By Matthew Walter

Dec. 10 (Bloomberg) -- Venezuela’s debt rating outlook was lowered to negative from stable by Standard & Poor’s amid concern President Hugo Chavez will be reluctant to cut spending as oil revenue plunges.

S&P maintained Venezuela’s foreign debt rating at BB-, three levels below investment grade. Oil, which has fallen 69 percent from a July record, accounts for about 90 percent of the South American country’s exports and about half of fiscal revenue.

Chavez is unlikely to pare spending in coming months as he seeks to modify the constitution through a referendum vote by March that would allow him to seek another six-year term, S&P said in a statement.

“Political considerations in Venezuela will, in our view, likely delay needed adjustments in economic policies given the sharp drop in international oil prices,” S&P said.

Venezuelan bonds extended declines after the S&P announcement. The yield on Venezuela’s benchmark 9.25 percent bonds maturing in 2027 surged 0.73 percentage point to 15.89 percent at 12:16 p.m. in New York as the price sank 2.95 cents to 60.55 cents on the dollar, according to JPMorgan Chase & Co.

Standard & Poor’s expects Venezuela to post a current- account deficit equal to 4.3 percent of gross domestic product in 2009, compared with a surplus equal to 12.5 percent of GDP this year.

Oil Basket

Venezuelan oil exports will average $40 a barrel next year after averaging $87 a barrel this year, S&P said in its statement. The Venezuelan oil basket, an index of the country’s petroleum exports, plunged 72.7 percent from July 18 to Dec. 5, when it closed at $34.49 a barrel.

Venezuela’s 2009 budget is based on a forecast that oil will average $60 a barrel next year. Finance Minister Ali Rodriguez said yesterday the government doesn’t plan to make any changes to the budget before the upcoming referendum.

“We’re very concerned that, given the drop in crude oil prices, Venezuela is beginning a new electoral process,” said Alejandro Grisanti, an economist at Barclays Capital Inc. in New York. “In this referendum, there’s not going to be winners. It’s very likely that we’re going to head into a much more radical period.”

The government may have to raise taxes, cut spending, devalue the officially pegged exchange rate or raise prices for subsidized gasoline, he said.

$87 Billion

Venezuela has about $87 billion in reserves and savings, of which it can tap into about $25 billion to cover spending next year, Grisanti said.

“You can’t spend all of your reserves,” he said.

Lawmaker Ricardo Sanguino, president of the National Assembly’s Finance Committee, said today the government has enough cash left over from this year to avoid tapping into its reserves during the first quarter of next year.

“This is obviously due to Venezuela’s correlation with oil,” said Edwin Gutierrez, who helps manage $5 billion of emerging-market debt at Aberdeen Asset Management Plc in London, including Venezuelan bonds. “These guys have a huge cushion and no one is concerned with Venezuela defaulting on its debt.”

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net.