Brazil Advances in 2005, But It’s Still Far from Investment Grade

Brazilian President Luiz Inácio Lula da Silva’s economic team ended 2005 celebrating the indicators of investor confidence and the lowering of the cost Brazil.

The country risk premium, an index created by the JP Morgan investment bank to orient its clients on how much they can invest in a country without becoming overly anxious, closed the year near 300 points, a record level for Brazil. The country risk premium reached 302 points last week.

But Brazil is still far from equaling the levels of other emerging countries, such as Mexico, which ended the year with a country risk premium of around 122 points, or Russia, with 113 points.

The Brazilian government is still pursuing the goal of the country’s being recognized as "investment grade," a classification that indicates total confidence as far as investing in the economy.

At the end of 2005, the Brazilian government showed signs of being a reliable payer, when it paid off, ahead of time, all of its US$ 15.5 billion debt to the International Monetary Fund (IMF) and announced that in January it will liquidate its debt to the Paris Club, the group of countries that renegotiated the Brazilian debt in the decade of the 1980’s, when Brazil declared a debt moratorium.

The minister of Finance, Antonio Palocci, affirms that Brazil will eventually be reclassified. "We are moving in the direction of a country that can be considered investment grade. It is a continuous effort. It is not accomplished in just one throw of the dice.

"It will come in the coming years, to the extent to which we keep making microeconomic adjustments and improving our indicators. It represents the natural result of this process in which we are engaged." Palocci made these declarations at a breakfast with reporters, last Friday, December 30.

Palocci insisted that all the indicators demonstrate the solidity of the Brazilian economy, which, in his view, "is prepared for domestic upheavals and getting set to deal with external ones as well."

The minister was referring to improvements in the government debt profile and the level of international reserves, expected to end 2005 at around US$ 55 billion.

Agência Brasil

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