/raid1/www/Hosts/bankrupt/TCRLA_Public/241205.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
Thursday, December 5, 2024, Vol. 25, No. 244
Headlines
A R G E N T I N A
ARGENTINA: First Privatization Beset by US$536-Million Debt
YPF SA: To Merge LNG Project With Rival's Joint Venture
B R A Z I L
GOL LINHAS: To Finalize Agreement Resolving Tax Obligations
C H I L E
CHILE: Economy's Imbalances Largely Resolved, IMF Says
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Illegal Connections Leave Losses of USD200MM
DOMINICAN REPUBLIC: S&P Affirms 'BB/B' SCRs, Outlook Stable
J A M A I C A
JAMAICA: Trade Deficit Hit US$3.3 Billion for January to July
V E N E Z U E L A
CITGO PETROLEUM: Legal Fees in Snarled Auction Rankle Firms
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A R G E N T I N A
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ARGENTINA: First Privatization Beset by US$536-Million Debt
-----------------------------------------------------------
Ignacio Olivera Doll at Bloomberg News reports that President
Javier Milei is imposing a December deadline on Argentina's first
bid to sell a long list of state-run companies to the private
sector, outlining how challenging it will be for the government to
unload businesses.
The privatizations are part of Milei's aggressive austerity
campaign that he symbolizes with a chainsaw. He doesn't believe the
government should run companies, and says repeatedly that
"everything that can be privatized, we're going to privatize."
Milei is hoping to sell off state-run railways, banks, an airline
and much more, according to Bloomberg News.
His administration chose hydroelectric construction company
Industria Metalurgicas Pescarmona, or IMPSA, as its first
privatisation target, Bloomberg News relays. And it's held
negotiations with a prospective buyer: Industrial Acquisitions
Fund, a US special purpose vehicle that acquires and revitalises
companies in the energy and infrastructure sectors, according to a
person familiar with the matter, Bloomberg News notes.
But the catch is that IMPSA still owes creditors US$536 million and
IAF wants those debts out of the way before buying the company,
according to the person, who asked not to be identified as the
process is ongoing, Bloomberg News discloses. IMPSA is mostly
owned by the national government and the provincial government of
Mendoza, where it's headquartered, notes the report.
The company is a microcosm of Argentina's own sovereign debt
debacles, Bloomberg News relays. IMPSA restructured its debts
twice in the past decade, while its international bonds account for
38.4 percent of its portfolio and are being currently offered at
only one tenth of their issue value, Bloomberg News notes.
According to the report, Milei's administration is imposing a
deadline: IMPSA must be privatised by December 15, or else it will
go into bankruptcy, according to the person. To resolve the debt
burden, IAF hired Buenos Aires-based brokerage AdCap Securities
Ltd. before it acquires the company, Bloomberg News notes.
AdCap declined to comment on what the exact solution to the debt
would look like. IMPSA, IAF, and Argentina's Economy Ministry
didn't respond to requests for comment, Bloomberg News says.
The IMPSA case exemplifies the challenges Milei faces in untangling
Argentina's government from its cobweb of companies, Bloomberg News
relays. Labor protests this year have hampered service at
state-run airline Aerolineas Argentinas and the largest public
employer, railway giant Trenes Argentinos. The president recently
started the process of auctioning off the country's cargo rail
company, but a prospective buyer would face a network in deep
disrepair.
Established in 1907, IMPSA was founded in Argentina's main wine
region of Mendoza, where it built iron, steel and irrigation
equipment partly for vineyards, Bloomberg News discloses. More
recently, it's focused on hydroelectric projects and heavy
machinery at cargo ports, 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.
In March 2022, the International Monetary Fund (IMF) approved a
new
30-month arrangement under an Extended Fund Facility for Argentina
in the amount of SDR 31.914 billion (equivalent to US$44 billion,
or 1000 percent of quota). The IMF Executive Board's decision
allowed the authorities an immediate disbursement of an equivalent
of US$9.65 billion in March 2022.
Argentina's IMF-supported program seeks to improve public finances
and start to reduce persistent high inflation through a
multi-pronged strategy, involving a gradual elimination of
monetary
financing of the fiscal deficit and enhancements in the monetary
policy framework.
In June 2024, the IMF Board completed an eighth review of the
Extended Arrangement under the Extended Fund Facility for
Argentina. The IMF Board's decision enabled a disbursement of
around US$800 million to support the authorities' efforts to
entrench the disinflation process, rebuild fiscal and external
buffers, and underpin the recovery.
On Nov. 15, 2024, Fitch Ratings has upgraded Argentina's
Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC'
from 'CC', and its Long-Term Local-Currency IDR to 'CCC' from
'CCC-'. Argentina's upgrade to 'CCC' from 'CC' reflects
developments that have improved Fitch's confidence in the
authorities' ability to make upcoming foreign-currency bond
payments without seeking relief of some sort.
