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/raid1/www/Hosts/bankrupt/TCRLA_Public/230713.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, July 13, 2023, Vol. 24, No. 140 Headlines A R G E N T I N A ARGENTINA: Private Employment Up Only 3% Since 2011, IERAL Says B R A Z I L BANCO DE DESENVOLVIMENTO: Fitch Affirms 'BB-' LongTerm IDRs BRAZIL: Financial Market Cuts Interest Rate Estimate to 12% BRDE: Fitch Affirms 'BB-/'B' LongTerm IDRs, Outlook Stable DESENVOLVE SP: Fitch Affirms 'BB-/B' IDRs, Outlook Remains Stable C O L O M B I A COLOMBIA: IDB OKs $500MM to Promote Sustainable Fiscal Policies D O M I N I C A N R E P U B L I C [*] DOMINICAN REPUBLIC: Recovers Strongly After Pandemic, IMF Says P U E R T O R I C O PUERTO RICO: Nuveen, Blackrock Will Appeal $2.4BB Cap on Claim T R I N I D A D A N D T O B A G O TRINIDAD & TOBAGO: Discusses Energy with Suriname, Finland - - - - - ================= A R G E N T I N A ================= ARGENTINA: Private Employment Up Only 3% Since 2011, IERAL Says --------------------------------------------------------------- Buenos Aires Times reports that Argentina's difficulties in creating private-sector jobs have been exposed by a new report highlighting a stark imbalance between public and private employment over a sustained period. According to a new report by the IERAL think-tank taking into account the three levels of national, provincial and municipal governments, public-sector employment rose 34 percent between 2011 and 2022, while private-sector jobs increased only three percent over the same period, the report discloses. According to IERAL, Misiones, Chubut, Santa Cruz and San Luis increased public employment jobs by over 60 percent in the last 11 years. In the case of Misiones, by 93 percent at provincial and municipal levels since 2011, while formal salaried private-sector employment rose 12 percent, the report notes. In contrast, Cordoba is the province with the lowest increase in public employment, equalling the three-percent rise in formal private-sector employment in the same period, according to Buenos Aires Times. Neuquen was the only jurisdiction in which the private-sector jobs (salaried and formal) climbed more than public employment (provincial and municipal) with respective percentages of 39 percent and 33 percent in the last 11 years, clearly due to the effect of Vaca Muerta shale, the report notes. The data forms part of a report on the financial state of the provinces on the basis of their recently published fiscal results, Buenos Aires Times discloses. A priori, the latter has been improving at subnational level thanks to higher national remittances and owing to the Mauricio Macri administration returning funds held back from the period of the AFJP private pension funds, it also concluded, the report relays. The study indicates: "Financial results in the provinces improved slightly in 2022, prolonging a trend registered since 2015, only interrupted in 2019. Last year's surplus (0.5 percent of gross domestic product) was the highest since 2000, only topped by the financial result observed in 2004 (one percent)," the report says. El IERAL points out that apart from the increase of national transfers to the provinces beginning in 2016, the other factor permitting the improvement of the fiscal accounts has been the fall in spending on personnel, the report relays. "In 2015, these items captured 60 percent of current provincial revenues but had been cut to 47 percent by 2022,″ says the study, the report notes. Nevertheless, despite the spending on personnel declining in all provinces, employment is up, the Fundacion Mediterranea's business school observed, presumably due to a fall in real wages, the report relays. "In the context of the stagflation of more than a decade, public employment in provincial and municipal governments grew around 35 percent between 2011 and 2022 while at national level it rose 28 percent. The consolidated variation is 34 percent, compared with an accumulated rise of three percent in the formal salaried private-sector employment in the same period," it reads, 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. In 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 March 29, 2023, lowered its long-term foreign currency sovereign credit rating on Argentina to 'CCC-' from 'CCC+'. S&P also affirmed its 'C' short-term foreign currency sovereign credit rating and its 'CCC-/C' local currency ratings on Argentina. The outlook on the long-term ratings is negative. S&P also lowered the transfer and convertibility assessment to 'CCC-' from 'CCC+'. S&P's negative outlook on the long-term ratings reflects risks surrounding pronounced economic imbalances and policy uncertainties before and after the 2023 national elections. Divisions across the political spectrum constrain the sovereign's ability to implement timely changes in economic policy. Global capital markets are closed to Argentina. In the local market, swaps are being deployed to manage large maturities before placing debt through traditional auctions. The central bank continues to play a key role as a backstop for local debt management in the secondary market. The ongoing severe drought has exacerbated pressures in the already disrupted foreign exchange (FX) market. Fitch Ratings, on March 24, 2023, downgraded Argentina's Long-Term Foreign Currency Issuer Default Rating (IDR) to 'C' from 'CCC-', and has affirmed the Long-Term Local Currency IDR at 'CCC-'. Fitch's downgrade of Argentina's rating to 'C' from 'CCC-' follows an executive decree that forces domestic public-sector entities into operations involving their holdings of sovereign debt securities, which would involve unilateral exchanges and forced currency conversion that constitute default events under Fitch's criteria. The 'C' rating reflects Fitch's view that default is thus imminent. Fitch said the rating would be downgraded to 'Restricted Default' (RD) upon execution of the exchanges. 