Fitch affirms Venezuela

Fitch Ratings said it affirmed Venezuela's long-term foreign- and local-currency issuer default ratings at BB-, the short-term foreign-currency issuer default rating at B and the country ceiling at BB-.

The outlook is stable.

"The country's public debt and liquidity ratios are now superior to peers because higher oil prices have underpinned rapid economic expansion, export growth and reserve accumulation. Public spending has also increased very rapidly, however, generating significant macroeconomic imbalances and exposing public finances to increased pressures in the event of an oil price decline. Given that Fitch expects oil prices to soften in 2007 and 2008, recent improvements in debt and liquidity ratios are likely to be reversed," Fitch sovereign analyst Morgan C. Harting said in an agency rating.

Public debt is expected to end the year at about 30% of GDP, below the BB median of 40%, but higher deficits and slower growth is forecasted to bring the ratio to 36% by 2008.

Fitch said it is concerned that microeconomic policy actions have also made the economy and public finances less resilient to declining oil prices. President Chavez's 'Socialism for the 21st Century' has been characterized by property seizures, price controls and subsidies, patronage-based social programs, foreign-exchange rationing, punitive taxation, confrontational rhetoric vis-a-vis the private sector and uneconomic banking regulations, the agency said, and these policies create disincentives for long-term investment and reduce potential economic growth.

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