S&P, in March 2024, raised its local currency sovereign credit
ratings on Argentina to 'CCC/C' from 'SD/SD' and its national
scale
rating to 'raB+' from 'SD'. S&P also raised its long-term foreign
currency sovereign credit rating to 'CCC' from 'CCC-' and affirmed
its 'C' short-term foreign currency rating. The S&P ratings have
been affirmed as of August 2024. S&P said the stable outlook on
the long-term ratings balances the risks posed by pronounced
economic imbalances and other uncertainties with recent progress
in
making fiscal adjustments, reducing inflation, and undertaking
structural reforms to address long-standing microeconomic
weaknesses that have contributed to poor economic performance for
many years that it would likely consider to be distressed.
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.
YPF SA: To Merge LNG Project With Rival's Joint Venture
-------------------------------------------------------
Ruth Liao & Jonathan Gilbert at Bloomberg News reports that
Argentina's state-run energy company YPF SA will join a venture
being developed by rival shale driller Pan American Energy Group SL
and liquefied natural gas shipper Golar LNG Ltd., YPF President
Horacio Daniel Marin said on LinkedIn.
The merger of what have been two separate projects - one led by
YPF, the other by PAE and Golar - would be key to helping boost
production and exports in Argentina's Vaca Muerta, the
second-biggest deposit of shale gas in the world, according to
Bloomberg News. YPF and Pan American, which is 50 percent owned by
British oil major BP Plc, are Argentina's top oil and gas
producers, notes Bloomberg.
Argentina's LNG export ambitions come as the South American country
competes with expansions from the United States and Qatar, the
world's top two natural gas producers, respectively, Bloomberg News
relays. LNG demand has been on the rise in Europe, where importers
are cutting back on gas piped from Russia, and in Southeast Asia,
where new buyers are trying to de-carbonise their energy
portfolios, the report discloses.
The YPF-led export plant has until now counted on support from
Malaysia's Petronas, but the future of the partnership isn't set in
stone, Bloomberg News notes.
According to the report, Argentina has been looking first to
regional neighbors Chile and now Brazil to pipe increasing
production from the Vaca Muerta formation. Exporting LNG is a next
step, but any project would require pouring billions of dollars
into infrastructure in a nation that has severe investment and
financing obstacles, even with the emergence of libertarian
President Javier Milei, who took office a year ago with a mission
to make Argentina more business-friendly, Bloomberg News discloses.
Marin has frequently said that the best route for Argentina's shale
industry is to unite around one LNG facility, Bloomberg News
relays. Marin recently cast doubt on Petronas continuing in YPF's
project, Bloomberg News notes. At the same time, executives at
Golar said that its venture with Pan American would welcome other
participants, adds the report.
About YPF SA
YPF S.A. is a vertically integrated, majority state-owned
Argentine
energy company, engaged in oil and gas exploration and production,
and the transportation, refining, and marketing of gas and
petroleum products.
Founded in 1922, YPF was an oil company established as a state
enterprise. YPF was later privatized under president Carlos Menem
and was bought by the Spanish firm Repsol in 1999, and the
resulting merged company was call Repsol YPF.
In 2012, about 51% of the firm was renationalized and this was
initiated by President Cristina Fernandez Kirchner. The
government of Argentina agreed to pay $5 billion compensation to
Repsol.
As reported in the Troubled Company Reporter-Latin America on
November 27, 2024, Fitch Ratings has upgraded YPF S.A.'s IDR
and bond ratings to 'CCC' from 'CCC-', in line with the sovereign,
which its ratings are linked to. The bond has an 'RR4' recovery
rating.
In September 2024, S&P Global Ratings assigned its 'CCC'
issue-level rating to YPF S.A.'s (CCC/Stable/--) proposed senior
unsecured notes due 2031.
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B R A Z I L
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GOL LINHAS: To Finalize Agreement Resolving Tax Obligations
-----------------------------------------------------------
Leonardo Lara of Bloomberg News reports that Gol Linhas intends to
seek authorization from the Bankruptcy Court for the Southern
District of New York to finalize a settlement agreement with
Brazil's Attorney General's Office of the National Treasury (PGFN)
and the Special Secretariat of the Federal Revenue (RFB).
This agreement aims to resolve the company's tax liabilities,
including social security, non-social security, and other
tax-related obligations, as detailed in Gol's filing. The
agreement remains subject to processing by the relevant
authorities, according to the report.
Gol also stated that the transaction will not impact its net
financial debt and is included in the Plan Support Agreement,
which provides for the conversion of a significant portion
of the company's debt and obligations into equity, the report
cites.
