By Ken Parks
BUENOS AIRES-- Moody's Investor Services expects credit ratings
in Latin America to remain stable through the end of next year even
as the region muddles through a period of subdued economic
growth.
"Most countries in terms of their ratings are where we think
they should be in terms of the underlying fundamentals and
medium-term prospects, potential growth and exposure to shocks,"
said Mauro Leos, Moody's vice president and senior credit officer
for Latin America.
After many large Latin American economies exceeded IMF estimates
on their growth rates during the last four years, Moody's expects
those economies, with the exception of fast-growing Colombia, to
underperform this year and in 2015.
Today, Moody's rates most Latin American sovereigns between Baa
and B following a string of upgrades in recent years.
From 2007 to 2012, Moody's lifted six countries--Brazil, Panama,
Peru, Colombia, Costa Rica and Uruguay--to investment grade even as
world economic growth took a hit from the global financial crisis
and Europe's sovereign debt problems. Countries like Bolivia and
Paraguay, which didn't make it to investment grade, still managed
to move up several rungs on Moody's rating scale.
Moody's currently has a stable outlook on most of the ratings it
has assigned to Latin American countries.
"We don't anticipate major changes to sovereign ratings" through
the end of next year, Mr. Leos said.
While Latin American countries big and small have enjoyed
ratings upgrades in recent years, Venezuela and Argentina have
moved in the opposite direction.
Oil-rich Venezuela, whose rating was cut to Caa1 from B2 in
December, is suffering from inflation north of 60%, hard currency
shortages, and polarized politics that spilled over into street
violence earlier this year.
Dollar shortages have led investors to start wondering if
Venezuela will be able to pay debts that mature between now and the
end of the year, Mr. Leos said.
"Having said that, the rating we have, Caa1, is a rating that
implicitly incorporates high risks," he said.
Argentina's ratings were lowered to Caa1/Caa2 in March from B3.
Moody's assigned a negative outlook to the ratings after the
country defaulted on some of its foreign-currency-denominated debt
in July as a result of a legal dispute with a small group of
creditors in U.S. courts.
Further cuts to the rating will depend on whether the default
saga leads to greater-than-expected losses to bondholders, said
Gabriel Torres, a senior sovereign-ratings analyst at Moody's.
"For the moment, [the ratings] are where we think they should
be," Mr. Torres said.
Argentina likely entered its worst recession in over a decade
earlier this year amid U.S. dollar shortages, inflation of almost
40%, and a downturn in trade with recession-hit Brazil. Moody's
expects the economy will contract 2% this year with virtually no
growth next year.
It's not clear if Argentina's once fast-growing economy has
suffered structural changes that will lead to growth rates of just
1% to 2% in coming years, Mr. Torres warned.
Argentina's economic woes have hurt its biggest trading partner,
Brazil, especially in the manufacturing sector where the automotive
industries of both countries are deeply intertwined. Moody's
forecasts 0.7% growth for Brazil's economy this year, and 1% in
2015.
Last month, the credit ratings firm cut its outlook for Brazil's
investment-grade Baa2 rating to negative due to deteriorating
government finances and a drop in investor confidence.
"Argentina is relevant, but what is going to be more relevant
[for Brazil's rating and outlook] are the policies the next
administration will put in place," Mr. Leos said.
Brazilians are set to cast their ballots in presidential
elections this Sunday. Recent polls show President Dilma Rousseff
with a hefty lead over her main rival, Marina Silva, though not
enough to avoid a run-off later this month. The winner will start a
four-year term January 1.
Write to Ken Parks at ken.parks@wsj.com