back-and-forth, amid social
protests about a potential program, before the government and IMF
negotiated a three-year $1.78 billion program in early 2021, and
then another eight months before the Legislative Assembly approved
the IMF financing program (two-thirds majority required) to receive
the initial disbursement. A key structural benchmark under the
program includes the public employment bill, along with various
revenue measures to bolster the competitiveness of the Costa Rican
economy.
While the public employment bill passed its first debate in the
Legislative Assembly in mid-2021, it had to be reviewed twice by
the Constitutional Court and required additional votes in the
assembly, with the last on March 7, 2022. Its passage and solid
2021 fiscal results facilitated a technical staff agreement on both
the first and second reviews of the EFF on March 8, 2022,
notwithstanding stalled progress on revenue measures and still
subject to IMF board approval.
These recent developments have been important for Costa Rica's
creditworthiness. Moreover, the Legislative Assembly demonstrated
with this vote that it was proactive in the midst of an election
cycle, with the public employment bill securing final approval with
39 votes (of 57) between the first and second rounds of the
presidential election. The incoming unilateral 57-seat Legislative
Assembly, following elections in February, is still fragmented but
contains fewer parties (only five).
S&P assumes that regardless of the presidential election outcome,
political support for progress under the EFF remains solid, even if
some aspects of the program are potentially reconfigured after the
new president assumes office in May. Slippage and setbacks would
likely complicate fluid debt management, particularly in the
current global economy.
In the past, the Legislative Assembly has withheld approval for
external financing, including for official borrowing, forcing the
government to rely on the small domestic market. While there is a
captive local market--with state-owned banks, institutional
investors (with ties to the public sector), and state-owned
enterprises as key creditors to the government--a weakening in
sentiment would raise the cost of borrowing. Such political
obstacles weigh on our view of debt management and the government's
financial flexibility. Reliance on less conventional financing
could negatively affect our ratings.
In 2021, real GDP grew 7.6%, following a 4.1% decline amid the
pandemic in 2020. The rebound stemmed from private investment and
manufacturing exports from free-trade zones, with some recovery in
services. S&P expects real GDP growth to average 3.4% in 2022-2024.
As the government continues to limit spending, the country's
overall good business climate should continue to support steady FDI
flows--which jumped to over 5% of GDP in 2021--while Costa Rica's
special trade zones in life sciences, digital technology, and
services could benefit further from nearshoring.
Flexibility and performance profile: Fiscal indicators and high
external vulnerability are prominent rating weaknesses
-- Net general government debt at over 60% of GDP and the heavy
interest burden underscore the importance of executing
deficit-reducing measures.
-- External indebtedness and rigidities in congressional approval
of financing are rating weaknesses, despite steady FDI inflows that
mostly finance the CAD.
-- The country's monetary policy credibility reflects inflation
targeting, flexibility in the colon exchange rate regime, and some
decline in dollarization.
Following robust revenue performance (some of which reflected
one-off effects) and contained spending, Costa Rica's central
government deficit declined to 5% of GDP in 2021 from 8% in 2020.
S&P said, "We forecast the general government deficit--which also
includes the central bank and social security, along with the
central government and decentralized agencies--will average about
4.3% of GDP in 2022-2024, from an estimated 4.6% in 2021.
Accordingly, we project that the change in net general government
debt will average 4.7% of GDP in 2022-2024. We assume spending will
remain restrained, generally in line with the 2018 fiscal reform
that limited public-sector wage increases, given current debt
levels. But there are implementation risks amid the rise in
inflation."
Fiscal deficits over the past decade significantly increased the
country's debt burden and interest payments. Debt was already
trending higher but jumped further amid the pandemic. Net general
government debt was 66% of GDP in 2021, up from 65% in 2020 and 57%
in 2019 (compared with 27% in 2010). S&P said, "We project net
general government debt will remain around current levels through
2024. At the same time, we expect interest payments of over 18% of
general government revenue in 2022-2024 (up from 8% in 2010). About
40% of the general government's debt is denominated in foreign
currency--a vulnerability; however, three-quarters of total debt is
issued in the local market--a strength."
The country's constitution requires the Legislative Assembly to
approve all individual borrowings and external debt with a
two-thirds majority. This includes borrowings not just from global
capital markets but also from multilateral and official lenders.
The approval process has often been slow, and political resistance
has stymied multiyear borrowing authorization. This heightens the
challenges to effective debt management, given still-high funding
needs.
