/raid1/www/Hosts/bankrupt/TCRLA_Public/240312.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
Tuesday, March 12, 2024, Vol. 25, No. 52
Headlines
A R G E N T I N A
ARGENTINA: Peso Bond Puts Balloon, Spurring Inflation Risk
ARGENTINA: Puts US$2.3BB Into Banks, Signalling Faith in Milei
ARGENTINA: Wages Drops 18% During Milei's First 50 Days in Office
B A H A M A S
FTX GROUP: Reaches Settlement with BlockFi, May Pay Up to $874MM
B R A Z I L
AZUL SA: Working with Citi, Guggenheim as It Mulls Bid for Rival
BRAZIL: Industrial Sector Faces January Downturn
S T . L U C I A
[*] ST. LUCIA: Economy Rebounded Strongly, IMF Says
- - - - -
=================
A R G E N T I N A
=================
ARGENTINA: Peso Bond Puts Balloon, Spurring Inflation Risk
----------------------------------------------------------
Ignacio Olivera Doll at Bloomberg News reports that puts on
Argentina's peso debt issued by the Central Bank have surged under
Javier Milei's government, reaching a record and prompting
officials to scale back their use amid growing investor concern.
The puts - pledges to buy back the notes if they fall below a
certain price - have been in use in thenation for years to increase
the appeal of the bonds at regularly scheduled auctions, according
to Bloomberg News. They've shot up to 16.3 trillion pesos (US$19.5
billion), up by 11.3 trillion pesos since Milei took office just
three months ago, according to estimates by local broker PPI,
Bloomberg News says.
The instrument has enabled Economy Minister Luis Caputo to not only
roll over all of the debt coming due, but also to sell new notes to
finance spending, Bloomberg News notes. But the sheer size of the
outstanding position - larger than Argentina's monetary base - has
stoked concern and prompted the government to scale back their use
and, in turn, reduced the appeal of the Treasury bond auctions they
were meant to promote, Bloomberg News relays.
In its last auction, the Economy Ministry was able to roll over
debt coming due, but failed to find buyers for additional notes,
Bloomberg News discloses. Argentina's Central Bank and Economy
Ministry didn't respond to a request for comment on the data,
Bloomberg News relays.
While the banks often exercise them to help finance further bond
buys, concern could push down the price of the debt, which could
then trigger a mass redemption that would leave the Central Bank
with no alternative but to print money to repay the puts, Bloomberg
News notes. That would then stoke inflation already running at
over 250 percent, Bloomberg News says.
"A bond sale event would force the Central Bank to issue pesos,
flooding the street with pesos and increase dollarisation
pressure," said Juan Manuel Truffa, partner and director in local
consulting firm Outlier, Bloomberg News relays.
Essentially, the puts push the liabilities onto the central bank
balance sheet from the Economy Ministry, and increase uncertainty
over the timing of any repayments, Bloomberg News discloses.
"The duration of the government's peso liabilities – the
Treasury's and Central Bank's – is much shorter than what is seen
at first sight," said Diego Chameides, chief economist at Banco
Galicia in Buenos Aires, Bloomberg News relays. "The puts mean
that long-term debt issued by the government can be sold in a day,"
he added.
To be sure, the Central Bank under Milei has quickly started
digging out of the financial hole it inherited by buying US$9
billion to add to its foreign reserves, which are still at negative
levels compared to the bank's liabilities, Bloomberg News notes.
Building up reserves is a key step toward stabilising the currency
and economy, Bloomberg News says.
The system of puts was first used by former President Alberto
Fernandez's government in July 2022 following a selloff of peso
bonds, Bloomberg News discloses. The aim was, as it is now, to
restore investor confidence in the Treasury notes and fuel demand
at the auctions - something it succeeded in doing, Bloomberg News
relays.
The banking sector is the only one entitled to buy bonds with puts
in Treasury tenders. Its share of each auction has increased to 77
percent in Milei's administration, compared with 50 percent in the
previous government, according to data from PPI, Bloomberg News
adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez 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.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on June 13, 2023, raised its local currency
sovereign credit ratings on Argentina to 'CCC-/C' from 'SD/SD' and
0its national scale rating to 'raCCC+' from 'SD'. S&P also affirmed
its 'CCC-/C' foreign currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings is negative. S&P's
'CCC-' transfer and convertibility assessment is unchanged. None of
its rated bond issues are affected.
