Fitch Ratings Assigns 'AA-' Rating to Government of Quebec.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 18, 2002

Fitch Ratings has assigned a 'AA-' rating on the outstanding foreign currency debt obligations of the Government of Quebec, Canada. Fitch Ratings has also assigned a 'AA-' rating to the government's outstanding local currency debt obligations, as well as an 'F1+' rating for short-term debt. The ratings apply to all securities issued under the government's various long-term and medium-term note programs as well as short-term treasury bills and notes. The Rating Outlook is Stable.

The credit characteristics of Quebec demonstrate the effects of a strong commitment to fiscal equilibrium. Viewed from a long-term perspective, the magnitude of Quebec's turnaround is not only significant but also encouraging. Adherence to the North American Free Trade Agreement (NAFTA) provided Quebec with ample access to the vast economies of the U.S. and Mexico. Additionally, deliberate policy initiatives to transform the region into a modern and efficient economy have yielded dividends. Quebec has developed a deep and broad industrial economy that is diverse and competitive in world markets.

Despite the economic aftermath of the terrorist attacks in the U.S. and the recent economic downturn around the world, Quebec expects to achieve a balanced budget in fiscal year ending 31 March 2003. If so, Quebec will have extended further its balanced or surplus performance since the Act respecting the elimination of the deficit and a balanced budget (Balanced Budget Act) was implemented in 1996. This legislative initiative has been vital in Quebec's transformation from historical structural deficits accumulated over decades to a consistent zero-deficit stance. Furthermore, strong economic growth in recent years and officials' vigilant spending controls have led to greater budgetary flexibility, which should help Quebec weather unfavorable economic conditions.

After a rapid increase in debt resulting from a weak economy and accumulated fiscal deficits until the early half of the 1990s, Quebec benefited from strong economic growth and fiscal prudence since then. This led to modest reductions in debt ratios. New capital spending plans contemplated in the 2002-03 budget to stimulate the regional economy and the conversion of future pension obligations into financial debt are expected to account for direct debt increments into the medium term.

The Stable Outlook indicates stability under the existing government policies, as the Balanced Budget Act reflects consensus in the National Assembly. Further improvements in creditworthiness will depend not only on progress on debt reduction but also North America's economic performance in the medium term. In spite of Canada's rapid economic recovery, the U.S. still exerts substantial influence on the profitability of exporters domiciled in Quebec.

A complete report on Quebec's credit and financial conditions will be available shortly on Fitch Rating's web site.