About Gol Linhas
GOL Linhas Aereas Inteligentes S.A. provides scheduled and
non-scheduled air transportation services for passengers and cargo;
and maintenance services for aircraft and components in Brazil and
internationally. The company offers Smiles, a frequent-flyer
program to approximately 20.5 million members, allowing clients to
accumulate and redeem miles. It operates a fleet of 146 Boeing 737
aircraft with 674 daily flights. The company was founded in 2000
and is headquartered in Sao Paulo, Brazil.
GOL Linhas Aereas Inteligentes S.A. and its affiliates and its
subsidiaries voluntarily filed for Chapter 11 protection (Bankr.
S.D.N.Y. Lead Case No. 24-10118) on Jan. 25, 2024.
GOL Linhas estimated $1 billion to $10 billion in assets as of the
bankruptcy filing.
The Debtors tapped Milbank Llp as counsel, Seabury Securities LLC
as restructuring advisor, financial advisor and investment banker,
Alixpartners, LLP, as financial advisor, and HUGHES Hubbard & Reed
LLP as aviation related counsel. Kroll Restructuring
Administration LLC is the claims agent.
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C H I L E
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CHILE: Economy's Imbalances Largely Resolved, IMF Says
------------------------------------------------------
The International Monetary Fund said that Chile's economy's
imbalances have been largely resolved. Economic activity is growing
around its potential, and the current account position has
continued to strengthen. However, the recovery has been uneven
across industries, the labor market is lagging, and inflationary
pressure have not yet fully abated. Policy needs are now mainly of
structural nature. Priorities include boosting medium-term growth
and employment, strengthening fiscal, financial sector and
international reserve buffers particularly in the context of a
challenging global environment, and further reducing inequality.
While the economy is overall broadly balanced, risks have risen.
Real GDP is expected to expand by 2.3 percent in 2024, driven by
the strong mining and service exports, and 2-2.5 percent in 2025,
related to an expected recovery in domestic demand. Inflation is
set to remain above the 3 percent target until early 2026,
primarily due to the cumulative 60 percent increase in electricity
tariffs between June 2024 and February 2025. Moreover, core
inflation has picked up in recent months driven by higher shipping
costs and sticky service inflation. The current account deficit is
on a path to narrow to 2.1 percent in 2024 and widen slightly in
2025/26 due to an expected recovery of investment. The unemployment
rate remains high, partly due to the cyclical weakness in
labor-intensive sectors such as construction. A conflation of other
factors, such as the notable increase in real minimum wages,
uncertain business outlook and new regulations, may have also
played a role.
The external environment is more unstable and uncertain. The
commodity price volatility linked to the economic outlook of
Chile's main trading partners and the pace of the global green
transition is a key external risk. Moreover, the uncertainty
surrounding monetary and fiscal policies in advanced economies
could lead to tight financial conditions for longer periods of time
and financial volatility. On the domestic front, concerns about
crime, migration, and inequality persist; and political
polarization is hindering reform progress.
A boost in Chile's growth potential is urgently needed.
Chile's convergence to higher-income economies has stalled over the
past decade. Its modest potential growth could be partly due to the
weaker connections among its industries compared to fast-growing
OECD peers in Asia and Eastern Europe. In particular, the mining
sector has limited ties with other domestic sectors of the Chilean
economy.
Greater economic dynamism is a must to tackle many social and
fiscal pressures, including to strengthen inclusion and address the
challenges from population aging and climate change. The
government's growth strategy has important aspects that can pay
meaningful growth dividends if swiftly and consistently
implemented. Important efforts are underway. Priorities include:
* Expediting investment permit applications and environmental
evaluations to facilitate investment by making the process faster
and more predictable. These measures are of the highest priority as
they cut across all sectors.
* Attracting investment, increasing production, and deepening the
value chain to maximize the benefits from new economic
opportunities related to the global green transition, notably
renewable energy and the lithium industry, given Chile's rich
endowment in these resources.
* Facilitating R&D, which is still low in Chile, and better
propagating the benefits of technological progress to enhance
productivity growth. In this context, the proposed legislation on
technology transfer could stimulate research activities by easing
the restrictions on researchers at state universities and allowing
them to create or participate in technology companies, and claim
the proceeds from research outcomes (e.g., patents).
* Better integrating women into the labor market. Despite the
successful reduction of the gender labor force participation gap by
about 15 percentage points over the past decade, women's
participation still trails that of men by 20 percentage points. To
support this goal, providing flexible work arrangements and
improving the access to quality childcare are crucial, including by
replacing the current distortionary childcare policy with a broader
and sustainably financed program.