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, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer Rating at CCC and downgraded its Long-Term Local Currency Issuer Rating to CCC from CCC (high) on March 3, 2023. =========== B R A Z I L =========== BANCO DE DESENVOLVIMENTO: Fitch Affirms 'BB-' LongTerm IDRs ----------------------------------------------------------- Fitch Ratings has affirmed Banco de Desenvolvimento do Espirito Santo S.A.'s (Bandes) Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) at 'BB-', and Short-Term Local and Foreign Currency IDRs at 'B'. The Rating Outlook is Stable. In addition, Fitch has affirmed Bandes' Shareholder Support Rating (SSR) at 'bb-' and Long-Term National Rating at 'AA(bra)'/Outlook Stable. KEY RATING DRIVERS Ratings Driven BY SSR: Bandes' IDRs and National Ratings are driven by its SSR, and based on the expectation of support from its controlling shareholder, the government of the State of Espirito Santo. Fitch believes Bandes plays an important role for the state, as it is the government's development arm, with an important role in boosting the local economy's growth through lending to small and medium enterprises, as well as providing resources for municipalities within the state. High Support Propensity: In Fitch's view, the shareholder's propensity to provide support to Bandes, if needed, is high reflecting the bank's strategic role and importance as a development bank in the Espirito Santo State. Fitch views group regulation of the institution relative to the financial capacity of Espirito Santo as a significant factor for Bandes' rating. Since the regulator is very active and imposes some limitations on the actions of development banks in Brazil, the fact that there is no impediment on the regulator's part for potential support by the state is an important factor. Fitch also considers in its assessment Bandes' relatively manageable size, high reputational risk to the state, high level of operational integration between the state and Bandes, recent support track record and that the development bank is a state-owned institution. Develop the Regional Economy: Bandes' main objective is to expand and promote government programs to help develop the regional economy through financing lines to small and medium-sized enterprises and municipalities, especially for investments focused on technology. Bandes also plays an important role in supporting the state economy through government created funds managed by the bank. No VR: Fitch does not assign Bandes a Viability Rating as its business model is entirely dependent on the support of the Espirito Santo State. Main Risk is Credit: Bandes' primary risk is credit, which represents 77% of its risk weighted assets. The top 10 clients represented a moderate 20% of total credit in 2022 (20% in 2021). Fitch believes that, as with other public banks, strategies and goals could be influenced by the political guidelines of the bank's shareholder. Asset Quality Impacted by Historical Metrics: The development bank's financial profile was comparatively weak in 2018 and 2019, affected by a severe drought that hit the state of Espirito Santo, and consequently companies in the region. Since then, Bandes' loans classified in the D-H categories have remained at high levels. The core metric (Impaired Loans/Gross Loans) was weak at 24.2% in 2022, 23.5% in 2021 and 35.5% in 2019 (4YE average at 27.2%). However, the NPLs (over 90 days) were low at 2.4% in 2022 (3.1% in 2021), showing that new credit concessions have performed well. Good Profitability Ratios: In the last three years (2020-2022), Bandes' performance has steadily improved after a significant shift in strategy implemented in 2019. The previous strategy to support the primary economic sector has changed along with the new government, which now seeks to support the secondary economic sector (industries and services) through loans to SMEs. The bank presents good profitability ratios; in 2022, the operating profits/RWA ratio stood at 7.3% compared with 5.7% in 2021, 3.2% in 2020 and losses in 2019 (4YE average 1,2%). In addition to low provision expenses in recent years, credit recovery revenues have been very relevant to the total revenues of the bank. Solid Capitalization: The bank remains strongly capitalized, supported by the state government and maintains sufficient liquidity. Bandes' regulatory capital ratio was 29.7% at YE 2022 (28.8% at YE 2021). Capital is integrally composed of common equity Tier 1. Improving on New Sources of Funding: As a development bank, Bandes has limitations regarding its funding sources, when compared with commercial banks. The credit portfolio has been financed mainly by equity, deposits (mainly from the Espirito Santos States) or on lendings from official entities, such as BNDES. Bandes aims to increase and diversify its funding, including credit from international development banks. The bank raised USD30 million from the Inter-American Development Bank (IDB) and the first tranche was USD15 million in 2022. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade IDRs, NATIONAL RATINGS and SSR -- Any changes to the State of Espirito Santo's ability or propensity to support Bandes may result in a rating review. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade IDRs, NATIONAL RATINGS and SSR -- An upgrade of the ratings would depend on an improvement in the State of Espirito Santo's ability or propensity to provide support. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Bandes' SSR and IDRs are linked to the credit quality of its parent, Espirito Santos State. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. BRAZIL: Financial Market Cuts Interest Rate Estimate to 12% ----------------------------------------------------------- Richard Mann at Rio Times Online reports that Brazil's financial market has revised its estimate for the basic interest rate, Selic, at the end of 2023, reducing it from 12.25% to 12% per year. The estimate for 2024 remains unchanged at 9.5%. This update was published in the latest Focus Bulletin by the Central Bank (BC) on July 3, 2023, according to Rio Times Online. The revision follows the announcement made by the Minister of Finance, Fernando Haddad, to the National Monetary Council (CNM) regarding the change in the inflation targeting regime, the reprot notes. The council decided to maintain the inflation target at 3% for 2024, 2025, and 2026, the report adds . About Brazil Brazil is the fifth largest country in the world and third largest in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian general election. He was sworn in on January 1, 2023, as the 39th president of Brazil, succeeding Jair Bolsonaro. In mid-June 2023, S&P Global Ratings, revised the outlook on its long-term global scale ratings on Brazil to positive from stable. S&P affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Brazil. S&P also affirmed its 'brAAA' national scale rating, and the outlook remains stable. The transfer and convertibility assessment remains 'BB+'. The positive outlook reflects signs of greater certainty about stable fiscal and monetary policy that could benefit Brazil's still-low GDP growth prospects. Continued GDP growth plus the emerging framework for fiscal policy could result in a smaller government debt burden than expected, which could support monetary flexibility and sustain the country's net external position. Moody's credit rating for Brazil was last set at Ba2 in 2018 with stable outlook. Moody's affirmed the Ba2 issuer ratings and senior unsecured bond ratings in April 2022. Fitch, in December 2022, affirmed Brazil's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook. The ratings are constrained by high government indebtedness, a rigid fiscal structure, weak economic growth potential, and a record of governability challenges that have hampered efforts to address these fiscal and economic issues and clouded policy predictability. The Stable Outlook reflects Fitch's expectation that growth will slow in 2023 and that recent fiscal improvement will erode under a new government, but within a margin consistent with the current rating, and from a better starting point than previously expected. DBRS's credit rating for Brazil is BB (low) with stable outlook (March 2018). BRDE: Fitch Affirms 'BB-/'B' LongTerm IDRs, Outlook Stable ---------------------------------------------------------- Fitch Ratings has affirmed Banco Regional de Desenvolvimento do Extremo Sul's (BRDE) Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) at 'BB-' and Short-Term Local and Foreign Currency IDRs at 'B'. Fitch has also affirmed BRDE's National Long-Term Rating at 'AA(bra)' with a Stable Rating Outlook and its National Short-Term Rating at 'F1+(bra)'. The Outlook for the ratings is Stable. KEY RATING DRIVERS Government Support Drives Ratings: BRDE's IDRs and National Ratings are based on Fitch's expectation of support from the bank's shareholders, the states of Parana, Santa Catarina and Rio Grande do Sul. This is indicated by the bank's Shareholder Support Rating (SSR) of 'bb-', which is in line with Parana's IDRs of 'BB-'/Outlook Stable. Fitch does not rate Rio Grande do Sul and Santa Catarina. However, the creditworthiness of all three states strongly influences BRDE's ratings. High Support Propensity: Fitch's believes the shareholder's propensity to provide support to BRDE, if needed, is high reflecting the bank's strategic role and importance as a development bank in southern Brazil. Fitch also believes that the local regulator would likely favor support of BRDE by the parent states as needed. Fitch's assessment is also influenced by BRDE's relatively small size compared to each shareholder, considering their financial flexibility, high reputational linkages and degree of operational integration between the three subnationals and the bank. The ability to support is moderate as reflected in Fitch's creditworthiness assessment of the three states. Development Bank Status: BRDE's purpose is to support and foster economic activities that contribute to the growth of Brazil's economy in the southern