S&P Sees Strain on Chile Corporates

S&P is affirming its A+ (stable) rating on the Republic of Chile, but rings alarm bells for corporates. “Further external shocks could impose greater financial strain on the nonbank private sector, potentially leading the sovereign to provide assistance and assuming added liabilities,” says the agency. “Although Chile’s overall international investment position has improved in recent years, the private sector’s reliance on net external financing remains a source of vulnerability during the global credit crunch,” adds S&P. GDP growth could fall below 1% in 2009, and copper prices might remain low, resulting in a current account deficit of more than 4% of GDP, it adds. “Such a scenario should not result in macroeconomic strain given the availability of fiscal reserves and Chile’s external flexibility,” adds S&P. It also raises concerns about Chile’s narrow economic base and high private-sector external debt.