S&P affirms Guatemala

Standard & Poor's said it affirmed the Republic of Guatemala's BB long-term foreign-currency sovereign credit rating, BB+ long-term local-currency sovereign credit ratings and B short-term sovereign credit rating.

The outlook remains stable.

The affirmation follows the suspension of operations of Banco del Café SA by the Monetary Board of the Central Bank of Guatemala after repeated demands by the Banking Superintendence to the bank to comply with prudential limits governing related-party lending. S&P said it believes that the systemic impact of the bank's closure will be limited, notwithstanding the financial system's high reliance upon external funding.

The agency said the ratings on Guatemala are supported by its long track record of cautious fiscal policies and improving transparency on governance and public institutions; Continuing progress toward political pluralism, with an increasing role for Congress in making policy; diminished gross external financing requirements, supported by a large flow of family remittances and a strong international reserves position; and improved economic prospects as a result of the Dominican Republic Central America Free Trade Agreement.

The ratings are constrained by the country's very limited fiscal flexibility due to the inability to increase tax revenue; poverty and a highly skewed income distribution, which continue to constrain economic and social development; and the persistence of external imbalances, S&P said.

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