S&P said, "We expect the current account and trade deficits to
widen in 2022 amid higher oil prices. We expect the CAD to average
above 3.3% of GDP in 2022-2024, incorporating income deficits
driven by interest payments on external debt and a surplus in
services. FDI remains solid. We expect the sovereign's gross
external financing needs to hover around 109% of current account
receipts (CAR) and usable reserves over the next three years, and
we expect its narrow net external debt to average about 53% of CAR
in 2022-2024."
Monetary policy credibility and execution benefit from an
inflation-targeting regime, exchange rate flexibility under a
managed float, and some decline and stabilization in the level of
dollarization in the financial system. Dollar deposits in banks
ticked up in 2020 and 2021 to over 40% of deposits, while
dollar-denominated loans from Costa Rica's financial institutions
have remained stable at just below 40% of total loans to the
private sector. On balance, dollarization has declined over the
past five to 10 years and now poses less of a constraint on the
conduct of monetary policy. That said, an unexpectedly sharp change
in the exchange rate could create asset quality problems in the
financial system. Dollarization also limits the central bank's
ability to act as a lender of last resort.
Inflation had been below target in recent years but has accelerated
since mid-2021. Consumer price inflation averaged 1.7% in 2021 but
ended the year at 3.3% and rose to 4.9% in February 2022. The
central bank started a hiking cycle in December 2021 and has raised
the policy rate on three occasions, to 2.5% at the March meeting.
S&P said, "We project average annual inflation of 5.5% in 2022,
higher than the inflation target of 3% +/- 1 percentage point, but
we expect it will move within this target range in 2023.
Given that the banking system's assets-to-GDP ratio is about 95%
and that our Banking Industry Country Risk Assessment (BICRA) for
Costa Rica is '8', we consider Costa Rica's contingent liabilities
to be limited. (BICRAs are grouped on a scale from '1' to '10',
ranging from what we view as the lowest-risk banking systems [group
'1'] to the highest-risk [group '10'].)"
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
RATINGS AFFIRMED
COSTA RICA
Transfer & Convertibility Assessment
Local Currency BB-
COSTA RICA
Senior Unsecured B
RATINGS AFFIRMED; CREDITWATCH/OUTLOOK ACTION
TO FROM
COSTA RICA
Sovereign Credit Rating B/Stable/B B/Negative/B
===========
M E X I C O
===========
TOLUCA MUNICIPALITY: Moody's Downgrades Issuer Rating to Caa1
-------------------------------------------------------------
Moody's de Mexico S.A. de C.V. has downgraded the issuer ratings
for the Municipality of Toluca to Caa1/B3.mx (Global Scale, local
currency/Mexico National Scale) from B3/B1.mx, downgraded its
baseline credit assessment (BCA) to caa1 from b3 and maintained a
negative outlook.
RATINGS RATIONALE
The downgrade of the BCA to caa1 and issuer ratings to Caa1/B3.mx
primarily reflects poor governance practices that have resulted in
several missed payments on short-term loans in recent months, as
well as Moody's expectation that Toluca will continue to face
significant liquidity stress. Toluca's administration is currently
negotiating payment of its short-term financial obligations with
its lenders, though the timing of resolution remains uncertain. The
recent missed short-term debt payments also mean that Toluca failed
to pay off all outstanding short-term loans during the final three
months prior to the change of administration that occurred on
January 1, 2022, and therefore is not compliant with the Financial
Discipline Law for States and Municipalities. Toluca will therefore
likely face further restrictions from Mexico's Debt Alert System in
acquiring new debt this year.
Toluca's ratio of cash/current liabilities declined to an extremely
low 0.02x in December 2021, based on preliminary results, down from
an already very weak 0.06x reported in 2020. Liquidity pressures
stem largely from a steep deterioration in operating performance as
a result of falling revenues in 2020 followed by a relatively weak
recovery of revenue in 2021, combined with significant operating
spending pressure. Toluca reported a gross operating balance of
-22.6% of operating revenue in 2020, followed by a smaller 1.7%
deficit in 2021 (preliminary), the latter assisted by broad-based
reductions to operating expenditures. Moody's expects Toluca will
continue to report deficits of 1.5-1.8% in 2022 and 2023 based on
expectations that the municipality will continue to face spending
pressure related to accelerating inflation, even as revenue growth
accelerates.
Toluca's operating flexibility and its liquidity have also been
constrained by significant accumulated arrears. The municipality's
non-earmarked federal transfers (participations) and other federal
transfers (FORTAMUN) were garnished in 2021 to cover past-due
pension payments to the state pension system (ISSEMYM), water
company contingencies and other arrears. Toluca continues to report
significant payments of arrears (Adefas), which were equal to 8.9%
of operating revenue in 2021.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects Moody's expectation that liquidity
will remain very weak, contributing to ongoing uncertainty about
Toluca's past-due payments on its short-term loans. While the
lenders will likely levy penalty interest payments on late
payments, the timing of the resolution remains unclear.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental considerations are not material to Toluca's ratings.
