Fitch Releases Latin-American Sovereign Review & Elections Report.

NEW YORK -- Fitch Ratings has published two special reports on Latin American sovereign credit issues: the latest 'Latin American Sovereign Review' and 'Latin American Elections: Populism or Reform?' Both are available on the Fitch web site, www.fitchratings.com, under 'Sovereigns' and 'Special Reports'.

'Latin American Elections: Populism or Reform?' discusses the potential credit impact of elections to be held over the next 18 months in 13 of the 16 Latin countries Fitch rates. According to Roger M. Scher, Managing Director and head of Latin American Sovereign ratings, 'Fitch's base case is for a continuation of macro policies. However, gradualism on second-stage structural reforms will likely rule the day. Also, the impulse remains strong to address the region's woeful wealth disparity and poverty with populist 'quick fixes.'' The report includes a political risk score for each rated country in the region and an appendix with supporting data.

The 'Latin American Sovereign Review' includes Fitch's latest views on sovereign credit trends in the region and has country commentary and updated economic projections through 2007. According to Fitch Senior Director and editor of the review, Morgan C. Harting, 'Strong commodity prices and ample global liquidity have supported better-than-expected improvements in key credit indicators for Latin America this year, including: GDP and export growth, exchange rates, and debt ratios.' The review includes a feature article on the impact of high oil prices and how the legacy of weak public finances and related underinvestment have caused most of Latin America to lag the rest of the world in crude production growth, limiting its ability to benefit from current prices.

Key points from the review include the following:

--At the beginning of the year, Fitch identified the main risks to the region as external and this remains true, but favorable conditions in the interim have clearly pushed these risks a bit further out than previously expected. Since January, Fitch has revised its regional estimates for 2005 GDP up by 0.4% to 4.1% and for export growth up by 10% to 15%. Related upward revisions to government spending forecasts keep the expected aggregate government balance unchanged at 2.3% of GDP.

--Upcoming elections raise uncertainty about the course of policy over the medium term and also make it less likely that any substantive structural reforms will be enacted ahead of the polls. Policy reform momentum has indeed been stalled for some time, and the sustained expansion and fiscal consolidation of 2005 has generally occurred despite inaction in key areas of economic policy.

--The pace of credit improvement appears similar to last year's: there have been four Latin American sovereign upgrades thus far in 2005, compared with five last year.

--For Latin America, the expectation of slower global growth but support for commodity prices above longer term averages and orderly increases in interest rates implies a broadly favorable outlook.

--The primary risk for Latin American sovereign debt is that market interest rates rise faster than expected, triggering a rise in risk aversion and leading to the temporary loss of market access for some issuers and higher financing costs for all.

--High oil prices have played an important part in the recent regional credit improvement story because Latin America accounts for 11% of global crude exports and 10% of proven reserves. Nonetheless, output growth has lagged the rest of the world due to underinvestment and the dominant position of national oil companies, preventing oil-producers from fully taking advantage of current prices.

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