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Curacao Outlook Revised To Negative; 'A-/A-2' Ratings Affirmed

November 16, 2012 Standard & Poor's
The deterioration in the balances of the government of Curacao's national pension fund as well as the health care fund has weakened the government's underlying fiscal stance. We are revising our outlook on Curacao to negative from stable. We are affirming our 'A-/A-2' sovereign credit ratings on Curacao. The negative outlook reflects our view that a failure to reverse the recent fiscal deterioration in a timely manner might lead to a downgrade. NEW YORK (Standard & Poor's) Nov. 15, 2012--Standard & Poor's Ratings Services today said it revised its outlook on Curacao to negative from stable. At the same time, we affirmed our 'A-/A-2' sovereign credit ratings on Curacao.

"The outlook revision reflects the potential for a downgrade if the weakening of the sovereign's fiscal stance over the past two years, mainly as a result of the deterioration of the country's public health and pension systems, is not stemmed," said Standard & Poor's credit analyst Richard Francis. The deterioration in the fiscal stance is a result of the former government's failure to pass and implement important proposed legislation that included increasing the retirement age to 65 from 60 as well as raising the contribution rates by 2% for the AOV, the government's general old age pension fund.

Furthermore, the AOV funds are being split between the various islands of the former Netherland Antilles. Curacao's population is, on average, older than the other islands of the former Netherland Antilles (St. Maarten, especially). The relatively older demographic profile of Curacao has resulted in a lower coverage ratio, with fewer workers covering a larger number of pensioners. The lower coverage ratio has, in turn, led to higher-than-expected deficits and a faster-than-expected depletion of pension fund assets.

Following parliamentary elections in October in which no single party won a majority, the formation of a coalition government is still pending. We expect a new government to be in place by early 2013. In the meantime, the current interim government has proposed a number of initiatives, which, if passed and implemented, would reverse the underlying deterioration of the general government's fiscal stance.

"The failure of Curacao to form a new coalition government that acts on measures to reverse the fiscal deterioration as well as improve the country's investment climate could lead to a downgrade," said Mr. Francis. "If a new coalition government can reach consensus on reform measures that are passed and implemented on a timely basis, the ratings could stabilize at the current levels."