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/raid1/www/Hosts/bankrupt/TCRLA_Public/230223.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 Thursday, February 23, 2023, Vol. 24, No. 40 Headlines A R G E N T I N A ARGENTINA: Annual Inflation Rate Hits 98.8% ARGENTINA: Looks to Roll Over US$1.6BB of Local Debt Mountain B A H A M A S FTX TRADING: Judge Tightens Sam Bankman-Fried's Bail, Sets Hearing B R A Z I L AMERICANAS SA: Implosion Prompts Banks to Set Aside $1.8 Billion OI SA: Brazilian Restructuring Completed, U.S. Cases Closed G U A T E M A L A GUATEMALA: Fitch Hikes LongTerm IDRs to 'BB', Outlook Stable GUATEMALA: IDB Approves $100MM Loan to Improve Secondary Education X X X X X X X X LATAM: Agribusiness, Construction & Tourism Could Drive Economy - - - - - ================= A R G E N T I N A ================= ARGENTINA: Annual Inflation Rate Hits 98.8% ------------------------------------------- Patrick Gillespie at Bloomberg News reports that Argentina's inflation sped up more than expected in January as price controls proved ineffective, further complicating the government's strategy ahead of presidential elections later this year. Consumer prices rose 98.8 percent from a year earlier, more than the 98.6 percent median forecast from economists in a Bloomberg survey. Prices gained six percent from December, the second straight month of faster increases, according to government data published, according to Bloomberg News. Higher costs of recreation, housing and communication propelled increases in January on a monthly basis. Rises in food prices, the largest weighted category in the index, were also above headline inflation, Bloomberg News relays. "Inflation remains hot and widespread, and current policy measures - low real interest rates, price controls and an overvalued currency - aren't working to tame price pressures. We expect inflation to hover around 100 percent through most of the year," said Adriana Dupita, Brazil and Argentina economist for Bloomberg. While inflation is a perennial problem in Argentina, it's now ascended to one of the world's highest rates as the leftist government of President Alberto Fernandez struggles to build a credible economic plan,Bloomberg News notes. With presidential elections in October, years of printing money to finance government spending are proving particularly costly on top of higher energy prices following Russia's invasion of Ukraine, Bloomberg News says. Fernandez's unconventional strategy to contain inflation - a mix of price freezes, currency controls, multiple exchange rates and high borrowing costs - has failed to cool cost-of-living increases and future expectations, Bloomberg News notes. Economists forecast annual inflation to finish this year at 98 percent, Bloomberg News relays. Economy Minister Sergio Massa rolled out new price controls on beef and said he's preparing more measures to reel in the rising cost of living, Bloomberg News discloses. Fernandez is hosting an election roundtable with leaders from his coalition to define their campaign strategy, Bloomberg News 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. Last March 25, 2022, Argentina finalized agreement with the IMF for a new USD44 billion Extended Funding Facility (EFF) intended to fund USD40 billion in looming repayments of the defunct Stand-By Arrangement (SBA), with an extra USD4 billion in up-front net financing. This has averted the risk of a default to the IMF and is facilitating a parallel rescheduling of Paris Club debt. S&P Global Ratings, on Jan. 20, 2023, affirmed its 'CCC+/C' foreign currency and 'CCC-/C' local currency sovereign credit ratings on Argentina. The outlook on the long-term ratings remains negative. S&P's 'CCC+' transfer and convertibility assessment is unchanged. The negative outlook on the long-term ratings reflects risks surrounding pronounced economic imbalances and policy uncertainties before and after the 2023 national elections. Global capital markets are closed to Argentina. Moreover, disagreement within the government coalition and infighting among the opposition constrains the sovereign's ability to implement timely changes in economic policy. Fitch Ratings, on the other hand, downgraded in October 2022 Argentina's Long-Term Foreign-Currency (FC) and Local-Currency (LC) Issuer Default Ratings (IDRs) to 'CCC-' from 'CCC'. The downgrade reflects deep macroeconomic imbalances and a highly constrained external liquidity position, which Fitch expects to increasingly undermine repayment capacity as foreign-currency debt