Social considerations are material to Toluca's ratings. The
municipality has faced rising levels of violence and security
spending has been a source of financial pressure in recent years
and a key driver of operating deficits.
Governance considerations are also material to Toluca's ratings.
The municipality generally complies with the institutional
framework determined by national legislation for all state and
municipal governments. However, Toluca's weak operating balances,
very weak liquidity and past-due payments on its short-term debt
reflect poor planning and budget management.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
If Toluca develops a credible plan that would allow it to fully pay
all past-due balances on its short-term debt, including penalties,
and adopts governance and management practices that will result in
an improvement in its liquidity position, the outlook on the
ratings could be stabilized and eventually upgraded. Conversely, if
Toluca fails to improve governance and management practices and it
continues to delay debt service payments on its outstanding
short-term loans, raising risks that lenders may be forced to
absorb losses, the ratings could be further downgraded.
The principal methodology used in these ratings was Regional and
Local Governments published in January 2018.
=====================================
T R I N I D A D A N D T O B A G O
=====================================
TRINIDAD & TOBAGO: T&T Dollar Overvalued by 20.4%, IMF Says
-----------------------------------------------------------
Trinidad Express reports that the real effective exchange rate
(REER) of the T&T dollar implies that it is overvalued by 20.4 per
cent, according to one of two models used by the International
Monetary Fund (IMF) to assess the competitiveness of the domestic
currency.
The real effective exchange rate is a measure of the value of a
currency against a weighted average of several foreign currencies)
divided by a price deflator or index of costs, according to
Trinidad Express.
Writing in the Article IV Consultation staff report, the IMF team
that studied the T&T economy said the country's real effective
exchange rate depreciated by 7.2% between March 2020 and June 2021
due to a 3.7% depreciation in the nominal effective exchange rate
and a 3.5% decrease in the relative price index, the report notes.
"Despite this depreciation, the real effective exchange rate
remains overvalued with respect to the levels implied by
medium-term fundamentals and desirable policies.
"This is consistent with the observed tightness in the domestic
foreign exchange market and the one-sided interventions by the
Central Bank of Trinidad and Tobago, which have kept the nominal
exchange rate vis-a-vis the US dollar stable," the IMF said, the
report relays.
In its assessment, the IMF team said one model that used changes in
T&T's current account-which is the difference between the value of
exports of goods and services and the value of imports of goods and
services-implied a real effective exchange rate overvaluation of
11.6%, the report discloses.
This is consistent with the direction of overvaluation produced by
another model using the real effective exchange rate to imply the
overvaluation of 20.4%, according to the Article IV report,
Trinidad Express.
Since the March 2020 to June 2021 period used by the IMF, the
prices of T&T's main exports of natural gas, crude oil, ammonia and
methanol have rebounded, which could have a positive impact on the
current account, the report notes.
"The current account balance surplus narrowed significantly from
4.3% of GDP in 2019 to 0.1% of GDP in 2020 due to a sharp decline
in energy exports, driven by the weak performance of the energy
sector from supply shocks coupled with the energy price shock that
accompanied the global pandemic," said the IMF, the report relays.
And the Washington DC-based institution added that T&T's current
account balance is expected to recover significantly to a surplus
of 11.2 per cent of GDP in 2021 and remain in surplus over the
medium term at the back of the recovery in the energy sector, the
report discloses.
In a footnote in the report, the IMF said the difference in
magnitude of overvaluation in the two models could be partially
explained by the fact that the real effective exchange rate model
"does not incorporate an adjustment for the temporary impact of the
pandemic on oil trade balances, while the current account model
does," the report notes
According to the IMF, the external position of Trinidad and Tobago
in 2020 was weaker than the level implied by fundamentals and
desirable policies, the report says.
The financial institution said: "Given the authorities' commitment
to the current de facto exchange rate arrangement, medium-term
fiscal consolidation, together with structural reforms to support
the development of the non-energy sector which would improve
competitiveness, are needed to protect the current level of reserve
buffers and increase savings for future generations," the report
notes.
The IMF said a strong economic recovery is projected for 2022, with
downside risks predominating, the report discloses. It said real
GDP growth in 2022 is expected at 5.5 per cent, "reinforced by the
continued policy support and the anticipated recovery in oil and
gas production," the report relays.
The IMF's Article IV mission to T&T held discussions with Minister
of Finance Colm Imbert, Central Bank governor Alvin Hilaire, and
their teams, and other public and private sector representatives,
the report adds.