part of the country and promote economic and social development. As a result, the subnational governments exert influence over BRDE's lending activity and operations, appoint its chair and executive board, and set the institution's annual debt limits. The bank's policy role has not changed over political cycles, and Fitch expects this to continue. Fitch believes that, as with other public banks, strategies and goals could be influenced by the political guidelines of the bank's shareholders. However, strategic decisions must be unanimously approved by the three states, which reduces the possibility of conflicts among controllers. Support Transmission: BRDE's policy role is achieved primarily through the provision of medium- and long-term lending to corporates, small-and-medium sized enterprises, and domestic cooperatives. On behalf of Brazil's largest development bank (BNDES, BB-/Stable), BRDE manages the disbursement of long-term and subsidized lending to the productive sector, largely to the agricultural segment, as one of the largest on-lenders of BNDES funds. No VR: Fitch does not assign BRDE a Viability Rating as its business model is entirely dependent on the support of the controlling states. Solid Capitalization: Fitch believes that BRDE is of high strategic importance to the three governments, given its role as the states' financial arm. The states have supported BRDE's capitalization when needed in the past and in Fitch view, remains committed to maintaining the bank's ample capital buffers. BRDE's regulatory Common Equity Tier 1 capital ratio was 20.1% at end-2022, well above the minimum regulatory requirements. Gradual Funding Diversification: BRDE's primary funding source remains concentrated on BNDES, accounting for 70% of total funding at end-2022, but BRDE's efforts to further diversify its funding sources has helped to reduce the concentration from levels of above 90% prior to 2018. BRDE has been active in building funding relationships with several international multilateral agencies such as the French Development Agency (FDA), Inter-American Development Bank (IDB) and European Investment Bank (EIB). Asset-Quality Risks Contained: BRDE's asset quality indicators compares favorably with peers, which Fitch attributes to the bank's conservative risk standards, as well as to its sectorial concentration to the well performing agricultural segment. The high degree of loan collateralization also supports high level of recoveries and minimum charge-offs. At end-2022, impaired loans ('D-H' loans) corresponded to 2.7%, against 3.1% in 2021, supported by higher recoveries and loan growth. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Since BRDE's ratings are driven by the SSR, these could be downgraded if Parana's IDRs are downgraded and/or if there is a negative change in Fitch assessment of the credit quality of one of its other shareholders. There may also be a downgrade if there are changes in the propensity of the controlling states to support BRDE, which Fitch currently does not expect. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade An upgrade of BRDE's ratings is dependent on improvement in the parents' ability and propensity to provide support in combination with a sovereign upgrade. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS BRDE's IDRs and SSR are equalized with those of Parana ('BB-'/Outlook Stable) and linked to the credit quality of Rio Grande do Sul and Santa Catarina. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. DESENVOLVE SP: Fitch Affirms 'BB-/B' IDRs, Outlook Remains Stable ----------------------------------------------------------------- Fitch Ratings has affirmed Desenvolve SP - Agencia de Fomento do Estado de Sao Paulo S.A.'s (Desenvolve SP) Long- and Short-Term Local and Foreign Currency Issuer Default Ratings (IDRs) at 'BB-' and 'B', respectively. Fitch has also affirmed the Shareholder Support Rating (SSR) at 'bb-' and the Long- and Short-Term National Ratings at 'AA(bra)' and 'F1+(bra)', respectively. The Rating Outlook for the Long-Term IDRs and National Rating remains Stable. KEY RATING DRIVERS Ratings Driven by SSR: Desenvolve SP's IDRs and national ratings are driven by the SSR and based on Fitch's view of expected support from its parent, Sao Paulo State (Sao Paulo, IDRs 'BB-'/Stable) and are equalized to the parent's ratings. Fitch considers Desenvolve SP a core subsidiary in terms of financial services to the state, which is where Desenvolve SP focuses its operations. Desenvolve SP's 'AA(bra)' Long-Term National Rating reflects the institution's creditworthiness relative to that of other Brazilian issuers. No Standalone Credit Profile Assigned: As is the case for other policy agencies, Fitch does not assign a Standalone Credit Profile (SCP) to the institution, since according to Fitch's methodology, SCPs are not usually assigned to development agencies or to other NBFIs with operations that are largely determined by their policy roles. Core Policy Entity: Desenvolve SP is a development arm of the state's government and is a core entity that boosts the state's economic and social growth. Its strategy is aligned with regional development objectives and is highly influenced by regional government policy. Desenvolve SP's SSR is highly influenced by its role, in Fitch's opinion. The agency is focused on lending to micro and small