Brazil moves up a notch to investment grade: S&P

Brazil moves up a notch to investment grade: S&P
AFP - Wednesday, April 30 11:05 pm

NEW YORK (AFP) - Standard & Poor's Wednesday raised its rating on Brazil to investment grade for the first time, providing a major boost to the Latin American giant's ability to raise capital in global markets.

The US ratings agency said it lifted Brazil's ranking from so-called junk bond status thanks to the "maturation" of its economic policy management.

The rise will help Brazil's ability to sell its debt to institutional portfolio managers, many of whom may not invest in high-risk securities.

The sovereign debt of the Latin American powerhouse is now rated BBB-, the lowest level in its investment grade, up from BB+, S&P said in a statement.

The upgrades "reflect the maturation of Brazil's institutions and policy framework, as evidenced by the easing of fiscal and external debt burdens and improved trend growth prospects," said S&P analyst Lisa Schineller.

S&P explained that Brazil's foreign currency debt had fallen dramatically, with net debt amounting to a projected three percent of current account receipts in 2008 from in excess of 100 percent as recently as 2004.

"While some deterioration is likely as the current account slips back into deficit, we expect the rise in the external debt burden to be modest," the ratings agency said.

In late February, Brazil's central bank announced its currency reserves were more than four billion dollars above the country's public and private debt.

In 2007, Brazilian currency reserves ballooned 110 percent to 180.3 billion dollars by end-December. Debt stood at 197.7 billion dollars.

S&P said that Brazil is the 14th country whose foreign currency debt has been rated investment grade.

"Inflation has trended higher in Brazil, to 4.7 percent in March 2008, owing not only to global food and energy price pressures but also to robust domestic demand," said Schineller.

"In contrast with unchecked inflationary pressures in other lower-rated sovereigns, Brazil's central bank initiated a forward-looking tightening cycle on April 16, 2008, to ensure that the hard-won benefits associated with low inflation will be maintained," she added.

The agency concluded Brazil deserved a "stable" outlook on the long-term ratings, which means for the next three to five years, Jane Eddy, another S&P analyst, told AFP.

Eddy said the agency expected the Brazilian government would further reduce debt and weather inflationary pressures from both higher food prices and economic growth.

"We see the central bank as being able to manage it," she said in a phone interview, adding that the central bank's inflation target is 4.5 percent.

In the last decade, the Brazilian economy, the largest in South America, grew at a "fairly disappointing" pace below three percent, she said.

Brazilian gross domestic product last year grew by 5.4 percent in a broad expansion that affected all sectors, after a 3.7 percent pace in 2006, according to Brazil's official statistics agency.