The advent of digital technologies and artificial intelligence (AI)
offers an opportunity to enhance productivity. However,
distributional impacts must be addressed. Chile is among the most
exposed to AI in Latin America and could benefit significantly from
its adoption. The productivity gain is particularly promising in
the private and public service sectors. Promoting technology
diffusion, addressing skill gaps, and supporting workers'
transition will mitigate replacement risks, ensuring that AI
adoption benefits the economy broadly and equitably.
Following recent swift real minimum wage hikes, pacing further
increases in the minimum wage should proceed with caution given the
potential impact on formal employment. Giving consideration to
creating a minimum wage setting mechanism would allow to insulate
future decisions from the political cycle and account for economic
developments.
More efforts are needed to build fiscal buffers and ensure fiscal
sustainability.
The government's medium-term goal of reaching a broadly balanced
fiscal position by 2027 remains appropriate but has become more
challenging. Despite major efforts, mainly cutting spending, the
2024 fiscal deficit will likely exceed its target due to sizeable
revenue underperformance. Weaker-than-budgeted revenue in 2024 can
also complicate fiscal policy next year. Therefore, it is welcome
that the government has lowered its spending plan for 2025 in the
context of the budget discussions. It will be important that
current expenditure remains nimble and allows for adjustments in
case revenue mobilization falls short of plans next year, while
investment projects are being executed to support the economy's
growth.
To achieve a broadly balanced fiscal position over the next three
years, additional policy measures of at least 1 percent of GDP are
needed. The major tax compliance reform could fill part of that gap
if the yields materialize as foreseen and these additional revenues
are not allocated for new spending priorities. Thus, the commitment
to align any structural spending increases with higher structural
revenues remains critical for fiscal sustainability. At the same
time, to better protect the most vulnerable, the plans to unify the
fragmented social programs could improve their access, coverage,
and efficacy.
The adoption of the Fiscal Responsibility Law, including the
formalization of the debt anchor and annual structural fiscal
targets, has further strengthened the fiscal framework. Areas for
additional improvement include:
Further enhancing the transparency of drivers of government debt
that are not part of the fiscal balance ("below-the-line items") as
these are estimated to have contributed to about two fifths of the
total debt increase over the past 15 years.
Reviewing currently used forecasting methods, in line with the
government's plans, given recent revenue volatility and forecasting
challenges in the context of large economic shifts.
Preserving and rebuilding the size of the Economic and Social
Stabilization Fund (ESSF) in the context of a medium-term strategy,
including by saving windfall revenues, to strengthen buffers
against tail risks in a more shock-prone world.
Finally, simplifying the presentation of the fiscal targets and
budget execution in the Public Finance Report to deepen the
understanding of the fiscal balance rule framework.
Pension reform remains critical to ensure adequate pensions and
address the fiscal costs from population aging.
Raising pension contribution rates and the number of periods that
people contribute to pensions is critical to ensure sufficient
old-age pensions that are sustainably financed. The minimum
guaranteed pension (PGU) has significantly strengthened the
system's solidarity pillar, raised replacement ratios for many
pensioners, and lowered old-age poverty. However, this has come
with a high fiscal cost. With the ratio of pensioners to working
age population projected to nearly double over the next two
decades, it is critical to contain these spending pressures while
maintaining a robust safety net for older citizens. In particular,
consideration should be given to making the PGU more targeted to
the most vulnerable elderly persons in addition to limiting PGU
increases to inflation. The individual pension savings scheme could
be further strengthened by gradually aligning women's retirement
age to that of men, linking the retirement age to life expectancy,
adopting the proposed insurance that covers pension contributions
during unemployment, and further incentivizing the formalization of
the labor market.
For monetary policy, the 3 percent inflation target is within
reach.
A cautious data dependent approach to the pace of future monetary
policy rate cuts is warranted. The real monetary policy rate is
currently near its estimated neutral range of 0.5-1.5 percent, with
the rise in inflation since June largely driven by the hikes in
electricity tariffs. Yet, there are pressures on inflation in both
directions. On the one hand, core inflation (which excludes
electricity price changes) showed upward dynamics in recent months,
and the peso depreciation could add to inflation pressure. On the
other hand, long-term rates in the U.S. have remained high and have
kept domestic financial conditions tight. This development,
together with the weakness in the labor market and planned fiscal
tightening, could somewhat mitigate inflation pressure.
Rebuilding international reserve buffers is important for enhancing
resilience.
While the flexible exchange rate plays a critical role as a shock
absorber, the Central Bank of Chile's access to international
liquidity can provide an additional shield against potential
external shocks. This underscores the importance of incorporating a
comprehensive international liquidity framework into the Central
Bank of Chile's long-term financial stability strategy and
restructuring the current composition of international reserves and
other liquidity buffers by resuming the reserve accumulation
program, when market conditions are conducive. The strategy and
operational design should continue to follow high transparency
standards, be persistent and robust to changes in external risks,
and minimize distortions in the foreign exchange market.