=============
U R U G U A Y
=============
URUGUAY: Government Appeals to Brazil to Access Fertilizers
-----------------------------------------------------------
Rio Times Online reports that the war in Ukraine has boosted the
price of different raw materials but has also generated uncertainty
about the supply of crucial inputs for agriculture, including
fertilizers.
Given the difficulties, the Uruguayan government appealed to the
Brazilian authorities to agree to the joint import of these
products, understanding that Brazil's larger scale will facilitate
access to the local market, according to Rio Times Online.
The Uruguayan Minister of Livestock, Agriculture, and Fisheries,
Fernando Mattos, told Bloomberg Linea that they have already
started negotiations to enable Uruguayan producers to access the
supply with the intermediation of the northern country, the report
notes.
The Uruguayan Executive Branch promotes joint imports to ensure the
local market's supply, which is smaller in scale than Brazil's, the
report adds.
===============
X X X X X X X X
===============
[*] BOND PRICING: For the Week March 14 to March 18, 2022
---------------------------------------------------------
Issuer Name Cpn Price Maturity Country Curr
----------- --- ----- -------- ------- ---
Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD
Province of Santa Fe 6.9 75.2 11/1/2027 AR USD
Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD
Argentine Republic Gov 0.5 27.6 12/31/2038 AR JPY
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Provincia de Cordoba 7.1 74.7 8/1/2027 AR USD
YPF SA 16.5 67.3 5/9/2022 AR ARS
Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD
Fospar S/A 6.5 1.2 5/15/2026 BR BRL
Metrogas SA/Chile 6.0 41.6 8/1/2024 CL CLP
Province of Santa Fe 6.9 75.2 11/1/2027 AR USD
Provincia del Chubut A 4.5 2208 3/30/2021 AR USD
Argentine Republic Gov 4.3 70.0 12/31/2033 AR JPY
KrisEnergy Ltd 4.0 40.4 6/9/2022 SG SGD
Banco Macro SA 17.5 65.2 5/8/2022 AR ARS
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
Provincia de Rio Negro 7.8 70.4 12/7/2025 AR USD
Noble Holding Internat 5.3 60.5 3/15/2042 KY USD
Provincia de Cordoba 7.1 72.7 8/1/2027 AR USD
Provincia de Buenos Ai 7.9 75.3 6/15/2027 AR USD
Province of Santa Fe 6.9 74.7 11/1/2027 AR USD
City of Cordoba Argent 7.9 73.1 9/29/2024 AR USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
Argentine Republic Gov 7.1 75.7 6/28/2117 AR USD
Provincia del Chaco Ar 9.4 74.8 8/18/2024 AR USD
Provincia de Rio Negro 7.8 70.3 12/7/2025 AR USD
YPF SA 16.5 67.3 5/9/2022 AR ARS
Polarcus Ltd 5.6 71.8 7/1/2022 AE USD
YPF SA 16.5 67.3 5/9/2022 AR ARS
Argentine Republic Gov 8.3 74.5 12/31/2033 AR USD
Provincia del Chaco Ar 4.0 0.0 12/4/2026 AR USD
Cia Latinoamericana de 9.5 74.3 7/20/2023 AR USD
Sylph Ltd 2.4 65.1 9/25/2036 KY USD
Banco Macro SA 17.5 65.2 5/8/2022 AR ARS
Noble Holding Internat 6.2 62.2 8/1/2040 KY USD
Province of Santa Fe 6.9 74.7 11/1/2027 AR USD
Odebrecht Finance Ltd 6.0 16.4 4/5/2023 KY USD
Esval SA 3.5 49.9 2/15/2026 CL CLP
AES Tiete Energia SA 6.8 1.2 4/15/2024 BR BRL
Enel Americas SA 5.8 32.7 6/15/2022 CL CLP
Cia Latinoamericana de 9.5 73.9 7/20/2023 AR USD
Argentine Republic Gov 6.3 74.1 11/9/2047 AR EUR
Argentina Bonar Bonds 7.6 74.4 4/18/2037 AR USD
Avadel Finance Cayman 4.5 55.0 2/1/2023 US USD
Argentine Republic Gov 6.9 75.2 1/11/2048 AR USD
Argentina Bonar Bonds 5.8 75.2 4/18/2025 AR USD
Noble Holding Internat 6.1 62.0 3/1/2041 KY USD
Automotores Gildemeist 6.8 54.9 1/15/2023 CL USD
Argentine Republic Gov 8.3 72.9 12/31/2033 AR USD
*********
S U B S C R I P T I O N I N F O R M A T I O N
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Chapman, Editors.
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