MercoPress. South Atlantic News Agency

Seven Latam countries on track to have credit ratings upgraded

Brazil’s Dilma Rousseff first decisions are begin closely monitored

Seven countries in Latin America are on track to have their ratings upgraded in the short term, as the region's credit cycle remains supported by healthy economic growth and greater policy stability, Fitch Ratings said on Thursday.

Countries such as Brazil, Colombia, the Dominican Republic, Panama, Peru, Suriname, and Uruguay all have a positive rating outlook from Fitch, although it's not clear which of them could be upgraded this year, the agency said in a report.

“Fitch expects sovereign credit trends to remain positive in Latin America in 2011,” Fitch's analysts Shelly Shetty and Erich Arispe said in the report.

The upgrade of Chile's foreign-currency ratings to A-plus earlier this month was an early sign of that positive trend, they added.

Latin America's credit cycle is underpinned by continued growth dynamism in most of the region, which is expected to grow 4.1% this year, down from an estimated 5.6% in 2010, Fitch said.

Risks to Fitch's positive outlook come mostly from abroad, with possible weakness in U.S. and Chinese external demand. 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, Fitch said.

A sharp rise in risk aversion, possibly due to the development of the European debt crisis, could also undermine capital flows to Latin America, stressing the capital accounts of certain countries, according to the agency.

Among the countries with positive rating outlooks, Brazil has been performing in line with Fitch's expectations since the agency revised to positive the outlook on the country's BBB-minus ratings in June 2010.

Fitch has been monitoring the new government of President Dilma Rousseff, who took over in the beginning of the year, regarding its willingness and capacity to rein in expenditures.

“The agency would view positively overall sound management of the economy that allows for well-balanced and healthy growth and further improvement in the overall fiscal stance,” it said.

In Colombia, Fitch is assessing the effect of rising oil and mining production on the country's fiscal and external accounts.

Reforms that strengthen the country's fiscal policy framework would also be positive for the country's BB-plus rating, which received a positive outlook in October 2010. In Peru, the economy has been performing above expectations since Fitch revised to positive the outlook on the country's BBB-minus rating in June 2010.

“The country's impressive economic recovery and the government's disciplined macroeconomic policies should contribute to further improvement of fiscal and external indicators,” Fitch said.

A smooth transition in the country's upcoming presidential elections and further job creation in areas beyond the capital Lima would also be positive for the country's ratings, Fitch said.