Financial sector policies need to continue reinforcing resilience.
The financial system is overall sound and resilient, although
vulnerabilities related to the real estate sector have been rising.
A modest recovery in the sector is projected as the past cuts to
monetary policy rates gradually transmit to lower longer-term
interest rates. In addition, there are several mitigants to credit
risks, including the high share of fixed-real-rate mortgages and
strong underwriting standards. Nonetheless, in the risk scenario,
the stagnation of the real estate sector due to higher-for-longer
long-term interest rates or a slower-than-expected economic growth
could increase losses for banks and insurers. Supervisors will need
to carefully monitor banks and insurers' portfolio quality and
provisions, including by closing data gaps on commercial real
estate and continuing to enhance stress test models to
comprehensively assess risks associated with the real estate
sector.
Pension fund withdrawals and rising public debt have been reshaping
Chiles financial landscape. As the depth of the local financial
market has fallen with the pension fund withdrawals, markets have
become more volatile and sensitive to shocks. Moreover, in this
context of reduced demand for local bonds and higher public debt
issuance, non-financial corporations and the government relied more
on offshore markets. Although these changes do not pose immediate
risks, increasing the pension contribution rate would increase the
pool of investable savings and further deepen local capital
markets.
Continued implementation of the 2021 Financial Sector Assessment
Program (FSAP) recommendations and other resilience-enhancing
measures is important. By setting the neutral level of the
counter-cyclical capital buffer (CCyB) at 1 percent of
risk-weighted assets with a gradual and state-contingent deployment
path by taking into account other capital requirements, the central
bank has provided banks with planning certainty. Additional
priorities include (i) completing the Basel III capital and
liquidity requirement implementation, (ii) implementing the
Financial Market Resilience Law to help develop the interbank repo
market, enhance the BCCh's ability to respond to financial distress
situations, and strengthen the mutual fund liquidity management
framework, (iii) making further progress to adopt an
industry-funded deposit insurance and a bank resolution framework,
and (iv) strengthening consolidated supervision of financial
conglomerates. Providing budget independence to the Financial
Market Commission (CMF) would help ensure an adequate budget that
is commensurate to its expanding responsibilities and financial
sector complexities, such as cyber security and fintech.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Illegal Connections Leave Losses of USD200MM
----------------------------------------------------------------
Dominican Today reports that electricity fraud, which manifests
itself through illegal connections in homes, stores and shopping
centers to obtain energy, represents a financial deficit of about
US$150 to US$200 million for the State, according to the president
of the Unified Council of Distributed Companies (CUED), Celso
Marranzini.
In general terms, the Government registers an economic imbalance of
US$650 million, due to three challenges: technical losses, fraud,
and billing problems, according to Dominican Today. That is the
approximate amount that the Government is forced to seek each year,
according to the head of the CUED, the report notes.
This year, the electricity distributors (Edesur, Edenorte and
Edeeste) have identified and dismantled different illegal networks
in multiple companies, Marranzini said, the report relays.
According to official data, the EDEs have 800,000 customers who
receive energy that is not billed and, therefore, is not charged,
the report says.
The most recent cases of electricity fraud were registered three
weeks ago, the report notes. Edesur, for example,
dismantledillegal connections in several shopping malls that stole
electricity and had 717 new customers under contract, with the aim
of reducing losses and increasing collection, to optimize
electricity service, the report says.
One such case took place in San Juan, where authorities dismantled
57 illegal electrical connections in the Sabana Alta municipal
district and seized various types of cables used for electricity
theft, the report discloses.
In an official document, Marranzini explained that illegal
connections subject distribution transformers to an overload that
they are not prepared to supply, the report relays.
"This causes frequent cuts in the service due to breakdowns in the
transformers," Marranzini said, while specifying that this scourge
occurs in sectors with "networks in optimal conditions," the report
relays.
"Management must be improved there and also in sectors with
non-existent networks. There the first weight is to lay the
networks to provide an adequate service," he said, and assured that
work is being done in both types of situations, the report
discloses.
Marranzini said that fraud not only increases technical losses --
which amount to an average of 37% in distributors -- but also
overloads transformers, which has affected the quality of service
for regular users, the report notes.
"There is a lot of resistance in the places where the illegal
connections are, because they have received free energy for years
and now they are reluctant to pay for it," the head of the CUED
told reporters, the report relays.
Marranzini, who spoke about the situation of the electricity sector
at a conference organized by the National Union of Entrepreneurs
(UNE), said that the goal is to reduce the 38% of losses that
currently exist to 27% by 2027, the report says.
