Wednesday, December 1, 2010

S&P says may downgrade Portugal in 3 months

NEW YORK: Standard & Poor's warned on Tuesday, Nov 30 it could cut Portugal's credit ratings if the country's growth prospects weaken further or if private creditors become subordinated to public creditors in a possible financial aid program.

A decision on whether to cut Portugal's A-minus rating will be made in the next three months, S&P said, anticipating that the country would still be rated investment grade even after a possible downgrade.

Lisbon is under intense pressure from investors to show it can avoid the fate of Greece and Ireland. Last week Prime Minister Jose Socrates pushed through an austere budget that will raise taxes and cut public sector wages.

But little progress was made on any growth-enhancing reforms to offset the fiscal drag from those budgetary cuts, S&P said in a statement, forecasting the country's gross domestic product will shrink by at least 2 percent next year.

S&P is also particularly worried about proposed changes to EU rules regarding the seniority of private-sector creditors. Under the new rules being considered, private investors would have to accept discounts on the value of the bonds they hold in case of a debt restructuring as of 2013.

"If Portugal does seek an external support program and if we believe private creditors will be subordinated to public creditors, or if Portugal's fiscal or growth prospects weaken further, we could lower the long- and short-term ratings. - Reuters

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