S&P said the negative outlook on the long-term ratings is based on
the risks surrounding pronounced economic imbalances and policy
uncertainties before and after the 2023 national elections.
Divisions within the government coalition, and infighting among the
opposition, constrain the sovereign's ability to implement timely
changes in economic policy.
Fitch Ratings also upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
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.
ARGENTINA: Puts US$2.3BB Into Banks, Signalling Faith in Milei
--------------------------------------------------------------
Patrick Gillespie at Bloomberg News reports that Argentines have
deposited more than US$2.3 billion into dollar-denominated local
bank accounts since President Javier Milei took office December 10,
reflecting incipient optimism about his government.
The nearly 17 percent jump to US$16.4 billion means dollar deposits
in Milei's first three months have completely recovered from their
losses over the past year, according to Central Bank data,
according to Bloomberg News.
The greenbacks Argentines keep in the financial system are an
informal barometer of political risk as citizens tend to withdraw
money during periods of volatility and deposit savings in more
stable times, Bloomberg News says.
If the trend continues, it would be good news for Argentina's
Central Bank, where a portion of savers' dollar deposits count
toward the foreign reserves needed to stabilise the peso, Bloomberg
News discloses.
To be sure, dollar savings tend to pick up at the end of the year
in Argentina for tax reasons, so some seasonal forces helped drive
the uptick in December, Bloomberg News relays. More broadly,
deposits have a long run ahead after tanking in 2019 from a peak of
about US$32.5 billion after Milei's predecessor, Alberto Fernandez,
won a primary election that year, Bloomberg News notes.
The surprise result sparked panic about the return of a Peronist
government and heralded the end of former president Mauricio
Macri's market-friendly administration, Bloomberg News notes.
In Argentina, checking accounts are denominated in pesos while
savings accounts can be denominated in dollars, Bloomberg News
says. However, citizens are legally limited to exchanging US$200
in pesos per month and must pay heavy taxes on the transaction, one
of the country's many currency controls due to a lack of dollars in
the Central Bank, Bloomberg News adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez 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.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on June 13, 2023, raised its local currency
sovereign credit ratings on Argentina to 'CCC-/C' from 'SD/SD' and
0its national scale rating to 'raCCC+' from 'SD'. S&P also affirmed
its 'CCC-/C' foreign currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings is negative. S&P's
'CCC-' transfer and convertibility assessment is unchanged. None of
its rated bond issues are affected.
S&P said the negative outlook on the long-term ratings is based on
the risks surrounding pronounced economic imbalances and policy
uncertainties before and after the 2023 national elections.
Divisions within the government coalition, and infighting among the
opposition, constrain the sovereign's ability to implement timely
changes in economic policy.
Fitch Ratings also upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
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.
ARGENTINA: Wages Drops 18% During Milei's First 50 Days in Office
-----------------------------------------------------------------
Buenos Aires Times, citing a report, notes that during the first 50
days of Javier Milei's government, wages experienced a real fall of
18 percent, not accounting for inflation.
The RIPTE Average Taxable Income of Steady Workers in January was
555,269 pesos for a household of two adults, two children – a
14.7-percent monthly nominal rise compared to January, said
economist Salvador Vitelli, according to Buenos Aires Times. This
means a 22.2-percent real fall year-to year and five percent as
against December 2023, he added.
According to the professional's calculation, during the
December-January period the real fall of wages was 18 percent, the
report notes.
"In constant currency terms, it means going back to salaries in May
2005. It's the biggest year-to-year fall since March 2003" after
the end of the dollar-peso parity, Vitelli stated, the report
relays.
The average income of 555,269 pesos is below the poverty line
since, according to the INDEC national statistics bureau, which in
January said a standard family needed 596,823 pesos to cover basic
necessities, the report discloses.
In December, inflation was 25.5 percent and in January, it slowed
down to 20.4 percent, which pierced through workers' income, the
report says.
The report relays that this loss of purchasing power has impacted
consumption levels. The last data from the CAME Argentine
Confederation of Medium-Sized Enterprises showed that in February
sales at SMEs/PyMES dove by 25 percent, the report relays.