To do this, investments, better management and strict measures
against fraud would be combined. In the case of Edeeste, the losses
are around 56%; in Edesur by 32% and in Edenorte by 27%. "We have
the obligation to lower the deficit," he stressed, the report
discloses.
As a short-term strategy, Marranzini said that the CUED has
implemented operational and transparency measures, which have
included the massive purchase of transformers and meters, the
installation of mobile stations to facilitate payments in remote
communities, and the creation of a portal for customers to monitor
the status of their circuits, the report says.
"The year 2024 should be seen as a turning point to reverse the
negative trend," he said. To carry out these measures, Marranzini
said that they have already obtained millionaire loans through the
World Bank and other financial organizations, the report notes.
What Do Businessmen Say?
The president of the National Union of Entrepreneurs, Leonel
Castellanos, pointed out that the big problem in the electricity
sector is the losses that distributors have generated for years,
the report relays.
"That has become a financial burden for the nation's budget,"
Castellanos said, adding that last year the electricity subsidy
represented 42% of the budget's fiscal deficit, the report notes.
The union leader has proposed including the local financial sector,
replacing multilateral banks, to participate in the reconstruction
and expansion of electricity grids, and to reduce losses, the
report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the
island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis
Rodolfo
Abinader Corona is the current president of the nation.
Standard & Poor's credit rating for Dominican Republic was raised
to 'BB' in December 2022 with stable outlook. Moody's credit
rating for Dominican Republic was last set at Ba3 in August 2023
with the outlook changed to positive. Fitch, in December 2023,
affirmed the Dominican Republic's Long-Term Foreign-Currency
Issuer
Default Rating (IDR) at 'BB-' and revised the outlook to positive.
DOMINICAN REPUBLIC: S&P Affirms 'BB/B' SCRs, Outlook Stable
-----------------------------------------------------------
On Dec. 3, 2024, S&P Global Ratings affirmed its 'BB' long-term
foreign and local currency sovereign credit ratings on the
Dominican Republic. The outlook remains stable. S&P also affirmed
its 'B' short-term sovereign credit ratings and kept the transfer
and convertibility (T&C) assessment unchanged at 'BBB-'.
Outlook
The stable outlook reflects S&P's expectation that the very dynamic
economy and policy continuity in the next 12-18 months will
mitigate the risks of moderate fiscal deficits and limited
budgetary flexibility.
Downside scenario
S&P said, "We could lower the ratings in the next 12-18 months if
the inability to pass fiscal reforms exacerbates fiscal risks,
leading to wider-than-expected government deficits or an increasing
debt burden. We could also lower the ratings if medium-term
economic growth were to lose momentum."
Upside scenario
S&P said, "We could raise the ratings in the next 12-18 months if
the Dominican Republic improves its fiscal and debt planning,
narrowing government deficits, reducing its interest burden, and
improving its fiscal flexibility. We could also raise the ratings
if the country displays stronger resilience to international
shocks, through the buildup of external buffers."
Rationale
S&P said, "Our 'BB' credit ratings reflect the country's
fast-growing economy, which despite its vulnerability to external
shocks, has proven to recover quickly in the aftermath. The ratings
also incorporate the Dominican Republic's historical challenges in
passing structural reforms to reduce fiscal deficits, as seen in
the decision to withdraw a proposed fiscal reform in October
2024."
The rating weaknesses are relatively high debt (around 55% of GDP
in net terms), a hefty interest burden (20% of the government
revenue), and limited monetary policy flexibility.
Institutional and economic profile: Remarkable economic dynamism
mitigates, at the current rating level, the risk from not passing
structural fiscal reforms
-- The president's reelection with a very strong mandate created a
window of opportunity to pass reforms.
-- However, a decision to withdraw a long-delayed fiscal reform
highlights the persistent challenges in approving unpopular, but
needed, legislation.
-- The Dominican Republic will remain one of the fastest-growing
economies in the region, on the back of the tourism sector and
dynamic investment.
President Luis Abinader (from the PRM party) was reelected in the
first round of elections in May 2024 with 57% of the votes,
garnering a very strong mandate. The party also achieved absolute
majorities in both legislative chambers (with 29 seats out of 32 in
Senate, and 147 seats out of 190 in the Lower House). It had also
won 120 out of the 142 municipalities in February local elections,
including the largest districts.
This unprecedented support created a window of opportunity for the
approval of legislation. Only four months after starting its second
term, the government was able to advance:
-- A constitutional reform to strengthen the presidential election
rules and bolster the judiciary, among other modifications;
-- A Fiscal Responsibility Law to limit government expenditure
growth and establish a debt ceiling;
-- A law to reduce spending by reorganizing the public sector;
and
-- A reform to update the labor code.
