REPEAT:Mkts Will Have Final Word On Outlook For Latin Amer
By MICHELLE WALLIN, CHRISTOPHER CHAZIN and ELLIOT SPAGAT
Dow Jones Newswires
WASHINGTON -- Markets on Friday will decide whether they believe Latin
America's pledge to stay on the course of fiscal and monetary orthodoxy or
Moody's Investors Service's increasingly bleak outlook for the region.
As Moody's unexpectedly downgraded two countries and put another two on
watch, finance ministers and central bank heads from nine Latin American
countries met for a first day of unprecedented talks to present a unified front
amid growing turmoil in financial markets.
They issued a communique late Thursday, rather than Friday afternoon as
originally planned, although they will meet for a second day Friday.
In the statement, the policy makers said they would maintain current exchange
rate policies, keep their capital markets open, and deepen structural reforms.
The IMF, for its part, said it had full faith in the region and would offer
additional aid if needed.
U.S. Treasury Secretary Robert Rubin threw his weight behind the meeting.
He praised Latin America for its reform programs and said the region is
"profoundly important" to the U.S. economy.
But as the ministers met, Moody's downgraded Brazil and Venezuela, and put
Argentina and Mexico on watch for a possible rating cut. The move came two
days after Colombia's de facto devaluation of its currency, the peso.
Markets throughout the region promptly tanked. Brazil's Bovespa index
dropped a smart 8.6% Thursday and Argentina's Merval Index lost 5.9%.
Meanwhile, the Mexican peso weakened to yet another all-time low of
10.1350 pesos to the dollar - from its Wednesday close of 9.9020 - even as
the overnight Treasury bill rate jumped to 39.25% from 30.50%.
Officials attending the Washington meeting were outraged by Moody's action,
variously accusing the ratings agency of failing to do its homework and of trying
to bolster its Asia-tarnished image at the expense of Latin America.
Mexican Finance Minister Jose Angel Gurria said as he left the meeting that "all
the countries deserve a lot of praise, rather than being downgraded or put on
credit watch."
"We've weathered a storm for which we are not responsible (and) we've faced
volatility that is unprecedented in the modern history of economics," Gurria
said.
The downgrades will have a "very unfair, unjustified impact (on all of Latin
America) because basically it seems like all emerging markets are being put in
one big basket," the minister added.
Moody's said it will review for possible downgrade Mexico's Ba2 long-term
foreign currency debt ceiling and its B1 long-term foreign currency ceiling for
bank deposits.
Asked if Moody's was well-informed about Latin America, Gurria said "some
ratings agencies do a more thorough job than others."
Brazilian Finance Minister Pedro Malan was more direct, saying that Moody's
hadn't contacted the government during its review process before downgrading
the country's foreign currency debt ceiling to B2 and the ceiling for foreign
currency bank deposits to Caa1.
"I find surprising that this has been done on the day of this meeting, with
markets open, and even more surprising because Moody's didn't do like other
agencies and go to the Central Bank and go to the Finance Ministry and try to
exchange ideas with us. They didn't do any of that," Malan said.
"I believe that this shows that some agencies should invest much more than
they have up until now in evaluating sovereign risk. Evaluating the risk of a
company is very different from evaluating the risk of sovereign countries," he
said.
Argentine Economy Minister Roque Fernandez questioned the timing and the
motive of Moody's decision to place Argentina's Ba3 long-term foreign
currency ceiling for bonds and notes and B1 long-term foreign currency ceiling
for bank deposits on review for possible downgrade.
"Obviously, when we are going through much nervousness and uncertainty, this
sort of rating should be put off until times return to normal," Fernandez said.
Moody's action was driven by "intellectual coverage or hedging" since the
agency didn't want to get caught flat footed - as some critics say ratings
agencies did in Asia, he said.
Venezuelan Finance Minister Maritza Izaguirre said simply, "It was unexpected
for us."
Moody's downgraded the country ceiling for foreign currency bonds and notes
of Venezuela to B2 and the country ceiling for foreign currency bank deposits
to Caa1.
But at least one finance minister, Peru's Jorge Baca, saw some reason to
Moody's actions.
"In the case of Brazil, it has a budget deficit, which it is trying to correct," Baca
said. "In the case of Venezuela, the reasons are obvious."
What few ministers wanted to talk about was Colombia's decision overnight
Tuesday to devalue its currency. Fernandez said that fiddling with exchange
rates in times of panic "doesn't contribute" to calming investor nerves.
Denying that Venezuela had plans to devalue its own currency, Izaguirre said
the Colombian move would likely have little impact on her country. A
Colombian official in Bogota, meanwhile, said he had factored a 15%
depreciation of the bolivar when deciding to devalue.
"If Venezuela devalues, the impact in Colombia is larger than vice versa,"
Izaguirre said. "It's not a big impact at all."
The meeting brought together officials from Argentina, Brazil, Chile, Colombia,
Ecuador, Mexico, Peru, Uruguay and Venezuela. Federal Reserve Vice
Chairman Alice Rivlin, as well as the Canadian finance minister and central
bank chief, also participated.
-By Michelle Wallin, Christopher Chazin and Elliot Spagat; 202-974-4012
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