service ramps up in the coming years. Moody's Investors Service, in September 2022, affirmed Argentina's Ca foreign-currency and local-currency long-term issuer and senior unsecured ratings. The outlook remains stable. The decision to affirm the Ca ratings balances Argentina's limited market access, weak governance, and history of recurrent debt restructurings with recent efforts to marshal fiscal and monetary measures to start addressing underlying macroeconomic imbalances in the context of the IMF program that was approved in 2022, according to Moody's. DBRS confirmed Argentina's Long-Term Foreign Currency Issuer Rating at CCC and Long-Term Local Currency Issuer Rating at CCC (high) on July 21, 2022. ARGENTINA: Looks to Roll Over US$1.6BB of Local Debt Mountain ------------------------------------------------------------- Scott Squires at Bloomberg News reports that Argentina's local debt auction scheduled will serve as a final test of local investors' appetite for government peso debt as annual inflation soars to 99 percent, a three-decade high. The Treasury will seek to refinance some 305 billion pesos (US$1.6 billion) of local debt, more than half of the 500 billion pesos in government securities maturing in February, according to local broker Portfolio Personal Inversiones (PPI), Bloomberg News relays. The sale of discount Treasury bills, inflation-linked bonds and other securities will last until 3 p.m., Feb. 15. Cut off from global credit markets, Argentina's government has accumulated a debt burden of some 33 trillion pesos (US$174 billion), while being forced to offer higher interest rates and shorter maturities to attract investors, the report notes. Analysts fear that this tactic will work for a few more months, until investors refuse to refinance the securities before the October presidential elections, triggering Argentina's second local currency debt default in four years, the report relays. Still, private sector investors, such as banks and investment funds, are likely to continue to refinance their local bonds as long as the government sells very short-term notes that mature before the election, according to PPI, the report discloses. The situation could become complicated when the window for such short-term debt "shortens in the run-up to the elections," PPI analysts wrote, 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. Last March 25, 2022, Argentina finalized agreement with the IMF for a new USD44 billion Extended Funding Facility (EFF) intended to fund USD40 billion in looming repayments of the defunct Stand-By Arrangement (SBA), with an extra USD4 billion in up-front net financing. This has averted the risk of a default to the IMF and is facilitating a parallel rescheduling of Paris Club debt. S&P Global Ratings, on Jan. 20, 2023, affirmed its 'CCC+/C' foreign currency and 'CCC-/C' local currency sovereign credit ratings on Argentina. The outlook on the long-term ratings remains negative. S&P's 'CCC+' transfer and convertibility assessment is unchanged. The negative outlook on the long-term ratings reflects risks surrounding pronounced economic imbalances and policy uncertainties before and after the 2023 national elections. Global capital markets are closed to Argentina. Moreover, disagreement within the government coalition and infighting among the opposition constrains the sovereign's ability to implement timely changes in economic policy. Fitch Ratings, on the other hand, downgraded in October 2022 Argentina's Long-Term Foreign-Currency (FC) and Local-Currency (LC) Issuer Default Ratings (IDRs) to 'CCC-' from 'CCC'. The downgrade reflects deep macroeconomic imbalances and a highly constrained external liquidity position, which Fitch expects to increasingly undermine repayment capacity as foreign-currency debt service ramps up in the coming years. Moody's Investors Service, in September 2022, affirmed Argentina's Ca foreign-currency and local-currency long-term issuer and senior unsecured ratings. The outlook remains stable. The decision to affirm the Ca ratings balances Argentina's limited market access, weak governance, and history of recurrent debt restructurings with recent efforts to marshal fiscal and monetary measures to start addressing underlying macroeconomic imbalances in the context of the IMF program that was approved in 2022, according to Moody's. DBRS confirmed Argentina's Long-Term Foreign Currency Issuer Rating at CCC and Long-Term Local Currency Issuer Rating at CCC (high) on July 21, 2022. ============= B A H A M A S ============= FTX