Inflation for March is expected to be 15 percent and collective
bargaining talks might partly improve wage levels, said Vitelli,
the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez 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.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on June 13, 2023, raised its local currency
sovereign credit ratings on Argentina to 'CCC-/C' from 'SD/SD' and
0its national scale rating to 'raCCC+' from 'SD'. S&P also affirmed
its 'CCC-/C' foreign currency sovereign credit ratings on
Argentina. The outlook on the long-term ratings is negative. S&P's
'CCC-' transfer and convertibility assessment is unchanged. None of
its rated bond issues are affected.
S&P said the negative outlook on the long-term ratings is based on
the risks surrounding pronounced economic imbalances and policy
uncertainties before and after the 2023 national elections.
Divisions within the government coalition, and infighting among the
opposition, constrain the sovereign's ability to implement timely
changes in economic policy.
Fitch Ratings also upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
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 A H A M A S
=============
FTX GROUP: Reaches Settlement with BlockFi, May Pay Up to $874MM
----------------------------------------------------------------
Dietrich Knauth at Reuters reports that bankrupt crypto companies
FTX and BlockFi have resolved their disputes stemming from the
companies' collapses in 2022, with FTX agreeing to pay BlockFi up
to $874 million, according to court documents filed.
The settlement is subject to approval by U.S. Bankruptcy Judge John
Dorsey in Wilmington, Delaware.
The two companies had sued each other in 2023, seeking to recover
money they had loaned each other before they both went bankrupt in
November 2022. Under the new settlement, FTX agreed to prioritize a
$250 million payment to BlockFi, and the remainder of the
settlement is contingent on its efforts to repay its own customers
in bankruptcy, according to Reuters.
The two companies had a close relationship before a 2022 market
crash revealed FTX's widespread misuse of customer funds. BlockFi
provided loans to FTX's affiliated hedge fund Alameda Research, and
it turned to FTX for rescue financing during a volatile
cryptocurrency market in summer 2022, the report notes.
FTX could pay BlockFi up to $689 million on account of the Alamexa
loans, but only the first $250 million is guaranteed, the report
relays. The remainder is contingent on FTX's ability to first
repay its own customers and other creditors, according to court
documents filed in Delaware and New Jersey bankruptcy courts, the
report discloses.
FTX also agreed to pay BlockFi an additional $185.3 million, to
account for the amount that BlockFi held in its FTX trading
accounts when the cryptocurrency exchange collapsed in 2022, the
report relays.
FTX expects to fully repay its own customers, but that result is
not guaranteed, an FTX attorney said in January, the report says.
BlockFi had previously agreed to repay FTX up to $275 million from
the 2022 rescue loan, but only if it can first repay its own
customers in full, the report relays.
BlockFi has said it is unlikely to fully repay customers who had
interest-bearing BlockFi accounts, the report notes. The company
previously estimated that those customers might receive between
39.4% and 100% of the value in their accounts, the report
discloses.
As part of the agreement, BlockFi agreed to drop its lawsuit over
56 million in Robinhood (HOOD.O), opens new tab shares that were
allegedly pledged as collateral for BlockFi's loans to Alameda, the
report says.
Those equity shares were later seized by the U.S. Department of
Justice when FTX founder Sam Bankman-Fried was arrested, the report
notes.
Bankman-Fried was convicted in November 2023 of stealing $8 billion
from FTX customers. He is set to be sentenced on March 28, and is
expected to appeal his conviction, the report adds.
About FTX Group
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
billion 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, 2022, 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 page
https://cases.ra.kroll.com/FTX/Home-Index
The Official Committee of Unsecured Creditors tapped Paul Hastings
as counsel, FTI Consulting, Inc., as financial advisor, and
Jefferies LLC as the investment banker. Young Conaway Stargatt &
Taylor LLP is the Committee's Delaware and conflicts counsel.
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
===========
AZUL SA: Working with Citi, Guggenheim as It Mulls Bid for Rival
----------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that the
Brazilian airline Azul SA is working with Citigroup Inc. and
Guggenheim Partners as it explores a potential offer for its
troubled competitor Gol Linhas Aereas Inteligentes SA.
Shares in both companies rallied.
The companies are advising Azul as it weighs several options,
including an outright acquisition of its rival, according to
globalinsolvency.com. Azul still could decide to shelve the idea.
Any offer would need approval from the country's regulator - known
as Cade, the report relays.
