TEXT-S&P revises Venezuela long-term rating outlook

<a href=reuters.com>Reuters Wed April 16, 2003 12:00 PM ET (The following statement was released by the rating agency)

NEW YORK, April 16 - Standard & Poor's Ratings Services said today that it revised its outlook on its long-term rating on the Bolivarian Republic of Venezuela to stable from negative. Standard & Poor's also affirmed its 'CCC+' long-term and 'C' short-term foreign currency sovereign credit ratings on the republic. (Standard & Poor's does not rate Venezuela's bolivar-denominated debt.)

"The stable outlook balances improving liquidity stemming from recovering oil production against continuing, albeit diminished, economic pressures and political turmoil," said sovereign analyst Richard Francis. "Oil-based revenue, which normally accounts for nearly 50% of total government revenue, fell by an estimated 50% in the first few months of this year during the strike, but are expected to rebound to 40% of total revenue for 2003 as a whole," he added.

According to Mr. Francis, international reserves are also rising as sustained production surpasses 2.5 million barrels of oil per day. Reserves reached US$15.5 billion on April 14, 2003, up from US$14.1 billion a month earlier (and US$15.8 billion in early December 2002, before the strike began). "However, the level of international reserves could come under renewed pressure going forward, as Petroleos de Venezuela S.A. (PDVSA) uses the Macroeconomic Stabilization Fund (FIEM) to finance crucial investment, as capital controls are eased, and as debt payments ramp up, especially in June," Mr. Frances noted. "The central government's external debt service is modest in April and May, but rises to nearly 50% of average monthly current account receipts in June," he said.

Standard & Poor's said that, despite the pick-up in oil production, near-term challenges include political paralysis and weakened institutions, continued contraction in the nonoil sector, rising inflation, and higher unemployment. Failure to reach a political solution to the conflict over President Hugo Chavez's tenure and social unrest continue to constrain investment and economic growth. The economy is likely to contract by nearly 15% in 2003 (because of the sharp decline in the early months), on top of the 9% contraction in 2002.

"The strength of the emerging recovery, at present only in the oil sector, depends to a large extent on political factors," said Mr. Francis." A sharp fall in oil production or oil prices, heightened social unrest, or financial sector difficulties could put renewed pressures on the ratings. On the other hand, diminished political tensions, along with sustained oil output, could lead to improvements in creditworthiness," he concluded. Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Fixed Income in the left navigation bar, select Credit Ratings Actions.