TRADING: Judge Tightens Sam Bankman-Fried's Bail, Sets Hearing ------------------------------------------------------------------ Abinaya V, Shubham Kalia and Jonathan Stempel at Reuters report that a federal judge ordered Sam Bankman-Fried not to use a virtual private network to access the internet, after prosecutors expressed concern the FTX cryptocurrency exchange founder might try to hide his online activities. U.S. District Judge Lewis Kaplan imposed the VPN ban, when he will hold a hearing to consider additional restrictions to Bankman-Fried's $250 million bail package, according to Reuters. Kaplan previously banned Bankman-Fried from using encrypted messaging apps such as Signal that let users auto-delete messages, and said using a VPN, which Bankman-Fried had done recently at least twice, "presents many of the same risks," the report notes. The judge had on Feb. 9 rejected a proposed agreement letting Bankman-Fried contact specific though unnamed FTX workers, and communicate by phone, email, Zoom and FaceTime, as well as WhatsApp with monitoring technology, the report relays. Kaplan has temporarily barred the 30-year-old former billionaire from contacting current or former employees at his exchange and Alameda Research hedge fund, the report discloses. The judge extended that ban by three days, to Feb. 24. Bankman-Fried has pleaded not guilty to eight criminal charges including wire fraud and money laundering conspiracy, carrying a maximum 115-year prison sentence, the report relays. Prosecutors said Bankman-Fried cheated customers and improperly diverted assets, causing billions of dollars in losses, the report discloses. FTX filed for Chapter 11 bankruptcy in November, the report notes. Defense lawyers and prosecutors have been negotiating Bankman-Fried's electronics use pending his scheduled October trial, the report relays. In a night filing, prosecutors said Bankman-Fried used a VPN to access the internet on Jan. 29 and Feb. 12. "As defense counsel has pointed out, and the government does not dispute, many individuals use a VPN for benign purposes," but there remain "several potential concerns," prosecutor Danielle Sassoon wrote, the report relays. "For instance, it is well known that some individuals use VPNs to disguise the fact that they are accessing international cryptocurrency exchanges that use IPs to block U.S. users," she added. Defense lawyers responded that Bankman-Fried used a VPN to watch National Football League playoff games on Jan. 29 and the Super Bowl on Feb. 12. They also pledged he would not use a VPN "in the interim," the report adds. About FTX Trading Ltd. FTX is the world's second-largest cryptocurrency firm. FTX is a cryptocurrency exchange built by traders, for traders. FTX offers innovative products including industry-first derivatives, options, volatility products and leveraged tokens. Then CEO and co-founder Sam Bankman-Fried said Nov. 10, 2022, that FTX paused customer withdrawals after it was hit with roughly $5 billion worth of withdrawal requests. Faced with liquidity issues, FTX on Nov. 9 struck a deal to sell itself to its giant rival Binance, but Binance walked away from the deal amid reports on FTX regarding mishandled customer funds and alleged US agency investigations. At 4:30 a.m. on Nov. 11, Bankman-Fried ultimately agreed to step aside, and restructuring vet John J. Ray III was quickly named new CEO. FTX Trading Ltd (d/b/a FTX.com), West Realm Shires Services Inc. (d/b/a FTX US), Alameda Research Ltd. and certain affiliated companies then commenced Chapter 11 proceedings (Bankr. D. Del. Lead Case No. 22-11068) on an emergency basis on Nov. 11, 2022. Additional entities sought Chapter 11 protection on Nov. 14, 2022. FTX Trading and its affiliates each listed $10 billion to $50 million in assets and liabilities, making FTX the biggest bankruptcy filer in the US this year. According to Reuters, SBF shared a document with investors on Nov. 10 showing FTX had $13.86 billion in liabilities and $14.6 billion in assets. However, only $900 million of those assets were liquid, leading to the cash crunch that ended with the company filing for bankruptcy. The Hon. John T. Dorsey is the case judge. The Debtors tapped Sullivan & Cromwell, LLP as bankruptcy counsel; Landis Rath & Cobb, LLP as local counsel; and Alvarez & Marsal North America, LLC as financial advisor. Kroll is the claims agent, maintaining the pagehttps://cases.ra.kroll.com/FTX/Home-Index The official committee of unsecured creditors tapped Paul Hastings as bankruptcy counsel; Young Conaway