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S&P Assigns `raAA-' Rtg to Cordoba, Argentina

29 June 2000

S&P Assigns `raAA-' Rtg to Cordoba, Argentina

    NEW YORK--Standard & Poor's--June 29, 2000-- Standard & Poor's today assigned its 'raAA-' national scale rating to the City of Cordoba, Argentina.
    The outlook is stable.
    The rating reflects the following credit strengths:

    -- Strong financial performance with continuity of operating
    surplus;

    -- Broad industrial base, and the presence of important
    universities;

    -- Little dependence on revenue transfers from other levels of
    government, with own source revenues accounting for 70% of
    total receipts in 1999;

    -- Manageable responsibilities and capital needs; and

    -- Low debt level and contingent liabilities.

    Offsetting factors include:

    -- High sensitivity to economic downturns especially in the
    important auto manufacturing sector, which was severely hit by
    the recession in 1999; and

    -- Uncertainty regarding the evolution of tax revenues after a 30%
    cut in the rate of the key taxes.

    Cordoba, the capital of the province with the same name, is the second most populated city in Argentina, with almost 1.2 million residents.
    The city of Cordoba's GDP was about US$12 billion for 1999, more than half of the GDP of the province. The city accounts for 68% of the provincial manufacturing output and more than one-third of national car production.
    The city's central location in Argentina facilitates Cordoba's role as a national distribution center for many products. Although the city's GDP is fairly diversified, the auto sector is an extremely important employer directly and indirectly due to both the large assembly plants located within the city's borders and the broad network of auto part makers that has developed over the past decades.
    In 1999, though the sector was especially hard hit by the economic recession in Argentina and the devaluation of the Brazilian real, contributing to an estimated 9% decline in the city's GDP (Argentina's GDP is believed to have fallen 3%). The unemployment rate has followed the national trend, and in October, 1999 stood at 13.6%, slightly below the national average of 13.8%.
    Between 1991 and 1994, the city registered both operating and overall surpluses. Since then, fiscal balances have been in a deficit, although operating surpluses have continued to be high, averaging 20% of current revenues over the past six years.
    In 1999, in part because of the recession, the city registered a lower operating surplus of about US$39.7 million, equaling a still significant 12% of current revenues. The overall deficit increased sharply in 1999, going from 3.6% of total revenues in 1998 to a still moderate 6.1%. For 2000 the budget is expected to have an operating surplus of US$62.8 million (16% of current revenues) and a return to an equilibrium in fiscal balance.
    The city of Cordoba has gained financial independence over the past 10 years. Its revenues as a percent of total revenues grew to 70% in 1999 from 67% in 1991. Following the lead of the province, the city government reduced the rate on key taxes by 30% this year. This change is expected to decrease tax collection in 2000 by about US$50 million. However, the revenues derived from a delinquent tax penalty moratorium launched simultaneously is forecast to compensate for this loss.
    The new mayoral administration wants to modify the way the city has financed capital expenditures. Instead of using current revenues and cash reserves, the administration plans to shift to issuing debt to satisfy infrastructure needs. Nonetheless, both the mayor and the city council agree that this new indebtedness will not exceed a still affordable US$300 million during the next three years.

    OUTLOOK: STABLE

    The outlook reflects the city's solid financial performance and its strong industrial base combined with a high sensitivity to economic downturns, Standard & Poor's said.--CreditWire