WASHINGTON (MNI) – The following is the text of a statement Tuesday

by rating agency Moody’s:

Budget negotiations during the 2013 Congressional legislative

session will likely determine the direction of the US government’s Aaa

rating and negative outlook, says Moody’s Investors Service in the

report “Update of the Outlook for the US Government Debt Rating.”

If those negotiations lead to specific policies that produce a

stabilization and then downward trend in the ratio of federal debt to

GDP over the medium term, the rating will likely be affirmed and the

outlook returned to stable, says Moody’s.

If those negotiations fail to produce such policies, however,

Moody’s would expect to lower the rating, probably to Aa1.

Moody’s views the maintenance of the Aaa with a negative outlook

into 2014 as unlikely. The only scenario that would likely lead to its

temporary maintenance would be if the method adopted to achieve debt

stabilization involved a large, immediate fiscal shocksuch as would

occur if the so-called “fiscal cliff” actually materializedwhich could

lead to instability. Moody’s would then need evidence that the economy

could rebound from the shock before it would consider returning to a

stable outlook.

Moody’s notes that it is difficult to predict when during 2013

Congress will conclude negotiations that result in a budget package. The

Aaa rating, with its negative outlook, is likely to be maintained until

the outcome of those negotiations becomes clear.

The rating outlook also assumes a relatively orderly process for

the increase in the statutory debt limit, says Moody’s. The debt limit

will likely be reached around the end of this year, and the government’s

ability to meet interest and other expenses out of available resources

would likely be exhausted within a few months after the limit is

reached.

Under these circumstances, the government’s rating would likely be

placed under review after the debt limit is reached but several weeks

before the exhaustion of the Treasury’s resources. Moody’s took a

similar action during the summer of 2011.

** MNI Washington Bureau: 202-371-2121 **

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