Stargatt & Taylor, LLP as Delaware and conflicts counsel; FTI Consulting, Inc. as financial advisor; and Jefferies, LLC as investment banker. Montgomery McCracken Walker & Rhoads LLP, led by partners Gregory T. Donilon, Edward L. Schnitzer, and David M. Banker, is representing Sam Bankman-Fried in the Chapter 11 cases. White-collar crime specialist Mark S. Cohen has reportedly been hired to represent SBF in litigation. Lawyers at Paul Weiss previously represented SBF but later renounced representing the entrepreneur due to a conflict of interest. =========== B R A Z I L =========== AMERICANAS SA: Implosion Prompts Banks to Set Aside $1.8 Billion ---------------------------------------------------------------- Brazil's largest publicly-traded banks have set aside 9.3 billion reais (US$1.8 billion) for potential losses tied to the collapse of retailer Americanas SA, which is adding to an increasingly complicated credit environment in the South American nation, Bloomberg News reported. While banks didn't specifically name the retailer as the company responsible for higher provisions in their earnings statements, the impact of the firm's sudden downfall after uncovering 20 billion reais in accounting "inconsistencies” last month is clear to see in fourth-quarter results. Banco Bradesco SA was the hardest-hit among local lenders, posting an extraordinary expense for loan losses of 4.9 billion reais linked to "a specific large corporate client,” booking 100% of its exposure. Itau Unibanco Holding SA reported a 1.3 billion-real pre-tax provision for the event, which it also didn't name, and used complimentary provisions that had already been booked in its balance sheet to cover the remainder of its exposure. Banco BTG Pactual SA provisioned 1.2 billion reais, or about 63% of its full exposure to the Rio de Janeiro-based retailer. If the scenario deteriorates, BTG could make additional provisions, Chief Financial Officer Renato Cohn said. About Americanas SA Americanas was one of the largest diversified retail chains in Brazil, with a wide platform of physical stores, robust e-commerce, fintech, and has just entered into the niche food retail. It is listed on B3, being indirectly controlled by billionaire Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles. The retailer nosedived in January 2023 after becoming mired in an accounting scandal. The firm filed for bankruptcy at a court in Rio de Janeiro on Jan. 19, 2023. Americanas sought protection under Chapter 15 of the U.S. Bankruptcy Code (Bankr. S.D.N.Y. Case No. 23-10092) on Jan. 25, 2023. White & Case LLP, led by John K. Cunningham, is the U.S. counsel. OI SA: Brazilian Restructuring Completed, U.S. Cases Closed ----------------------------------------------------------- The foreign representative in the judicial reorganization proceeding of Oi S.A. and its affiliates on Feb. 6, 2023, sought and obtained from U.S. Bankruptcy Judge John P. Mastando III an order closing the Brazilian companies' Chapter 15 case. On June 20, 2016, Oi S.A. and three affiliates pursued a judicial reorganization (recuperacao judicial) before the 7th Business Court of Rio de Janeiro, in Brazil, to restructure BRL 65 billion in third-party debt, which at that time was the largest-ever restructuring case in Latin America. On June 21, 2016, the Foreign Representative commenced the Chapter 15 cases to seek U.S. recognition of the proceedings in Brazil. In June and July 2016, the U.S. Bankruptcy Court entered orders granting the application of the stay under Sec. 362 of the Bankruptcy to the Chapter 15 Debtors and recognizing the Brazilian RJ Proceeding as foreign main proceeding. During the Brazilian RJ Proceeding, the Debtors effectuated their financial restructuring through a Brazilian plan of reorganization, which was approved by the majority of the RJ Debtors' creditors following the approval thresholds applicable under Brazilian Bankruptcy Law and ultimately confirmed by the RJ Court on Jan. 8, 2018. On June 15, 2018, the U.S. Court entered an order granting comity to and providing full force and effect to the RJ PLan within the United States. Following the consummation of various transactions contemplated by the RJ Plan, the Oi Group faced new and significant liquidity challenges that prevented the full implementation of the restructuring contemplated in the RJ Plan. These challenges stemmed from a number of unresolved ancillary matters pertaining to the Brazilian RJ proceeding such as the classification of certain claims, certain regulatory changes, the delay