enterprises (SMEs), as well as providing resources for municipalities of Sao Paulo State. Challenged Asset Quality: Desenvolve SP's loan book reported moderate annual growth of 8.4% in 2022, bringing total loans to BRL2.2 billion at the end of the year. Loans are basically composed of SMEs (77.5%), and public sector (14.4%). The impaired loans/gross loans ratio increased to a high 14.7% at end-2022 from 10.1% at end-2021 (4-y average of 10.9%) due to the delayed impact of pandemic. As of end-2022, coverage of total impaired loans stood at 64.5%. In the last quarter of 2022, the agency promoted a renegotiation campaign giving a 6-month grace period to some past due clients. Fitch believes Desenvolve SP's credit ratios are likely to remain at current levels, with some gradual improvements during the year. Good Profitability: The pre-tax income / average assets ratio improved to 6.6% by December 2022, from 4.7% a year earlier, bringing the four-year average to 4.4%. The stronger profitability reflects higher income on loan, gains with securities and fee income related to the investment funds that it manages. Loan loss provisions doubled in the period, which reflected the worsening in asset quality. Additionally, Desenvolve SP's ROAE was adequate at 8.6%, while efficiency ratios remained good at 20.3% in 2022. Strong Regulatory Capital: Desenvolve SP has very strong capitalization metrics, reflecting recent capital injections. Since 2021, the agency raised BRL2.0 billion in fresh capital and its Common Equity Tier 1 Ratio was high at 105.6%, in March 2023. Fitch expects Desenvolve SP's capitalization to remain strong even with anticipated growth in the upcoming quarters. Solid Liquidity, Improving Funding Diversification: Desenvolve SP maintains a highly liquid balance sheet. Liquid assets totaled BRL2.6 billion in December 2022, which represented 52% of total assets. As a development agency, Desenvolve SP has limitations to diversify its funding base. The loan portfolio has been financed mainly by equity or on-lendings from official entities, such as BNDES, FINEP and FUNGETUR. Other major funding has been sourced from multilateral institutions such as IFC and CAF, while negotiations with other multilateral institutions are underway. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade IDRs, SSR, NATIONAL RATINGS -- The ratings would be affected by a negative rating action on Sao Paulo's IDRs; -- The ratings could be affected by reduction of propensity / capacity from Sao Paulo to provide support, although Fitch does not currently anticipate such a change. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade IDRs, SSR, NATIONAL RATINGS -- A positive rating action on Brazil's IDRs in combination with an improvement in the state of Sao Paulo's Standalone Credit Profile. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Desenvolve SP's ratings are linked to the IDRs of Sao Paulo State. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. =============== C O L O M B I A =============== COLOMBIA: IDB OKs $500MM to Promote Sustainable Fiscal Policies --------------------------------------------------------------- The Inter-American Development Bank (IDB) approved a $500 million loan for the Program to Support Sustainable and Equitable Fiscal Policies in Colombia, which aims to boost equity and long-term fiscal and environmental sustainability. Through this program, Colombia will work to establish a more equitable and effective tax system and advance its environmental and decarbonization strategy. The program will benefit the Colombian people as a whole by making more resources available for social investment and reducing the environmental footprint. Colombia is noted for its sound macroeconomic and fiscal management, but it now must address the significant challenges of enhancing the redistributive capacity of its fiscal policy and increasing tax collection in line with the country's level of development. "To tackle its development challenges, Colombia needs a highly effective tax system that minimizes poorly designed incentives, promotes tax compliance, helps reduce inequality, and bolsters tax revenues to ensure medium-term sustainability," said Mario F. Sanginés, the team lead for the IDB project. This program also seeks to close gender gaps, which deepen social inequality, by identifying and addressing gender biases in tax regulations. In pursuit of the same goal, it will also work to produce tax statistics and propose public policy measures to identify and correct these gaps. Although Colombia has used some fiscal policy tools to advance environmental objectives, the country has the opportunity to give fiscal management a more central role in its strategy to decarbonize the economy. This program will promote fiscal measures that discourage the use of fossil fuels and environmentally degrading products. The $500 million loan has 19.15-year repayment period, a six-year grace period, and an interest rate based on the Secured Overnight Financing Rate (SOFR). =================================== D O M I N I C A N R E P U B L I C =================================== [*] DOMINICAN REPUBLIC: Recovers Strongly After Pandemic, IMF Says ------------------------------------------------------------------ The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with Dominica in early June 2023 and endorsed the staff appraisal without a meeting on a lapse-of-time basis.