A tie-up between Azul and Gol would help them cut costs and boost
revenue, helping support share prices, Bradesco BBI analyst led by
Victor Mizusaki wrote in a note, the report disclsoes.
Sao Paulo-based Gol filed for chapter 11 after grappling with $2.7
billion in near-term liabilities and carrying out a dozen debt
exchanges, the report says. Under the process, it has managed to
increase its debtor-in-possession financing to $1 billion from $950
million, the report notes. Moody's Investors Service upgraded Gol
parent Abra Group's credit rating to Caa1 from Caa3 and lifted the
outlook to stable from negative, the report says. The upgrade
hinged on Gol securing the $1 billion DIP financing, the ratings
company said, the report adds.
As reported in the Troubled Company Reporter-Latin America on
July 21, 2023, Fitch Ratings has downgraded Azul S.A.'s (Azul)
Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs)
to 'RD' from 'C', following the conclusion of its exchange offer,
which Fitch considered a distressed debt exchange (DDE).
Simultaneously, Fitch has upgraded Azul's IDRs to 'B-' from 'RD' to
reflect its post-restructuring risk profile.
BRAZIL: Industrial Sector Faces January Downturn
------------------------------------------------
Richard Mann at Rio Times Online reports that in January, Brazil's
industrial sector faced a 1.6% decline in output compared to the
previous month, indicating a challenge in the country's economic
landscape.
The Brazilian Institute of Geography and Statistics (IBGE)
confirmed this downturn, aligning with predictions from financial
market analysts, according to Rio Times Online.
Despite this setback, the annual comparison revealed a 3.6% growth,
showcasing resilience with six straight positive outcomes, the
report relays.
Yearly industrial growth rose to 0.4% from 0.2% in December 2023,
ending last year's stability, 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.
Fitch Ratings upgraded on July 26, 2023, Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) to 'BB', from 'BB-',
with a Stable Outlook. The upgrade reflects better-than-expected
macroeconomic and fiscal performance amid successive shocks in
recent years, proactive policies and reforms that have supported
this, and Fitch's expectation that the new government will work
toward further improvements.
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.
DBRS Inc., on August 15, 2023, upgraded Brazil's Long-Term
Foreign and Local Currency - Issuer Ratings to BB from BB (low).
At the same time, DBRS Morningstar confirmed Brazil's
Short-term Foreign and Local Currency - Issuer Ratings at R-4.
The trend on all ratings is Stable (March 2018).
=================
S T . L U C I A
=================
[*] ST. LUCIA: Economy Rebounded Strongly, IMF Says
---------------------------------------------------
The Executive Board of the International Monetary Fund (IMF)
concluded the 2023 Article IV consultation[1] with St. Lucia on
August 25, 2023, and considered and endorsed the staff appraisal
without a meeting on a lapse-of-time basis.[2]
St. Lucia's tourist-dependent economy has rebounded strongly after
the Covid-19 pandemic and the commodity import price shock due to
Russia's war in Ukraine. Output is currently near the pre-pandemic
level, while higher government revenue has narrowed the fiscal
deficit. Similarly, with the recovery of tourism, the current
account deficit declined from the pandemic peak of 16 percent of
GDP in 2020 to an estimated 2 percent of GDP in 2022. Though
declining, public debt remains much higher than before the
pandemic. The banking sector has adequate liquidity and is
profitable, but NPLs are elevated.
The GDP growth projection in 2023, at 3.2 percent, is lower than
2022 as tourism demand continues the recovery and the economy
approaches the existing production capacity. Afterwards, it is
projected to gradually decline towards a potential rate of 1.5
percent in the medium-term. Annual inflation is projected to remain
high in 2023 at 4.3 percent and then to decline to around 2 percent
in the medium term. The current account deficit is expected at 0.8
percent of GDP in 2023 and is projected to close over the medium
term driven by the continued recovery in tourism.
On current policies, public debt is projected to stabilize around
75 percent of GDP in the medium term, significantly above the
regional ceiling of 60 percent of GDP by 2035. Bank credit to the
private sector is projected to remain anemic in the absence of
improved loan loss provisioning, fiscal adjustment, and additional
legislative reform. Natural disasters are a recurrent threat. Risks
to the outlook are tilted to the downside and includes global
economic slowdown, commodity price volatility, and additional
global financial tightening.