and inability to release certain funds deposited in the judicial accounts and the implementation of changes ot the RJ Debtors' corporate structure. Accordingly, in March 2020, the RJ Court allowed the RJ Debtors to propose an amendment to the RJ Plan. On Sept. 8, 2020, Creditors approved the Amendment, and the Court confirmed the RJ Plan Amendment on Oct. 5, 2020. The RJ Plan, as amended, allowed the RJ Debtors, including the Chapter 15 Debtors, to further restructure their debts, monetize non-core assets and seek financing to invest in their continued operations. For instance, the Amended RJ Plan provided for the segregation of certain of Oi Group's assets, such as mobile operations and data, telecommunication infrastructure, and TV operations, into isolated productive units or not, which were subsequently sold free and clear of claims and interests against the Oi group. The Amended RJ Plan also authorized the RJ Debtors to incur new financing. On Dec. 14, 2022, the RJ Court entered an order closing the Brazilian RJ Proceeding with respect to all RJ Debtors, including the Chapter 15 Debtors. Accordingly, the Foreign Representative asked the U.S. Court to close the Chapter 15 cases as they have achieved the purpose which they were commenced. About Oi SA Headquartered in Rio de Janeiro, and operating almost exclusively within Brazil, the Oi Group provides services like fixed-line data transmission and network usage for phones, internet, and cable, Wi-Fi hot-spots in public areas, and mobile phone and data services, and employs approximately 142,000 direct and indirect employees. On June 20, 2016, pursuant to Brazilian Law No. 11.101/05 (the 'Brazilian Bankruptcy Law'), Oi S.A. and certain of its subsidiaries filed for recuperao judicial (judicial reorganization) in Brazil. On June 21, 2016, OI SA and its affiliates Telemar Norte Leste S.A. and Oi Brasil Holdings Cooperatief U.A. commenced Chapter 15 proceedings (Bankr. S.D.N.Y. Lead Case No. 16-11791). Ojas N. Shah, as foreign representative, signed the petitions. Coop and PTIF are also subject to proceedings in the Netherlands. The Chapter 15 cases are assigned to Judge Sean H. Lane. In the Chapter 15 cases, the Debtors are represented by John K. Cunningham, Esq., and Mark P. Franke, Esq., at White & Case LLP, in New York; and Jason N. Zakia, Esq., Richard S. Kebrdle, Esq., and Laura L. Femino, Esq., at White & Case LLP, in Miami, Florida. On July 22, 2016, the New York Court recognized the Brazilian Proceedings as foreign main proceedings with respect to the Chapter 15 Debtors, and granted certain additional related relief. The company exited bankruptcy protection in December 2022. ================= G U A T E M A L A ================= GUATEMALA: Fitch Hikes LongTerm IDRs to 'BB', Outlook Stable ------------------------------------------------------------ Fitch Ratings has upgraded Guatemala's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'BB' from 'BB-'. The Rating Outlook is Stable. KEY RATING DRIVERS Upgrade, Stable Outlook: The upgrade reflects Guatemala's very strong fiscal and economic recovery, and further improved external metrics, following the pandemic and global price shocks. The post-pandemic recovery of real GDP was one of the fastest in Latin America. Fiscal deficits and debt remain the lowest in the 'BB' category, and have benefitted from improved tax collections. Current account surpluses have improved already strong external liquidity and solvency metrics. The ratings remain constrained by exceptionally weak governance scores, which have deteriorated further in recent years, and low human development indicators. The administration has been able to overcome congressional gridlock to pass reforms and budgets; however, this could remain a challenge under the next government after the 2023 election, given a highly fragmented political landscape. Economic Resilience Post-Pandemic: Fitch estimates GDP grew 4.0% in 2022 after a sharp recovery of 8.0% in 2021 and small contraction of 1.8% in 2020. This represents one of the strongest recoveries among rating and regional peers, and has been achieved without large-scale policy support, and despite an adverse terms-of-trade shock in the past year. The strong performance was driven by surging remittances inflows, strong credit, and robust exports. While Fitch sees these drivers propelling momentum this year, it expects economic activity to slow modestly to 3.3% due to a deceleration in global growth. Modest Potential Growth, Some Upside: Over the medium term, Fitch expects growth