However, the government withdrew the long-delayed (and already
watered-down) fiscal reform, which aimed to collect 1.5% of GDP in
tax revenue by broadening the tax base and eliminating tax
exemptions. This policy setback happened only weeks after the
reform was presented, after facing opposition from society and some
sectors of the business community. As a result, S&P considers the
reform momentum has stalled, and it does not expect a fiscal reform
to be presented in the short term.
Nevertheless, the Dominican economy has continued to show
remarkable dynamism. The tourism sector remains one of the key
drivers of economic growth, and the country is expected to receive
around 11.5 million stayovers and cruise arrivals in 2024 (an
increase of 12% over 2023).
A long history of pro-business and market-friendly policies has
allowed the country to maintain very high investment, estimated at
about 32% of GDP in 2024. Furthermore, the lack of political
polarization provides some visibility in terms of broad
macroeconomic policies, regardless of electoral outcomes.
As a result, S&P expects real GDP growth of about 5% for the next
four years, keeping the Dominican Republic among the
fastest-growing economies in Latin America and the Caribbean.
Continued economic growth has raised per capita GDP to about
$11,500 in 2024, nearly doubling from $6,400 a decade ago.
However, favorable macroeconomic results have not trickled down to
the economy as a whole. While the poverty rate has declined
consistently over the years, it remains high at about 23% of the
population, while other social indicators remain weak. For example,
about 60% of employment is in the informal sector, and education
results remain well behind those of peers, according to
international tests.
Flexibility and performance profile: Fiscal and debt risks will
continue to weigh on creditworthiness, while the country remains
vulnerable to external shocks
-- S&P projects moderate fiscal deficits of about 4% of GDP, which
should keep net general government debt stable at 57% of GDP, as
long as the economy continues growing.
-- External debt will remain high, as the government will continue
to finance deficits with external debt issuances.
-- Monetary policy flexibility will remain limited due to shallow
domestic markets and the central bank's large debt.
S&P said, "We expect the government to continue to run moderate
fiscal deficits, averaging 3.8% of GDP in 2024-2027. Headline
deficits would not have materially changed even if the proposed
fiscal reform had been approved, as the latter incorporated some
spending commitments. For example, a significant portion of the
additional revenue would have been used to finance urban
transportation and energy infrastructure, and to gradually
recapitalize the central bank.
"However, unwillingness to pass a meaningful fiscal reform will, in
our view, perpetuate the sovereign's structural fiscal rigidities.
Government revenue will remain one of the lowest in the region, at
about 15% of GDP, while tax exemptions will remain high, at about
4.5% of GDP. Furthermore, deficits in the electricity sector and
the central bank (each estimated at about 1% of GDP every year)
will continue to weigh on the government's fiscal performance. The
government's approval of the Electricity Pact in 2021 allowed for
some rate increases, although energy losses in the grid remain very
high, at about 37%."
The government is aiming to improve spending efficiency and has
reorganized some public-sector entities, although this could only
free up to 0.3% of GDP. Faced with these budgetary rigidities, the
administration has resorted to cuts in capital expenditure, keeping
public investment below 3% of GDP in the past six years. It has
also aimed to collect one-off revenue over the past years, such as
the airport concession extension for Aeropuertos Dominicanos Siglo
XXI S.A. for another 30 years (0.7% of GDP in 2024).
The approval of the Fiscal Responsibility Law could limit the
increase in government expenditure over the medium term, although
it might also further constrain its capacity to finance important
infrastructure projects.
As a result, S&P forecasts the change in net general government
debt to average 5% in 2024-2027. As long as the economy grows 5%
over the medium term, it estimates net debt will remain stable at
about 57% of GDP.
However, the debt profile remains vulnerable to exchange-rate and
interest-rate shocks, as about 67% of central government debt is
denominated in foreign currency, and interest payments already
account for more than 20% of government revenue. S&P's measure of
the net debt stock includes the central bank's certificates
(approximately 14% of GDP) and excludes the bonds that the
government issued to capitalize the central bank (3% of GDP)
following the 2003-2004 bailout of the country's banking sector.
S&P said, "We expect the country to remain vulnerable to external
shocks, such as natural disasters or changes in global energy
prices. We project current account deficits to narrow to about 3%
of GDP on the back of strong tourism and remittance inflows. This
deficit will be fully covered by foreign direct investment (FDI),
which we estimate at about 3.6% of GDP for the next three years.
"However, net external debt will likely remain high at about 72% of
current account receipts (CARs) in 2024-2027, as the government
will continue covering its fiscal deficits with external debt
issuances. We expect the country to maintain good access to
international markets, as it is gradually becoming a more frequent
issuer. The government last issued external debt in June 2024 for
the equivalent of $3 billion, $750 million of which was related to
its first-ever green bond.