Executive Board Assessment
The St. Lucia economy rebounded strongly in 2022 after the collapse
in tourism during the pandemic and the war in Ukraine, leading to
large improvements in the fiscal and external deficits. GDP grew by
an estimated 15.7 percent in 2022. Inflation was high at 6.5
percent with strong impulse from international prices. With the
recovery of tourism, the current account deficit narrowed from a
peak of 15.2 percent of GDP in 2020 to 2.3 percent of GDP in 2022,
while the estimated fiscal balance improved in FY2022 by 4.1
percentage point to a deficit of 1.4 percent of GDP due to strong
tax revenue collection and CIP revenue. However, the large fiscal
deficits during the pandemic and the growth collapse in 2020 led to
a significant increase in public debt which now stands at near 75
percent of GDP. The financial system has remained stable and liquid
with a sustained increase in deposits, but the loan portfolio
performance has worsened. The rapid credit growth in the credit
unions raises credit risk concern, especially given relatively
weaker credit standards in the sector, generally high NPLs, and low
capital buffers in some institutions.
Growth is projected to slow in the medium term as the economy
completes the recovery, but the fiscal outlook poses challenges.
The government's plan, encompassing investments in the transport,
health, and social areas, is ambitious and consistent with the
needs to address bottlenecks to growth. However, on current
policies, public debt is projected to stabilize around 75 percent
of GDP in the medium term, above the regional ceiling of 60 percent
of GDP by 2035. The short maturity profile of domestic (regional)
debt keeps financing needs elevated, implying refinancing risk. The
government plans to increase revenue are insufficient to reach the
regional debt ceiling. Constraints to bank credit, including the
need to increase provisioning and legal disincentives affecting the
ability to seize collateral remain obstacles to domestic
investment, employment, and growth.
The government's plan could be strengthened with policies that
focus on fiscal sustainability and resource allocation efficiency.
With output approaching its pre-pandemic level, the government
should target a fiscal consolidation of at least 2½ percent of GDP
to reach the regional debt ceiling and rely on strengthening of tax
compliance, streamlining of tax exemptions, adopting a fuel price
pass-through framework, and the more efficient value added tax. A
further 1 percent of GDP of fiscal consolidation could be used to
increase public investment resilient to natural disasters. Public
debt sustainability could be supported by a well-designed fiscal
rule, self-financing of the initiatives to strengthen the social
safety net, and more capacity to access climate finance. To address
fiscal risks, CIP revenue could be saved in a fund for
self-insurance against natural disasters, debt service, and public
investment. The draft reforms put forward by the pension fund
should be implemented to increase its longevity, and its investment
portfolio should be more internationally diversified to boost its
resilience to shocks.
The priority in the financial sector is to strengthen buffers to
increase resilience to shocks while enhancing incentives for
private lending. Banks should improve the classification of NPLs in
the post-moratorium and restructured portfolios, raise provisions
to the regulatory minimum, and strengthen risk management of
foreign investments. The government should use its representation
power at the ECCB to strengthen the enforcement of provisioning
requirements and speed up the disposals of NPLs. The modernization
of foreclosure legislation for commercial loans and residential
property, and passing of the bankruptcy and insolvency law, would
expand credit access and lower loan interest rates. Ensuring
effective implementation of the international AML/CFT standards
would help protect correspondent banking relationships and mitigate
risks related to cross-border financial flows. In the credit unions
sector, the passing of the draft bill with stronger regulatory
standards will improve compliance with provisioning and capital
requirements.
High unemployment, particularly among the youth, requires targeted
policies to address deep-rooted social problems and a review of the
education programs. While improving conditions for private
investment will increase labor demand, it may prove insufficient to
achieve full employment. High unemployment affects different
segments of the population facing distinct challenges to
employment, especially female workers and youth. This suggests the
need to review education programs to strengthen employability;
increase enrollment in technical and vocational education and
training to address skill mismatches; reduce of transport cost; and
review the allocation of government scholarships to skills in high
demand, in consultation with employers. Labor participation of
females and youth[3] could be addressed by expanding the capacity
of child and elderly care. The recently created Youth Economy
Agency to support youth employment and business development and
entrepreneurship with training and guidance could be complemented
with social programs that tackle non-economic barriers to
employment.
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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
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Chapman, Editors.
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