US financial institutions were not the only entities getting downgraded by rating agencies last week. Standard & Poor's revised the credit outlook for El Salvador to "negative" from "stable" with an overall rating of BB+. A lower rating implies higher risk and makes it more expensive for a government to borrow funds from world financial markets.
According to the Reuters story:
S&P did say the rating, one notch below investment-grade, was supported by a stable monetary environment which benefited from dollarization in 2001. It also benefited from a track record of predictable, market-oriented policies that has created a favorable investment environment, sustained economic growth, and led to gradual debt reduction.
But the rating agency added that inefficient gains in productivity and rising inflation, peaking at 9.5 percent in 2008, undermine the country's competitiveness.
"Addressing these macroeconomic challenges will not be easy, given the nation's high political polarization and a likely more difficult policy environment following the March 2009 presidential elections," S&P said.
"The negative outlook reflects the rising risks that the weakening policy environment poses in times of rising inflation and fiscal loosening," the statement said.
S&P said the likelihood of the government addressing economic deterioration in a timely and forceful manner is diminishing given a persistent legislative stalemate.