[2] The IMF opines that the Dominican economy is recovering strongly following the pandemic. Real GDP growth is estimated to have reached 6.9 percent in 2021 and 5.7 percent in 2022, driven by construction of climate-resilient infrastructure, a partial rebound in tourism, and a substantial rise in agricultural output. High global commodity prices and shipping costs pushed inflation up to an estimated 7.5 percent in 2022, despite mitigating fuel price policies. The current account deficit remained elevated, at 26 percent of GDP, due to unfavorable terms of trade, large imports of investment goods, and incomplete recovery in tourism receipts. Fiscal space remains tight. High Citizenship-by-Investment (CBI) revenue, nearing a record 30 percent of GDP in recent years, has supported public investment and crisis response measures. That said, the primary fiscal deficit expanded to 6.2 percent in FY21–22, with public debt reaching at 106 percent of GDP. The financial sector remains stable. Tighter global financing conditions have not impacted bank deposit and lending rates given abundant liquidity and limited exposure of foreign capital markets., Banks have strengthened provisions in line with ECCB requirements and remain well capitalized. Recapitalization of credit unions is progressing. Meanwhile, credit to the private sector has underperformed relative to GDP growth, while bank exposure to the public sector has grown since the pandemic. The economic outlook is positive, predicated on a continued expansion in tourism and implementation of the country's economic modernization and resilience building agenda The transition to local geothermal energy production and construction of a new airport, planned for the coming years, will sustain economic activity, reduce dependency on fossil fuels, bolster resilience to external shocks, and improve international connectivity. Prudent fiscal management, however, will be of essence to address external and domestic imbalances. The current account deficit is expected to narrow as tourism exports expand, commodity prices fall, and imports of fuel and investment goods soften, in line with fiscal consolidation. Meanwhile, public debt is set to decline gradually in coming years, supported by efforts to reduce current spending and strengthen tax collection. Building policy buffers and critical infrastructure will help address downside risks stemming from global economic uncertainty, climate change, and volatility of CBI revenue. Executive Board Assessment The Dominican economy is expanding strongly but faces headwinds. Severely affected by the pandemic, real GDP growth is estimated to have rebounded during 2021–22, driven by construction of climate-resilient infrastructure, a pickup in tourism following the full lifting of mobility restrictions, and a substantial rise in agricultural output. However, the scarring effects from the pandemic are expected to weigh on growth going forward, while tight fiscal space and volatile CBI revenue may constrain much needed public investment, including to deal with frequent and costly climate shocks. To safeguard room for climate resilience investments and ensure compliance with the regional debt target, fiscal consolidation efforts should redouble. A consolidation path in line with the national fiscal rule—raising the primary balance to 2 percent of GDP by 2026—is necessary to ensure convergence to the 60 percent public debt target by 2035. The plan should be underpinned by a sizeable improvement of non-CBI fiscal balances, while protecting investment and other priority programs. Stronger fiscal consolidation would facilitate external rebalancing and reduce the exposure of the financial system to the public sector, mitigating sovereign-bank nexus risks. More ambitious reforms will be necessary to underpin the growth friendly fiscal consolidation. Mobilizing tax revenue by streamlining tax incentives, reviewing PIT allowances, and strengthening tax administration and compliance risk management is a priority. As international fuel prices moderate, the reduction of VAT on electricity should be reversed and motor vehicle licenses revised up to compensate losses from the foregone highway levy. On the expenditure side, it remains critical to reduce the wage bill (through civil service reform), streamline pension spending (through reforms aimed at increasing in the minimum retirement age) and strengthen the financial position of the publicly-owned water and sewage public company (through higher tariffs that better reflect cost recovery). Efforts should continue to cut inefficient spending and better prioritize the medium-term public investment plan towards projects with greatest productivity, such as the geothermal plant and new airport. Given high exposure to climate change, allocating a higher share of CBI revenue, including all unexpected windfalls, to disaster insurance and debt amortization would bolster financial resilience and strengthen debt sustainability. Meanwhile, social protection systems need strengthening. While conventional income-based targeting is hampered by widespread informality and capacity constraints, consideration should be given to pursuing avenues for proxy-targeting and tailoring social assistance to vulnerable households in a more systematized way. This would