to converge to its potential of 3.5%, which compares favorably to regional peers, but is lackluster in the context of high population growth. Growth prospects remain constrained by longstanding human-capital and infrastructure bottlenecks, but face some upside from the global "nearshoring" trend (which Guatemala is well positioned to take advantage of) and ongoing urbanization. The government has recently passed reforms to capitalize on these investment prospects (e.g. related to insolvency proceedings, part-time work) and made progress on free trade agreements. Robust External Liquidity: Fitch expects Guatemala's current account surplus to moderate from an estimated 1.5% of GDP in 2022 to 1.0% of GDP in 2023, reflecting strong domestic demand, but supported by ongoing growth in exports and remittances despite the U.S. slowdown. Fitch expects foreign reserves to remain high. Reserves have surged in the past few years despite a modest decline in 2022, and represent 6.4 months of current external payments, above the 'BB' median of 4.5. This has been achieved without major sovereign external borrowing, pushing the sovereign net foreign asset position up to 10% of GDP, which is one of the highest among 'BB' peers and the highest in Latin America. Low Fiscal Deficits: The central government (CG) fiscal deficit slightly weakened from 1.2% of GDP in 2021 to 1.7% in 2022 as revenue improvement was offset by an increase in spending due to measures to address cost-of-living pressures. Fitch expects the CG deficit to rise moderately to 2.0% in 2023 and in the forecast period. The general government (GG) deficit of 1.0% in 2022 is lower given it also captures the surplus of the social security institute (IGSS), and is well below the 'BB' median of 3.2%. Tax Improvement: Tax revenues remain low, but increased notably from 10.5% of GDP in 2019 to 12.1% in 2022. It is hard to determine to what degree this improvement reflects structural versus cyclical factors, but Fitch believes it could be largely structural in nature, reflecting administrative improvements taken by the tax agency (SAT). The SAT's outperformance of tax collection goals could improve fiscal flexibility amid an increasingly rigid expenditure profile, although this could remain a challenge. Revenue earmarking accounts for 90% of expenditures, and much-needed capital spending has been compressed over the past decade by rising current expenditures. Local Debt Covers Low Financing Needs: Fitch estimates low fiscal deficits will keep CG debt stable around 29% of GDP, and GG debt (consolidating the holdings of IGSS) at 26.4%, compared with the 'BB' median of 54.6%. However, GG interest/revenues of 9.2% compare less favorably and are in line with the 'BB' median given a low tax take. In 2022, Guatemala's low financing needs were covered by domestic sources, in contrast with most rating peers that relied more on multilateral and Eurobond issuances. The foreign-currency share of central government debt improved from 58% to 43% in the decade through 2022, reflecting increased domestic versus external borrowing, and is now below the 'BB' median. High Inflation, Accommodative Monetary Policy: Inflation surged to 9.7% yoy in January (above the 4%+/-1pp) from 2.9% a year earlier, driven by fuel and food prices. The central bank (BanGuat) has responded by raising its policy rate by 250 bps to 4.25% since the start of 2022, representing an accommodative monetary policy stance in contrast to most regional peers. BanGuat's accommodative posture reflects that most of the inflation rise is due to imported factors expected to recede, as core inflation around 5.0% signals more moderate demand-side pressures, as well as the absence of currency pressures. Fitch projects inflation to start moderating in mid-2023 and reach 5.5% by year-end, as the imported component falls amid ongoing tightening of global financial conditions and slowing global growth. Governance Challenges Ahead of Elections: A fragmented political landscape bodes for highly competitive and uncertain general elections on June 25. Guatemala's track record of conservative fiscal policy and an independent central bank have anchored policy continuity in the past, and are likely to preclude major policy deviations in Fitch's view. Given political fragmentation, however, prospects for further reforms are unclear. Governance scores have fallen from the 31th percentile in 2010 to the 26th in 2022, primarily due to deterioration in control of corruption and rule of law. This likely reflects the current and prior administrations' interference in judicial progress related to corruption, which involved the dissolution of the UN-backed corruption body CIGIG in 2019 and the recent ousters of independent figures. ESG - Governance: Guatemala has an ESG Relevance Score (RS) of '5' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in its proprietary Sovereign Rating Model. Guatemala has a low WBGI ranking at 26th percentile, reflecting relatively weak rights for participation in the political process, weak institutional capacity, uneven application of the rule of law and a high level of corruption. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: - Public Finances: A widening of the fiscal deficit, particularly should this be driven by erosion in the recent gains in tax collections; - Macro: Weaker growth performance; for example, due to higher-than-anticipated vulnerability to the external slowdown or domestic policy shifts; - Structural: A further deterioration in governance or heightening of political gridlock that hinders the next administration's ability to secure approval of budgets and enact reforms. Factors that could, individually or collectively, lead to positive rating action/upgrade: - Public Finances: Continued improvement in tax collection that leads to an improvement in fiscal flexibility, preserves low fiscal deficits and keeps debt/GDP stable at low levels. - Macro: Continued strong economic momentum, and evidence of increased investment and medium-term growth prospects; - Structural: Improvements in governance or ability of next administration to make progress on its agenda, for example, implementation of budgets or reforms. SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Guatemala a score equivalent to a 'BB' rating on the Long-Term Foreign Currency IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final Long-Term Foreign Currency IDR. The committee decided to remove the -1 notch related to Structural Features, which had reflected congressional fragmentation and gridlock that has previously impeded the passage of the budget and limited the government's ability to pass reforms. The current government has made progress on its agenda and secured approval of budgets despite legislative gridlock that hindered past such efforts. While issues related to governance and political fragmentation persist, these are captured by already very low governance indicators that feed into the SRM. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centered averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within its criteria that are not fully quantifiable and/or not fully reflected in the SRM. ESG CONSIDERATIONS Guatemala has an ESG Relevance Score of '5' for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Guatemala has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile. Guatemala has an ESG Relevance Score of '5' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in Fitch's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Guatemala has a percentile rank below 50 for the respective Governance Indicators, this has a negative impact on the credit profile. Guatemala has an ESG Relevance Score of '4'for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver. As Guatemala has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile. Guatemala has an ESG Relevance Score of '4[+]' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Guatemala, as for all sovereigns. As Guatemala has track record of 20+ years without a restructuring of public debt and captured in its SRM variable, this has a positive impact on the credit profile. Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). Entity/Debt Rating Prior ----------- ------ ----- Guatemala LT IDR BB Upgrade BB- ST IDR B Affirmed B LC LT IDR BB Upgrade BB- LC ST IDR B Affirmed B Country Ceiling BB+ Upgrade BB senior unsecured LT BB Upgrade BB- GUATEMALA: IDB Approves $100MM Loan to Improve Secondary Education ------------------------------------------------------------------ The Inter-American Development Bank (IDB) approved a $100 million loan that will allow more young Guatemalans to complete a high-quality secondary education and bolster the country's human capital. The initiative will benefit approximately 231,000 students ages 12 to 20 by expanding and enhancing existing school infrastructure, providing access to new digital technologies, and training and teachers, and boosting their professionalism. The program will focus on rural and marginalized urban areas with low secondary school coverage. Guatemala's school