S&P Upgrades City of Buenos Aires To 'BB' From 'BB-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 14, 2000

Standard & Poor's today upgraded its foreign and local currency credit rating on the City of Buenos Aires to double-'B' from double-'B'-minus. The outlook is stable.

The rating upgrade reflects the city's solid financial performance despite a severe nationwide recession, improved financial policies, and somewhat greater certainty about the city's service responsibilities.

The rating also reflects:

-- The city's position as the national capital and leading commercial center of
Argentina;

-- The city's good financial performance, with improved administrative systems
and controls, and conservative budget estimates;

-- A basic agreement with the federal government netting out their respective
debts; and

-- A manageable debt burden.

Somewhat offsetting these strengths are the city's limited revenue and expenditure flexibility due to the nature of service demands-particularly in health care and education-and the still developing nature of the city's ultimate service responsibilities. Further, Buenos Aires receives limited amounts of federal transfers compared to Argentinean provinces despite the fact that it carries most of the same responsibilities. This negative factor is somewhat offset by the broad and relatively stable local economic base on which the city relies for tax receipts. In addition, the city also faces the contingent liability of its wholly owned banking subsidiary.

With a stable population of 3.04 million, Buenos Aires is the largest city in Argentina. The city has been the capital of Argentina since 1880, and all of the key departments of the federal government are located in the city. The city's economic position as the commercial center of the nation has meant that the city's GDP ($83.64 billion) accounts for 26% of the nation's GDP. Because of the presence of the federal government headquarters and service sector in Buenos Aires, the city tends to be less affected by economic downturns than other parts of the nation.

The financial services, insurance, and real estate sectors make up the largest portion of the city's economy, accounting for 34% of the city's GDP, with services falling closely behind at 28.2%, commerce at 16.4%, and manufacturing at 12.3%. The city's overall unemployment rate has historically been significantly below the national average and is currently at about 9.5%, compared with 14.5% for the nation.

While the city has not been entirely spared the effects of the recession stemming in part from the Brazilian devaluation earlier this year, management has been able to adjust its expenditures by taking advantage of conservative budget estimates and the ability to reduce capital spending. The city ended 1999 with an operating surplus of Arg$396.8 million, and a fiscal balance, excluding interest, of Arg$193 million. The city is also working to adopt objective-based budgeting techniques so that it can more closely compare the effectiveness of similar services and programs across the city.

The adopted 2000 budget indicates an operating surplus of nearly Arg$390 million. The city ties its overall growth forecast to that of the nation. Initial projections for the 2000 budget show a 2.2% increase in GDP for the city. The city is planning to spend about as much in 2000 as it did in 1999 (about $380 million), which would give some flexibility to cut capital outlays again in 2000, if growth forecasts do not meet expectations.

The city is negotiating with the federal government over a number of issues resulting from the transfer of past services to the city from the federal government, and the possibility exists that additional court and police responsibilities will become the city's responsibility. However, under the federal constitution, that can only happen if enough revenues are also transferred to the city to cover the costs of these services, and if the city accepts the transfer.

The city's debt burden continues to decline, and the city's overall strategy has been to reduce its debt burden in order to increase budget flexibility. The city's total debt is now 0.98% of GDP, Arg$270.1 per capita, and about 29% of current expenditures. The city's annual debt service (interest payments only) is currently at 4.1% of current expenditures. Almost all of the city's debt is fixed rate, with about 48.5% of the debt in Argentinean Pesos and 39.9% in U.S. dollars, with the remainder in Italian Lira. Under the city's current amortization rate, 36.6% of the city's debt will be paid off within a relatively short five years, with 97.6% of the total debt will be paid off in 10 years.

Going forward, the city is likely to increase somewhat its debt burden to expand the metro system and for other capital needs. The city has no unfunded liability for employee pensions, because these amounts were assumed by the Republic.

OUTLOOK: STABLE

The outlook reflects the city's improved financial performance, its strong economic position as the nation's capital, and leading commercial center, Standard & Poor's said.---CreditWire