enable the streamlining of untargeted programs and deploying exceptional support swiftly and cost- effectively in the face of large shocks. As a first step, completing the ongoing population census, which would form the basis for a comprehensive social registry, is paramount. Addressing longstanding constraints to financial intermediation is needed to prudently bolster credit to the private sector. The upcoming ECCU regional credit bureau and the already operating Eastern Caribbean partial credit guarantee scheme can facilitate credit access by streamlining lending processes and addressing collateral constraints for small businesses. Ongoing initiatives to support small business development and financial management will further facilitate MSMEs' access to credit. Efforts to modernize the national insolvency law remain essential to facilitate resolution of NPLs, which remain elevated, thereby encouraging prudent risk-taking. Modernizing supervisory frameworks is crucial to preserve financial stability. Efforts are needed to bolster the resources and capacity of the national supervisor considering its large mandate, which expanded further with the adoption of the Virtual Assets Business Act in mid-2022. Modernizing supervisory regulations and granting statutory independence from the Ministry of Finance would further improve its effectiveness and support risk-based supervision. To foster financial resilience to climate change, supervisory frameworks should account for related risks. Meanwhile, the recapitalization of systemic credit unions should be given priority. Continued efforts to modernize the economy and strengthen economic resilience are necessary, including through policies that foster diversification and inclusiveness. The transition to geothermal energy will be critical to reduce carbon emissions, lessen external vulnerabilities, and increase economic competitiveness over medium term through lower energy costs. Timely completion of the new international airport will significantly boost connectivity with large markets and enhance regional connectivity. Initiatives to support the agricultural sector should be furthered to broaden the export base and explore synergies with the growing tourism sector. Efforts to expand digitalization and professional training will support inclusive development and further boost productivity. Advancing institutional reforms can help mitigate risks and support economic policymaking. Continued progress in strengthening AML/CFT legislation and procedures, in line with the recommendations of the upcoming CFAFT mutual evaluation report, will protect the integrity of CBI programs and the stability of CBRs. The publication of timely high-quality statistics is essential to inform policy decisions and monitor compliance with the fiscal rules. The implementation of the national fiscal rule necessitates an enhancement of public financial management processes, including for medium-term budgeting, fiscal reporting, treasury operations, and public investment management. About Dominican Republic The Dominican Republic is a Caribbean nation that shares the island of Hispaniola with Haiti to the west. Capital city Santo Domingo has Spanish landmarks like the Gothic Catedral Primada de America dating back 5 centuries in its Zona Colonial district. Luis Rodolfo Abinader Corona is the current president of the nation. TCRLA reported in April 2019 that the Dominican To related that Juan Del Rosario of the UASD Economic Faculty cited a current economic slowdown for the Dominican Republic and cautioned that if the trend continues, growth would reach only 4% by 2023. Mr. Del Rosario said that if that happens, "we'll face difficulties in meeting international commitments." An ongoing concern in the Dominican Republic is the inability of participants in the electricity sector to establish financial viability for the system. S&P Global Ratings, in December 2022, raised its long-term foreign and local currency sovereign credit ratings on the Dominican Republic to 'BB' from 'BB-'. The outlook on the long-term ratings is stable. S&P affirmed its 'B' short-term sovereign credit ratings. S&P also revised its transfer and convertibility (T&C) assessment to 'BBB-' from 'BB+'. The stable outlook reflects S&P's expectation of continued favorable GDP growth and policy continuity over the next 12-18 months that will likely stabilize the government's debt burden. In February 2023, S&P said its BB ratings reflect the country's fast-growing and resilient economy. It also incorporates the country's historical political and social challenges in passing structural reforms to contain fiscal deficits, despite recent improvements in the electricity sector. The ratings are constrained by relatively high debt, a hefty interest burden, and limited monetary policy flexibility. Fitch Ratings, in December 2022, affirmed the Dominican Republic's Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Rating Outlook. Moody's affirmed the Dominican Republic's long-term issuer and senior unsecured ratings at Ba3 and maintained the stable outlook in March 2021. ===================== P U E R T O R I C O ===================== PUERTO RICO: Nuveen, Blackrock Will Appeal $2.4BB Cap on Claim -------------------------------------------------------------- Michelle Kaske of Bloomberg Law reports that a group of investors holding