system currently has capacity to serve 49.2 percent of the country's middle school-aged students and 26.4 percent of its high school-aged students. There are also major geographical discrepancies in educational coverage, which is 62.4 percent in cities but 33.7 percent in Guatemala's largely indigenous rural areas. This loan aims to expand secondary school coverage with 500 new classrooms throughout the country and improve the learning environment by refurbishing 3,300 schools. A portion of the new school infrastructure will be ecologically efficient and adapted to climate change, since it will involve installing photovoltaic systems in off-grid areas. The loan will provide access to 1,400,000 educational resources like textbooks, printed and digital materials, and audiobooks for secondary students and teachers. These resources will include bilingual and intercultural materials for indigenous students, as well as others tailored to students with learning disabilities. The initiative will also equip schools with 3,800 technology kits with items such as servers, projectors and tablets with offline content. The program will train 7,600 teachers on using these resources and help boost the professionalism of 5,500 teachers through the Ministry of Education's Academic Program for Professional Teacher Development. The $100 million IDB loan will be disbursed over a five-year period. It has a 6.6-year grace period and an interest rate based on the secured overnight financing rate (SOFR). =============== X X X X X X X X =============== LATAM: Agribusiness, Construction & Tourism Could Drive Economy --------------------------------------------------------------- A new Inter-American Development Bank (IDB) study points to agribusiness, construction and tourism as the industries with the greatest potential to generate jobs and growth in Central America, Mexico, Panama and the Dominican Republic. The study found that higher production in these industries could galvanize the regional economy in 2023 for two reasons: the large volume of inputs they require from all other industries, and their economic clout, since they account for 22 percent of the region's output. The IDB's new annual economic report on the region -Opportunities to Boost Production, Jobs, and Value Chains- analyzes these countries' production structures to determine how to revitalize their economies, create jobs, and diversify exports. The study also highlights industries like agriculture, forestry and fishing, tourism, commerce, and education, which play an outsized role in generating jobs and incomes. Financial services, professional services and commerce also stimulate production networks because they make more extensive use of other industries. The report therefore recommends promoting efficient financial systems, coupled with professional business services that are high quality and involve technical and scientific (STEM) skills. The IDB study also proposes opportunities to diversify exports and products to smooth out the volatility of international demand. It recommends diversifying exports of agricultural goods, as well as of products like more complex textiles, machinery, electronic equipment, and pharmaceuticals that would help countries better integrate into local and global export chains. Additionally, the report urges countries to invest in education, which has been proven to help expand local business participation in global export chains. Regional Macroeconomic Context The IDB report also analyzes the region's macroeconomic context in 2022. Over the year, its GDP grew by an average of 5.7%, and the economy showed resilience as tourism and remittances sprang back and the volatility of agricultural exports stabilized. By October 2022, formal jobs had rebounded to levels 5 percent higher than before the pandemic. Inflation is forecasted to slow in 2023 but remain at the upper end of the ideal range. However, the report predicts slower growth and higher interest rates and prices, especially food prices, in 2023, which will be especially detrimental to poverty and food security. The countries in the region need to design a coordinated response to these difficulties, promote economic recovery, and regain development momentum. The study is Opportunities to Boost Production, Jobs and Value Chains. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Latin America is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2023. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter A. Chapman at 215-945-7000. . * * * End of Transmission * * *