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S. America enjoys credit ratings boom -- for now

Feb. 25, 2011 at 1:16 PM   |   Comments

RIO DE JANEIRO, Feb. 25 (UPI) -- South America is enjoying a boom in its global credit standing, despite a continuing free-fall of banks' financial credentials in the Middle East, but there are warnings that this may be a bubble that can burst without notice.

Last week, Brazil received warnings its bloated credit market carried risks that could drag down the country's buoyant economy, after repeating warnings the overheated currencies of several emergent economies, including Chile and Brazil, could undermine the countries' export-fueled gross domestic product.

Seven regional countries are on track to have their ratings upgraded in the short term on the strength of healthy economic growth and greater policy stability, Fitch Ratings said.

The ratings agency cited positive ratings outlook for Brazil, Colombia, the Dominican Republic, Panama, Peru, Suriname and Uruguay although it didn't say which of them could be upgraded this year.

"Fitch expects sovereign credit trends to remain positive in Latin America in 2011," Fitch said in the report.

The upgrade of Chile's foreign-currency ratings to A-plus in February was an early sign of that positive trend, Fitch said.

Latin America's credit cycle is supported by forecasts that gross domestic product growth in the region may continue this year, though at a lower rate than in 2010. Fitch said growth in 2010 was likely to be around 4.1 percent, down from an estimated 5.6 percent.

Analysts said despite the boom in their economies Latin American countries faced the danger of declining earnings from commodity exports if slow growth in major economies, like China and the United States, pushed commodity demand downward.

Fitch said lower commodity prices resulting from lower growth in the world's largest economies could derail improvements in fiscal and external indicators of Latin American countries.

A further deteriorating in the European debt outlook could also turn investors away from Latin America, Fitch.

Analysts cited in local media said less capital inflows wouldn't be such a bad thing for Latin America, as capital infusions drawn to attractive interest rates had overheated economies and led to currency appreciation, in turn making exports potentially unattractive.

The economic bonanza has strengthened Latin American countries' negotiating position, as reflected in Brazil's latest assertion on the next round of World Trade Organization talks ahead of U.S. President Barack Obama's visit to Latin America in March. Obama will visit Brazil, Chile and El Salvador March 19-23. He will visit the capitals of all three countries -- Brasilia, Santiago and San Salvador -- as well as Rio de Janeiro.

Brazilian Foreign Minister Antonio de Aguiar Patriota met with U.S. Treasury Secretary Timothy Geithner to discuss preparations for the president's visit and bilateral relations.

Brazilian Foreign Affairs Ministry told U.S. officials that Brazil wants global talks at the World Trade Organization to move forward but can't make any new concessions.

WTO talks aimed at cutting trade barriers and farm subsidies collapsed at the July 2008 meeting after inconclusive negotiations among the United States, Europe, India, China and Brazil.

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