the defaulted debt of the Puerto Rico Electric Power Authority plan to appeal a judge's ruling capping their claims at $2.38 billion, a fraction of what the utility owed when it entered bankruptcy in 2017. The group of ad hoc creditors, which includes BlackRock Financial Management, Nuveen Asset Management, Franklin Advisers, GoldenTree Asset Management and Invesco Advisers, is also seeking to delay a hearing on a debt-cutting plan until November, according to a joint status report filed to the court on June 27, 2023. About Puerto Rico Puerto Rico is a self-governing commonwealth in association with the United States. The chief of state is the President of the United States of America. The head of government is an elected Governor. There are two legislative chambers: the House of Representatives, 51 seats, and the Senate, 27 seats. The governor-elect is Ricardo Antonio "Ricky" Rossello Nevares, the son of former governor Pedro Rossello. In 2016, the U.S. Congress passed PROMESA, which, among other things, created the Financial Oversight and Management Board and imposed an automatic stay on creditor lawsuits against the government, which expired May 1, 2017. The members of the oversight board are: (i) Andrew G. Biggs, (ii) Jose B. Carrion III, (iii) Carlos M. Garcia, (iv) Arthur J. Gonzalez, (v) Jose R. Gonzalez, (vi) Ana. J. Matosantos, and (vii) David A. Skeel Jr. On May 3, 2017, the Commonwealth of Puerto Rico filed a petition for relief under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"). The case is pending in the United States District Court for the District of Puerto Rico under case number 17-cv-01578. A copy of Puerto Rico's PROMESA petition is available at http://bankrupt.com/misc/17-01578-00001.pdf On May 5, 2017, the Puerto Rico Sales Tax Financing Corporation (COFINA) commenced a case under Title III of PROMESA (D.P.R. Case No. 17-01599). Joint administration has been sought for the Title III cases. On May 21, 2017, two more agencies -- Employees Retirement System of the Government of the Commonwealth of Puerto Rico and Puerto Rico Highways and Transportation Authority (Case Nos. 17-01685 and 17-01686) -- commenced Title III cases. U.S. Chief Justice John Roberts named U.S. District Judge Laura Taylor Swain to preside over the Title III cases. The Oversight Board has hired as advisors, Proskauer Rose LLP and O'Neill & Borges LLC as legal counsel, McKinsey & Co. as strategic consultant, Citigroup Global Markets as municipal investment banker, and Ernst & Young, as financial advisor. Martin J. Bienenstock, Esq., Scott K. Rutsky, Esq., and Philip M. Abelson, Esq., of Proskauer Rose LLP; and Hermann D. Bauer, Esq., at O'Neill & Borges LLC are onboard as attorneys. Prime Clerk LLC is the claims and noticing agent. Prime Clerk maintains the case web site https://cases.primeclerk.com/puertorico Jones Day is serving as counsel to certain ERS bondholders. Paul Weiss is counsel to the Ad Hoc Group of Puerto Rico General Obligation Bondholders. ===================================== T R I N I D A D A N D T O B A G O ===================================== TRINIDAD & TOBAGO: Discusses Energy with Suriname, Finland ---------------------------------------------------------- Trinidad Express reports that Trinidad and Tobago utilised the recently concluded Caricom 50th anniversary celebrations held on T&T shores to engage in energy discussions with Suriname and Finland. Prime Minister Dr Keith Rowley and the president of Suriname, Chandrikapersad Santokhi, witnessed the signing of a Memorandum of Understanding between their countries at the Diplomatic Centre, located at St Ann's, according to Trinidad Express. Minister of Energy and Energy Industries Stuart Young and Minister of Foreign Affairs, International Business and International Cooperation of Suriname Albert Ramdin signed the agreement, the report notes. "The signing followed productive discussions on the ongoing collaborative efforts between the countries which are focused on the future development of Suriname's and Trinidad and Tobago's hydrocarbon industry as well as to provide energy security for the region," a post by the Office of the Prime Minister stated, the report discloses. "Both countries will now establish technical teams which will produce feasibility studies for their respective governments and this exercise will determine the way forward," it stated, the report notes. Presentations were also made by president of the National Energy Corporation of Trinidad and Tobago Ltd Dr Vernon Paltoo and managing director of Staatsolie Annand Jagesar and Eddy Frankel the power and sustainable energy deputy director of Staatsolie, the report relays. Young met the ambassador of Finland to the Caribbean Pertti Ikonen, the report says. "His Excellency Pertti Ikonen shared valuable information on Finland's energy transition and the composition of the country's power generation mix which includes nuclear power and an increase in renewable energy from hydrogen and wind turbines," the Energy Ministry stated, the report notes. "Minister Young discussed the opportunities and potential for Trinidad and Tobago to bolster energy security to Finland and other European countries through locally produced products such as LNG, ammonia, methane, urea and UAN," it stated, the report adds. ********* 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 * * *