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Gold/Mining/Energy : American International Petroleum Corp -- Ignore unavailable to you. Want to Upgrade?

To: BamaReb who wrote (9154)	9/16/1998 2:58:00 PM
From: DEER HUNTER	Read Replies (1) \| Respond to of 11888

Thanks BR....here is the story for future reference. Wednesday September 16, 10:15 am Eastern Time S&P cuts Kazakhstan foreign,local currency ratings ( PRESS RELEASE PROVIDED BY STANDARD & POOR'S ) NEW YORK, Sept 15 - Standard & Poor's today lowered its long-term foreign currency issuer credit rating on the Republic of Kazakhstan to single-'B'-plus from double-'B'-minus and its long-term local currency rating to double-'B'-minus from double-'B'-plus. The senior secured long-term foreign currency rating is lowered to single-'B'-plus from double-'B'-minus. Standard & Poor's affirmed the republic's single-'B' short-term foreign and local currency credit ratings. At the same time Standard & Poor's revised the outlook to negative from stable. The downgrade reflects Kazakhstan's heightened vulnerability to an exceedingly negative external environment as a result of its growing internal and external imbalances. The slowing global economy, continued weak commodity prices, and the severe crisis in Russia -- Kazakhstan's key trading partner -- combined with lackluster privatization results and moderating foreign direct investment inflows thus far in 1998, are likely to pressure further Kazakhstan's budget and external financing position. Despite substantial progress in transforming its economy into a market-based system, achieving broad macrostabilization (with inflation down to 6.1% in mid 1998, real GDP growth of about 2% in 1997 and in the first half of 1998), and containing government and external debt at relatively moderate levels, Kazakhstan faces growing risks to its financial stability, including: -- An already high budget deficit -- partly as an inevitable result of the introduction of a fully funded pension system -- in the context of a global economic slowdown. Excluding privatization receipts, the budget deficit amounts to about 8% of GDP this year and is targeted for around 6.5% of GDP next year. However, unlike in previous years, noninflationary financing, mostly from privatization proceeds and foreign borrowing, will be less readily available. Following delays of privatization projects earlier this year, the 1998 privatization receipt target of 2.5% of GDP increasingly appeared unrealistic by mid-year. Only very recent deals have brought back some optimism. However, the delays still could have caused the authorities to miss a crucial window of opportunity. Weak commodity prices and the global economic slowdown are likely to sap international investors' interest for some time to come. To offset the fiscal impact of lower exports, slower economic growth, and less-than-budgeted privatization proceeds, the government announced spending cuts equal to about 20% of this year's budget expenditures. With the risk of privatization slippage still high, interest rates tight, and the economy moving into recession (or stagnation, at best), the government soon may face the need for further fiscal adjustment. -- Kazakhstan's current account deficit, which has widened in past years as the country has increased capital goods imports to develop its natural resources, is expected to worsen further this year as world prices for Kazakhstan's key commodity exports rapidly deteriorate. Recent conservative estimates point to a current account deficit of 6%-7% of GDP this year. For 1999, austerity measures and slowing domestic demand are likely to translate into a substantially lower current account deficit. However, foreign direct investment, which has financed the entire deficit in past years, has begun to moderate and should continue to do so. Investors are unlikely to withdraw from ongoing projects. However, new commitments for near-term projects may be more difficult to obtain. -- With the turmoil in international financial markets increasingly affecting Kazakhstan's foreign exchange and treasury bill markets, official support for the tenge has reduced official foreign currency reserves to about $1.3 billion as of early September. Standard & Poor's expects continued foreign reserve losses in the coming months. With total external debt service (including about $2 billion of short-term and trade credit) at an estimated $2.7 billion next year and a current account deficit of around $1 billion, while foreign direct investment (FDI) inflows are likely to be lower than this year's $1.1 billion, a prolonged forced absence from the capital markets would require stern fiscal and monetary corrective measures. Barring a sudden surge in FDI, Standard & Poor's estimates that foreign reserves will cover only about 50% of short-term external debt or about 45% of the estimated total financing gap (current account deficit plus long-term amortization plus short-term debt) next year. Accounting for roughly 20% of total external debt, loans from official creditors remain an important source of external financing. Disbursements from official creditors (on average about $300 million annually since 1995) are expected only partially to alleviate financing pressures, even if the government taps its $400 million financing facility under the IMF's extended fund facility arrangement. OUTLOOK: NEGATIVE The outlook indicates that a further downgrade could occur in the coming year if the global economy and commodity prices continue to deteriorate and if further pressures translate into unorthodox policy responses, unchecked fiscal deterioration, and/or continued losses of foreign currency reserves. A more positive view on the rating hinges on the extent to which near-term corrective measures alleviate external funding pressures. Faster output growth, more successful privatization, and/or stronger foreign direct or official financing inflows, than appear likely given the current external environment and policies, would also underpin the rating, Standard & Poor's said.