TEXT-S&P rates Bolivia's proposed US$500 mln notes 'BB-'

Tue Oct 16, 2012 5:54pm BST

(The following statement was released by the rating agency)

Overview
     -- The Plurinational State of Bolivia plans to issue its debut bond.
     -- We are assigning our 'BB-' rating on Bolivia's proposed $500 million 
notes due in 2022.
     -- We are affirming our 'BB-/B' sovereign credit ratings on Bolivia.
     -- The outlook remains stable, reflecting our expectation that Bolivia 
will maintain cautious fiscal and monetary policies in the coming years, 
despite the high level of political turmoil.

Rating Action
On Oct. 16, 2012, Standard & Poor's Ratings Services assigned its 'BB-' issue 
rating and '4' recovery rating on the Plurinational State of Bolivia's 
proposed debut issuance of US$500 million notes due in 2022. At the same time, 
we affirmed the 'BB-/B' sovereign credit ratings on Bolivia. The outlook 
remains stable.

Rationale
The ratings on both the sovereign and the proposed notes reflect improvement 
in the government's debt burden, coupled with the country's strengthened 
external indicators--one of the strongest among its peers. The general 
government debt burden fell to 31% of GDP in 2011 from 36% of GDP in 2010, 
partly because of the government's low fiscal deficit and high nominal GDP 
growth. The recovery rating of '4' reflects Standard & Poor's expectation for 
30%-50% recovery on the notes in a default scenario that would incorporate a 
sharp fall in exports as a result of a prolonged decline in commodity prices 
or severe political problems. 

Years of current account surpluses have led to a sharp build-up in Bolivia's 
international reserves. This provides the country with an important buffer 
against potential external economic shocks, especially given its high 
dependence on natural gas and mining exports. Bolivia's international reserves 
cover more than 11 months of current account payments, more than 100% of its 
financial sector's total deposits, and 50% of its GDP. However, even if the 
government's proposal to use up to $1 billion of the international reserves 
for infrastructure projects materializes, the country's external indicators 
would remain one of the strongest among the sovereigns rated in the 'BB' 
category.

Over time, the falling level of dollarization will improve the country's 
monetary policy's effectiveness. Dollarization in Bolivia fell to just 29% in 
terms of bank credit and 36% in terms of deposits in 2011 from almost 90% in 
both categories in 2004. 

In 2012, we expect the general government to post a similar deficit of almost 
1% of GDP--despite higher government revenues--because of increased public 
spending. In 2011, the general government balance recorded a deficit of 1.1% 
of GDP. Strong fiscal revenue flows from both high prices on hydrocarbons and 
the higher tax burden on foreign companies operating in the sector underpinned 
Bolivia's strong fiscal performance during the past five years. 

A fragmented political landscape--because of strong divisions among regional, 
social, and ethnic lines--continues to constrain the sovereign ratings. 
Political tensions remain high because of the entrenched discord between 
President Evo Morales and a vociferous, but fragmented, opposition. Partly 
because of Bolivia's political landscape, foreign direct investment remains 
relatively low. This remains a key structural weakness that constant revisions 
to the country's investment policies and nationalization of so-called 
strategic sectors of the economy exacerbate.

Another rating constraint is the country's high dependence on revenues from 
its natural gas and mining sectors. More than 70% of the country's exports are 
based on natural gas and minerals, and more than 30% of general government 
revenues come from these sources.

Outlook
The stable outlook reflects our expectation that Bolivia will continue to 
adhere to cautious fiscal and monetary policies in the coming years, as it has 
during the past five years, despite the high level of political turmoil. We 
expect low general government deficits to lead to further declines in the 
country's debt burden as a percentage of GDP during the next three years.

We could raise the ratings if the political landscape becomes more conducive 
to private-sector investment. We could also consider an upgrade if the 
credibility of Bolivia's monetary policy improves as a result of further 
de-dollarization, or if general government tax revenues from sources other 
than the mining and hydrocarbon sectors increase, making them less dependent 
on these sectors with volatile prices.

On the other hand, if the political landscape deteriorates, leading to a 
reversal in cautious macroeconomic policies, we could lower the ratings. 
Absent corrective fiscal measures, a sharp, sustained fall in natural gas 
prices could also lead to a downgrade.

Related Criteria And Research
     -- Bolivia (Plurinational State of), May 31, 2012
     -- Sovereign Government Rating Methodology And Assumptions, June 30, 2011

Ratings List

Ratings Affirmed

Bolivia (Plurinational State of)
 Sovereign Credit Rating                BB-/Stable/B       
 Transfer & Convertibility Assessment   BB-                

New Rating

Bolivia (Plurinational State of)
 Senior Unsecured
  US$500 mil sr unsecd nts              BB-                
   Recovery Rating                      4                  

 (Caryn Trokie, New York Ratings Unit)
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