"We expect the country to remain vulnerable to sudden shifts in FDI
and external shocks. However, external liquidity remains relatively
strong as the central bank's international reserves currently
exceed 11% of GDP. As a result, we expect that the country's gross
external financing needs will remain at about 90% of CARs plus
usable reserves in 2024-2027.
"Tight monetary policy has enabled a quick reduction in inflation,
which we expect to average 3.3% at the end of 2024, the lower end
of the central bank's target (4% +/- 1%). As a result, the central
bank has been easing its monetary policy rate to 6.0% in October
2024 from 8.5% in April 2023. We expect inflation to converge to
the middle of the inflation target by 2025. However, we believe
that persistent quasi-fiscal deficits, a low level of domestic
credit (about 31% of GDP), and the shallow domestic debt and
capital markets constrain the effectiveness of monetary policy.
"We think the banking sector's contingent liabilities are limited,
given its relatively small size, estimated to be approximately 55%
of GDP. The financial sector mainly consists of a few banks that we
consider to be systemically large. The central bank's monetary
policy easing has bolstered credit growth, which we expect to be
about 15% at the end of 2024, while banks have kept strong
capitalization and liquidity ratios."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
Ratings Affirmed
Dominican Republic
Sovereign Credit Rating BB/Stable/B
Transfer & Convertibility Assessment
Local Currency BBB-
Dominican Republic
Senior Secured BB
Senior Unsecured BB
=============
J A M A I C A
=============
JAMAICA: Trade Deficit Hit US$3.3 Billion for January to July
-------------------------------------------------------------
RJR News reports that the country's trade deficit - the difference
between merchandise imports and exports - zipped to US$3.3 billion
during the period January to July this year.
Imports dipped by 2% to US$4.35 billion, while exports tumbled by
9.8% to US$1.09 billion, according to RJR News.
Oil accounted for $1.2 billion or 28% of total imports; while raw
materials and intermediate goods accounted for 1.18 billion US or
27%, the report notes.
Over the review period, the country spent $1.13 billion or 26% on
imports of food and consumer goods, the report relays.
Imports of capital goods were valued at US$492.8 million while
imports of transport equipment were valued at US$348.7 million or
8% of total imports, the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea. Jamaica
is an upper-middle income country with an economy heavily dependent
on tourism. Other major sectors of the Jamaican economy include
agriculture, mining, manufacturing, petroleum refining, financial
and insurance services.
In October 2023, Moody's upgraded the Government of Jamaica's
long-term issuer and senior unsecured ratings to B1 from B2, and
senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has
been changed to positive from stable.
In September 2023, S&P Global Ratings raised its long-term foreign
and local currency sovereign credit ratings on Jamaica to 'BB-'
from 'B+', and affirmed its short-term foreign and local currency
sovereign credit ratings at 'B', with a stable outlook. In
September 2024, S&P affirmed 'BB-/B' sovereign ratings on Jamaica
and revised outlook to positive.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook
is Stable.
=================
V E N E Z U E L A
=================
CITGO PETROLEUM: Legal Fees in Snarled Auction Rankle Firms
-----------------------------------------------------------
Reuters reports that court advisers have billed nearly $30 million
for a stalled auction of shares in a parent of Venezuela-owned oil
refiner Citgo Petroleum, raising the ire of creditors that have
waited years to get compensation.
Citgo, the crown jewel of Venezuela's overseas assets, sits at the
center of a Delaware court auction in which 18 companies seek to
collect up to $21.3 billion for debt defaults and expropriations in
the South American country, according to the report.
About CITGO Petroleum
Citgo Petroleum Corporation is a United States-based refiner,
transporter and marketer of transportation fuels, lubricants,
petrochemicals and other industrial products. Based in Houston,
Texas, Citgo is majority-owned by PDVSA, a state-owned company of
the Venezuelan government (although due to U.S. sanctions, in
2019,
they no longer economically benefit from Citgo.)
Fitch Ratings, in early October 2024, affirmed the Long-Term
Issuer
Default Rating (IDR) of CITGO Petroleum Corp. (CITGO, or Opco) at
'B' with a Stable Outlook and the IDR of CITGO Holding, Inc.
(Holdco) at 'CCC+'. Fitch also affirmed Opco's existing senior
secured notes and industrial revenue bonds at 'BB'/'RR1'. S&P
Global Ratings, in June 2022, affirmed its 'B-' long-term issuer
credit ratings on CITGO Holding Inc. and core subsidiary CITGO
Petroleum Corp.
*********
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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USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2024. All rights reserved. ISSN 1529-2746.
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