Moody's Puts El Salvador Ratings On Watch
For Downgrade
San Salvador -
Moody's Investors Service put El Salvador's
ratings on watch for possible downgrade to
junk territory, citing the country's
worsening economy and its limited policy
response along with its restricted access to
international capital markets.
El Salvador's ratings are Baa3, the lowest
investment-grade level. In reviewing whether
to strip the country of such status, Moody's
said it would review El Salvador's ability
to respond to and survive economic and
financial shocks.
The ratings agency noted the country's
dependence on the U.S. for exports and
immigrants sending money back to family
members at home as well as its adoption of
the U.S. dollar as its official currency in
2001.
"With no monetary or exchange-rate policy to
speak of, and given the absence of a lender
of last resort, economic-policy management
has been hard pressed by current
circumstances," said Mauro Leos, Moody's
regional credit officer for Latin America.
In June, Fitch Ratings cut El Salvador's
ratings one notch deeper into junk
territory, saying its economy was expected
to shrink 2.5% this year. Standard & Poor's
Ratings Services made a similar move a month
earlier.
Like many countries, El Salvador's deficit
and debt are expected to increase this year.
Political and economic uncertainty there
have led to delays in potential investments,
hurting growth prospects, Fitch said, adding
that the financial system was resilient
during the recent pre-electoral period and
"notably smooth political transition."
Leftist Mauricio Funes was elected president
in March, but he has said he doesn't plan to
turn the country away from closer ties to
the U.S., where more than two million
Salvadoran expatriates live.
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