Standard & Poor’s Rewards Brazil’s Fiscal Discipline with a Better Rating, a BBB

Dilma Rousseff In the midst of an economic deterioration in the global economic outlook for the surprise of Brazilians, Standard and Poor’s announced it was upgrading the credit rating of Brazil by one notch from BBB- to BBB, adding that the upgrade reflected the country’s increasing capacity to hold up against world-wide adversity.

“We are raising our long-term foreign currency sovereign credit ratings on Brazil to BBB from BBB- and our long-term local currency ratings to A- from BBB+,” the ratings agency said in a statement. “The outlook is stable.”

The Brazilian foreign ministry welcomed the upgrade, saying it was recognition that the country’s economic policy was heading “in the right direction and its macro-economic fundamentals are “solid.”

It described the S&P announcement as evidence of the “success of the management of the Brazilian economy in its goal of strengthening the country.”

S&P said the government of President Dilma Rousseff has “demonstrated its commitment to meeting fiscal targets, thereby enlarging the scope for using monetary tools to influence the domestic economy.”

“We expect the government to pursue cautious fiscal and monetary policies that, combined with the country’s growing economic resilience, should moderate the impact of potential external shocks and sustain long-term growth prospects.”

A credit ratings upgrade normally makes it easier and cheaper for a country to borrow on the financial markets, while boosting investor confidence in its outlook

S&P’ decision matches a move by Moody’s Investors Service earlier this year. Brazil was upgraded to the equivalent Baa2 by Moody’s in June and to BBB by Fitch Ratings in April.

Brazil, Latin America’s largest economy is forecast to expand 3.16 % this year, according to a Nov. 11 central bank survey of about 100 economists. Last year, the economy grew 7.5%, the fastest pace in more than two decades.

Brazil’s credit rating upgrade follows the adoption of prudent macroeconomic policies that paved the way for a “more flexible” monetary policy, the Finance Ministry said in an e- mailed statement Thursday.

Cooling Phase

According to a report from the Brazilian think-tank Getúlio Vargas Foundation, FGV, the Latin American economy has entered a declining phase and will further slow down in coming months.
 
The report with quarterly estimates based on polls to economists and experts shows a moderate deterioration of the current economic situation assessment and a significant fall in future prospects.

Economists consider the current situation is favorable with an average 5.2 points out of a 1 to 9 scale, while the expectations index for the coming months has fallen to 3.5 points, the worst figure since January 2009.

The authors of the report state that the tendency to a less attractive business environment in Latin America follows on the steps of the cooling of the world economy.

Peru outstands as the only country in the region where the current assessment of the economy, 6.2, as well as future prospects which climbed to 4.8, have risen and can be considered optimistic.

However in Bolivia, Brazil, Chile, Mexico and Venezuela the current economic climate is unfavorable, as in the rest of the region, and a further worsening of the situation can be expected.

The most negative prospects come from Mexico with 2.9 points, followed by Chile and Argentina with 3 and 3.2 points respectively looking ahead to coming months.

Colombia suffered one of the most abrupt downfalls regarding future prospects with expectations for the coming months falling to 4.3 points from the previous July report when it stood at 7.5.

In the same line Ecuador marked 4.1 points on future prospects while Uruguay was almost down to half from 6 to 3.7 points.

Paraguay dropped seven tenths to 5, which is the threshold for prospects to be considered as favorable according to the FGV ranking.

The main problems for Latin American countries are the lack of competitiveness, insufficient qualified labor, scarce confidence in government policies besides the rise of inflation and unemployment.

The latest FGV report was based on 143 interviews of experts in 18 countries of the region.

Mercopress

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