Fitch Ratings ready to Downgrade Venezuela's Credit Quality

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http://www.laht.com/article.asp?ArticleId=356926&CategoryId=10717

""" Fitch Ratings today said that the recently passed amendment to the Law Against Illicit FX Transactions could further increase macroeconomic distortions present in the Venezuelan economy, adversely affect growth prospects, increase inflationary pressures, and possibly undermine the external position of the sovereign as a net external creditor, which in turn could weigh on the Bolivarian Republic's credit quality.

,,,,,,,,,,, in Fitch's view, the recently announced measures fail to address the structural factors behind the depreciating trend of the VEF in the parallel market. In general, the weaker parallel market exchange rate reflects an inconsistent macroeconomic framework, increased uncertainty about the direction of economic policy, high inflation expectations, and inorganic money creation through the yearly transfers of international reserves to the National Development Fund (FONDEN). More recently, the increased mismatch between the demand and supply of foreign exchange in the parallel market has added to the weakness of the unofficial exchange rate. As a result, the recently approved amendments, could further constrain the supply of USD to the private sector, which would do little to tame depreciating pressures on the currency.

'In the absence of policy adjustments such as tighter fiscal and monetary policies that can increase the credibility, consistency and predictability of the macroeconomic framework, the parallel market rate will continue to face depreciating pressures, thus negatively impacting macroeconomic stability through higher inflation and real exchange rate volatility,' said Erich Arispe, Director in Fitch's Sovereign Group. In addition, due to the high degree of indexation currently present in the economy, a depreciated unofficial exchange rate could also adversely affect consumption and investment as imports become more expensive, thus further aggravating inflationary pressures and recessionary forces in Venezuela. Low private investment and supply bottlenecks in the electricity sector have detracted from economic growth, while inflation has topped 30% on an annual basis.""