MercoPress. South Atlantic News Agency

Chile rated the most credit-worthy emerging market

Standard & Poor's this week raised its credit rating on Chile by one notch to 'A+', classifying the country as the most credit-worthy emerging market and placing it on a par with Italy.

S&P cited the soundness of Chile's long-range macroeconomic policy, which was building huge budget and foreign reserves surpluses to cushion the country against any sharp downturn in the price of its main export copper. "What you have in Chile is a fiscal policy based on goals that are met ... setting aside extra revenue from today's strong copper prices," S&P analyst Sebastian Briozzo said in a phone interview from Buenos Aires. Chile's net total public sector debt was approaching zero, he said, helping to support its rating. The public sector's total assets and liabilities would each equal to about 12% of the gross domestic product, or 164.2 billion US dollars, at year-end, he said. The budget surplus was seen this year at about 9% of GDP, and forecast at about 4.5% of GDP in each of the three coming years. Chile's benchmark global bond due in 2013 rose 0.313 to bid 103.063, to yield 4.811 percent. Chile was the first Latin American country in recent years to achieve investment grade rating, which allows it to borrow more cheaply and attract an array of foreign fund investment. The latest upgrade takes Chile's foreign-currency rating to 'A+,' six notches above speculative, or junk, rating, at which most Latin American borrowers are classified. Mexico, at 'BBB+,' is the only other Latin American country with an investment grade rating, Briozzo said. Fitch and Moody's, the other two main international ratings agencies, rate Chile one notch below on their equivalent league table, Fitch at 'A' and Moody's at 'A2.' Briozzo said the higher rating puts Chile in the same risk rating as Italy and Iceland. "The difference is that Chile has been on an upward trend, while they have been on a downward one." Chile's 'A+' status also put it one notch above China, Israel, the Czech Republic, Estonia and Latvia, the next highest-rated emerging markets. To cushion against a collapse in copper prices, Chile has earmarked windfall revenues from strong copper prices into two stabilization funds estimated to reach about US$14 billion by year end, said Briozzo. The rainy day policy is anchored on a conservative long-term projection of copper trading at US$1.30 a pound, compared with current prices around to US$3 a pound, he added.