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Wednesday, July 6, 2011
Moody 's Investors on Tuesday became the first rating agency to cut Portugal below investment grade, making the 10-year performance of Portuguese public debt to jump more than 1 percentage point over the age of maximum euro.
The agency cited concerns that the administrative problems of slow economic growth and may prevent the Portuguese government to hit ambitious targets to reduce its budget deficit over the next three years under a ransom of € 78 billion internationally.
However, Moody also said that the efforts of the European Union to private investors are part of the burden of supporting Greece, through a "voluntary" refinancing of debt maturities Greek threatened investor confidence in Portugal too.
If investors believe that the EU can follow the Greek model and the pressure of bearing a part of the cost of future aid to Portugal, which may become less willing to lend to Lisbon, which reduces the possibility that it may resume lending market in 2013 as planned, Moody said.
The example of Greece evil, rather than everything that has happened in Portugal in recent months appears to be the main reason for Moody's decision to cut Lisbon rating four notches, other analysts.
"I think the main problem is internal growth and on that side has not changed much," said Diego Iscaro, economist at IHS Global Insight. "This is possibly four steps more to do with developments at European level.
"Moody's concern is that we see a repeat of Greece and Portugal next year. It's a different situation, but what Moody is saying is that the resolution with the private sector can be the same. "
SWITCH TO IRELAND
Moody's cut means that many investors are now going to see Portugal as a place of greater danger euro after Greece. Until recently, that position was held by Ireland, which is still rated investment grade by the three agencies, the perception began to change when the Portuguese 10-year bond yield rose above the performance of Ireland in the mid June.
Moody said there was a growing risk that Portugal may need a second international rescue, beyond the 78 billion emergency loan to be flowing in 2013. The size of any additional rescue plan depends on the time that the EU needs to keep afloat Portugal.
Under current plans, Lisbon is expected to raise 10 million in long-term bonds in 2013 and 6 million euros in the next year, Iscaro said. So Portugal financing through the end of 2014 would require an extra 16 million euros of loans - depending on many factors, including Lisbon's success in reducing its budget deficit and the sale of state assets.
Iscaro said it was probably just obvious throughout the third quarter of next year if Portugal need a new rescue.
However, Citibank said in a report Wednesday, said a second rescue was unlikely.
"Portugal is likely to require a second package at some point in 2012 when the International Monetary Fund is likely to ask for additional measures to close the funding gap for the next 12 months - as was the case in Greece," he said.
Many economists disagree with Portugal based on Moody's cut, arguing that the agency had not paid sufficient attention to the determination of the New Lisbon center-right government in meeting the fiscal targets set by the EU and the IMF.
The government, which took office last month, has already announced a special tax for the year-end bonuses and promised to accelerate spending cuts beyond the terms of the bailout, which was agreed before a June 5 general election.
"We believe that this cut by Moody was absurd and out of time. Do not even consider the measures the new government and not wait for the first evaluation of the implementation of austerity," said Felipe Silva, head of debt Carregosa Bank, a private Portuguese bank.
But while the Greek crisis suggests that investors may be forced to restructure their debt holdings in countries with weak euro zone, the success of internal reforms Portugal with prosecutor may fail to impress the rating agencies or markets.
Richard McGuire, strategist at Rabobank interest rates, lowering said Moody had said "in terms of" domino restructuring, Portugal is the next man up. "
"The possibility, or even simple speculation, a series of defaults will increase the risk of infection," said McGuire.
The agency cited concerns that the administrative problems of slow economic growth and may prevent the Portuguese government to hit ambitious targets to reduce its budget deficit over the next three years under a ransom of € 78 billion internationally.
However, Moody also said that the efforts of the European Union to private investors are part of the burden of supporting Greece, through a "voluntary" refinancing of debt maturities Greek threatened investor confidence in Portugal too.
If investors believe that the EU can follow the Greek model and the pressure of bearing a part of the cost of future aid to Portugal, which may become less willing to lend to Lisbon, which reduces the possibility that it may resume lending market in 2013 as planned, Moody said.
The example of Greece evil, rather than everything that has happened in Portugal in recent months appears to be the main reason for Moody's decision to cut Lisbon rating four notches, other analysts.
"I think the main problem is internal growth and on that side has not changed much," said Diego Iscaro, economist at IHS Global Insight. "This is possibly four steps more to do with developments at European level.
"Moody's concern is that we see a repeat of Greece and Portugal next year. It's a different situation, but what Moody is saying is that the resolution with the private sector can be the same. "
SWITCH TO IRELAND
Moody's cut means that many investors are now going to see Portugal as a place of greater danger euro after Greece. Until recently, that position was held by Ireland, which is still rated investment grade by the three agencies, the perception began to change when the Portuguese 10-year bond yield rose above the performance of Ireland in the mid June.
Moody said there was a growing risk that Portugal may need a second international rescue, beyond the 78 billion emergency loan to be flowing in 2013. The size of any additional rescue plan depends on the time that the EU needs to keep afloat Portugal.
Under current plans, Lisbon is expected to raise 10 million in long-term bonds in 2013 and 6 million euros in the next year, Iscaro said. So Portugal financing through the end of 2014 would require an extra 16 million euros of loans - depending on many factors, including Lisbon's success in reducing its budget deficit and the sale of state assets.
Iscaro said it was probably just obvious throughout the third quarter of next year if Portugal need a new rescue.
However, Citibank said in a report Wednesday, said a second rescue was unlikely.
"Portugal is likely to require a second package at some point in 2012 when the International Monetary Fund is likely to ask for additional measures to close the funding gap for the next 12 months - as was the case in Greece," he said.
Many economists disagree with Portugal based on Moody's cut, arguing that the agency had not paid sufficient attention to the determination of the New Lisbon center-right government in meeting the fiscal targets set by the EU and the IMF.
The government, which took office last month, has already announced a special tax for the year-end bonuses and promised to accelerate spending cuts beyond the terms of the bailout, which was agreed before a June 5 general election.
"We believe that this cut by Moody was absurd and out of time. Do not even consider the measures the new government and not wait for the first evaluation of the implementation of austerity," said Felipe Silva, head of debt Carregosa Bank, a private Portuguese bank.
But while the Greek crisis suggests that investors may be forced to restructure their debt holdings in countries with weak euro zone, the success of internal reforms Portugal with prosecutor may fail to impress the rating agencies or markets.
Richard McGuire, strategist at Rabobank interest rates, lowering said Moody had said "in terms of" domino restructuring, Portugal is the next man up. "
"The possibility, or even simple speculation, a series of defaults will increase the risk of infection," said McGuire.
Labels: International
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