NEWS / Foreign Exchange

Latin America, Africa and Middle East, Asia, Emerging Europe & CIS, Industrialised countries

Latin America

Brazil

Standard & Poor's and Moody's said they will keep focusing mainly on fiscal indicators to review Brazil's ratings, despite calls by the Brazilian government for a more flexible approach. Brazilian Finance Minister Guido Mantega urged the country's credit ratings to be upgraded. He called on the agencies to take into account"nontraditional" economic indicators, including Brazil's "higher growth potential." Brazil is currently rated "BB" byS&P and "Ba2" by Moody's -- two notches below investment-grade level according to both agencies.

Ecuador

Correa won a major political victory when voters overwhelmingly approved setting up a special assembly he had proposed to rewrite the constitution and cut the powers of traditional parties in an unpopular Congress. With Correa now preparing to battle the crippled opposition for control of the assembly in an election later this year, business groups say they are preparing for the worst should ideology overtake sound economic policies. Analysts say private investment has already slowed and, with Correa spending heavily on social programs, some warn the oil-producing country could suffer both an economic slowdown and a deterioration of public finances.

Africa & Middle East

Standard & Poor's: economic and political reform in Africa, often anchored by ongoing cooperation programs with the IMF in the case of less-developed sub-Saharan African states, has been crucial to the region's improving rating prospects. This is one of the main findings in two research reports published by Standard & Poor's. High commodity prices worldwide, robust global trade, and massive external debt forgiveness have contributed to several years of solid growth, but reform has been the main driver, said Standard & Poor's. The commodity price boom has, however, been a mixed blessing for African sovereigns. Most rated sub-Saharan sovereigns, the economies of which are dominated by commodities production would have been expected to benefit from improved terms of trade. This does not appear to have been the case, however. Only four of the 13 sub-Saharan sovereigns rated by Standard & Poor's have experienced an improvement in their terms of trade since 2003: Nigeria, Mozambique, Cameroon, and to a lesser extent Benin. The rest have faced a downturn, with Burkina Faso, Ghana, and Madagascar experiencing the worst deterioration. Debt relief has been another major development in the past year for most rated African sovereigns. With the exception of South Africa, Botswana, Kenya, Seychelles, and Nigeria, all have been under the HIPC initiative and benefited from large multilateral debt relief in 2006, resulting in significant decreases in their ratios of public debt o GDP.

Central African Republic

Paris Club creditors agreed with the government of the Central African Republic to restructure $36.1 million of the country's external public debt, including $28.4 million of arrears and late interest. The Paris Club said the agreement would lead to the cancellation of $9.9 million of debt

Morocco

Morocco received an investment-grade BBB- rating from Fitch, which said the country had made marked economic, political and social progress in recent years. The other main ratings agencies, Moody's and Standard & Poor's, both rate Morocco one notch lower, and outside investment grade, at Ba1 and BB+ respectively. Fitch said Morocco's progress had led to continued improvements in living standards and the external position, despite persistent fiscal deficits, although growth had not been strong enough to reduce poverty, which remains high. The currency account has shown a steady surplus since 2001, Morocco is a net external creditor and international liquidity is exceptionally high, the agency said. Although public debt is high relative to peers and a rating constraint, substantial progress in reducing the budget deficit was achieved last year while Morocco's deep and liquid domestic capital market provides financing flexibility, it said. The ratings outlook is stable.

Nigeria

Nigeria's turbulent election set for the weekend should not affect the country's redit rating, which is backed by strong fiscal policies and oil revenues, a senior Standard & Poor's analyst said. S&P's said that oil-rich Nigeria will hold on to its 'BB-' rating even if results of the presidential election are contested, so long as any dispute is resolved relatively quickly. S&P's said Nigeria's political risks were already factored into the rating, which carries a stable outlook. On the plus side, it has almost zero external debt, windfall earnings from oil and reserves of over $43 billion. Nigeria's opposition charged on Friday that rigging had already begun on the eve of the vote to elect a successor to President Olusegun Obasanjo but authorities denied a report of doctored ballots. In state votes in Nigeria last week, diplomats and observers were dismayed at the extent of abuses directed towards keeping the People's Democratic Party (PDP) in power. Saturday's election should mark the first handover from one elected president to another in Africa's most populous nation, scarred by three decades of army rule which ended with President Obasanjo's election in 1999.

Asia

Cambodia

Cambodia received a B+ rating from Standard & Poor's, with the ratings agency saying the Asian country needs continued help from donors to maintain solvency. The rating is four notches below investment-grade status. S&P said the rating takes into account Cambodia's relatively high public and external debt, some bilateral portions of which are in arrears. Cambodia requires continued donor assistance to maintain domestic and external solvency, owing primarily to its severely constrained revenue-generating capacity, which also renders debt servicing ability vulnerable to negative shocks, the agency said.

Emerging Europe & CIS

Hungary

The International Monetary Fund is concerned that too much forint appreciation could hinder Hungary's economic expansion. IMF analysts see "a clear risk" in the over-appreciation of the Hungarian currency, be that driven by regional or domestic factors. The forint has strengthened 12% against the euro since August 2006. Talk on capital markets about the possible scrapping by the government of the forint's trading band emerged recently. Analysts believe that if the government decides to scrap the forint's 30% trading band against the euro, the forint could drop below the HUF240 mark, which is the current band limit. The government has denied such plans. IMF executives saw "some uncertainties" over whether Hungary could reach the desired 4% rate of annual gross domestic product growth in 2009-2010 and called on the government to continue with the planned structural reforms and keep the financing needs of the budget at a low level. At the same time, some IMF executives praised the government's fiscal stability program and were more optimistic about this year's budget deficit than the cabinet's current projection. The government launched a deep-rooted fiscal austerity program last summer to cut the country's extensive budget deficit, which was the largest in the European Union in 2006 relative to the size of the economy.

Romania

The European Commission voiced concern about the future of Romania's EU-driven justice reforms and the fight against corruption after parliament suspended reformist President Traian Basescu. Romania's parliament suspended the popular president on charges of abusing his powers, plunging the newest European Union member deeper into crisis. Basescu has been in a power struggle with Liberal Prime Minister Calin Tariceanu. The constitutional court backed leftist Senate Speaker Nicolae Vacaroiu as interim president. The turmoil could make it harder for Romania, which joined the EU with Bulgaria in January, to meet reform requirements set in the accession treaty to receive its full quota of aid and be fully integrated into the EU's area of justice and security. Those benchmarks include the establishment of an integrity agency to fight corruption, as well as measures to improve food safety and animal hygiene and administrative reforms to receive EU payments. Brussels will assess the results in June.

Industrialised countries

Japan

Standard & Poor's raised Japan's rating to AA from AA minus, citing the country's improved fiscal prospects. S&P gave a vote of confidence to Japan's economy last May, when the ratings agency raised its outlook on Japan's sovereign rating to positive from stable.