The rating agency Fitch Ratings lowered two notches Thursday’s credit rating from Venezuela, “B” to “CCC”, a class identifying the countries for which a default is a “real possibility”.
Fitch justified this decision by the vulnerability of the Latin American countries to the sharp drop in oil prices, which “erodes the main source of foreign exchange for the economy.” The black gold represents 96% of its revenue in foreign currency.
Fitch found that Venezuela’s ability to cash this shock was “limited by the relatively low level of international reserves, liquidity constraints, and the limited nature of external funding sources. “
The agency said that the foreign exchange reserves of Venezuela were currently less than half of their 2008 levels, when he faced his last sharp decline the price of oil, and the country without access to the international debt market, depended for its external financing from China.
“There is no indication to say that China will increase its exposure beyond the renewal of existing funding, “warned Fitch.
The agency also recalled” macroeconomic instability “in the country, with inflation at 55% on average the first eight months of 2014, an estimated recession nearly 4% in 2014. It found that Venezuela might be facing a period of “social unrest”.
Venezuelan President Nicolas Maduro had tried unsuccessfully during the last OPEC meeting to convince the cartel to lower its production to raise prices. Venezuela is home to the largest oil reserves in the world.
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