Mon December 30, 2002 10:22 AM ET
(The following statement was released by the rating agency)

NEW YORK, Dec 30 - Standard & Poor's Ratings Services said today that it has lowered its long-term local and foreign currency sovereign credit ratings on the Government of Belize. Standard & Poor's lowered its long-term local currency sovereign credit rating on Belize to 'BB-' from 'BB', and its long-term foreign currency sovereign credit rating to 'B+' from 'BB-'. The outlook on the ratings was revised to stable from negative.

"The downgrades reflect balance-of-payment pressures as a result of three-year-long expansionary fiscal and monetary policies that, while now being reversed, continue to put pressure on the Belizean dollar peg to the U.S. dollar," said sovereign credit analyst Olga Kalinina. "We expect that the corrective measures introduced by the government during 2002 will attenuate some of these pressures. However, the government of Belize will still be challenged to follow through with all of its fiscal adjustment in 2003, given the impact it could have on social spending in an election year," she added.

According to Mrs. Kalinina, general government deficits have averaged 9.5% of GDP from 1999 through 2001, which, in turn, led to the accumulation of general government debt to GDP at 64% in 2002 (52% net of government financial assets). Standard & Poor's forecasts that the general government deficit will decline to 5.9% of GDP in 2002 and 3.9% of GDP in 2003.

"Our concern about the fiscal position of the government also stems from contingent risk posed by the quality of lending of the state-owned Development Finance Corporation, whose reported nonperforming loans are close to 20% of total loans, as well as by the level of state guarantees outstanding, equivalent to 23% of GDP," noted Mrs. Kalinina. "Monetary issues also contributed to the downgrade. Although the central bank has rebuilt its usable reserves, they still stand at only 26% of the country's gross external financing gap, or 1.5 months of import cover at year-end 2002. The credibility of the current parity of exchange regime is also questioned by prevailing exchange rates available in the nonbank financial sector of exchange dealers (cambios), where the Belizean dollar sells at a 7.5% discount," Mrs. Kalinina concluded.

According to Standard & Poor's, the stable outlook reflects its view that the government measures implemented in 2002 will be sufficient to stabilize Belize's fiscal and liquidity indicators at a level comparable to similarly rated sovereigns. Greater fiscal restraint should ease balance-of-payment pressures, enable a further accumulation of reserves, and shorten the queuing for foreign exchange. Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at All ratings affected by this rating action can be found on Standard & Poor's public Web site at; under Fixed Income in the left navigation bar, select Credit Ratings Actions.;jsessionid=TPHWWHX3MH33ICRBAEKSFEY?type=bondsNews&storyID=1974303