S&P Assgns AA- Rtg To Emilia-Romagna; Outlook Stable.

PARIS--(BUSINESS WIRE)--Oct. 26, 1998--Standard & Poor's CreditWire 10/26/98--Standard & Poor's today assigned its double-'A'-minus issuer credit rating to the Region of Emilia-Romagna. The outlook is stable.

The rating is based on Emilia-Romagna's very sound economy--with high GDP per capital and low unemployment--good financial performances, and moderate debt. However, it also reflects the limited revenue flexibility common to all Italian regions, the high concentration of regional expenses in health care, and the need to finance ongoing health-care deficits, exacerbated by an aging population.

Emilia-Romagna's GDP per capita is 26% above the national and EU averages, making the region's economy one of the strongest in Italy and Europe as a whole. The economic base is well diversified, with a competitive industrial sector. Emilia-Romagna's leading market shares in specific businesses such as ceramics and packaging, together with strong competitive positions in the food processing and machinery industries, fuel robust growth, particularly in exports. The large number of small and midsize companies provides the region with great flexibility to adapt to fluctuations in demand. The local unemployment rate is almost half the national level.

The region has posted strong financial performances over the past five years, with an average deficit before debt equivalent to 3% of total revenues.

However, like all Italian regions, Emilia-Romagna currently suffers from marginal revenue flexibility and a high concentration of expenditures in health care. The level of these expenses is difficult to control, especially since certain parameters, such as wages and pharmaceutical costs, are determined by the state. Emilia-Romagna's health-care spending is particularly high, owing to the region's growing elderly population and the heftier cost of efficient, high-quality hospital infrastructure. Insufficient state compensation for these expenses has led to a significant health-care deficit for the region.

OUTLOOK: STABLE

Despite an increase in 1998, national health-care transfers are expected to remain insufficient to cover health-care expenditures entirely in the near future. This will contribute to ongoing health-care deficits, although probably at a lower level. While a portion of these deficits will be debt-financed, Emilia-Romagna's debt burden should nevertheless remain very manageable.

Emilia-Romagna should be able to face the pressure on health-care expenditures without threatening its financial balance, thanks to a rich economic base, political stability, and the increased flexibility expected from 2001 for Italian regions with regard to the IRAP business tax and IRPEF income tax, Standard & Poor's said. ---CreditWire, Copyright 1998, Standard & Poor's Rating Services