MercoPress, en Español

Montevideo, November 20th 2018 - 22:41 UTC

Brazil loses investment-grade credit rating, with outlook remaining negative

Thursday, September 10th 2015 - 07:52 UTC
Full article 15 comments
S&P cut Brazil's rating to BB-plus, which means substantial credit risk, from BBB-minus. Outlook remains negative because of possible further downgrades S&P cut Brazil's rating to BB-plus, which means substantial credit risk, from BBB-minus. Outlook remains negative because of possible further downgrades
The stripping of investment grade status, won in 2008, represents the loss of a key instrument that solidified Brazil's emergence as an economic power The stripping of investment grade status, won in 2008, represents the loss of a key instrument that solidified Brazil's emergence as an economic power
S&P said its decision was based on the mounting political problems faced by President Rousseff that have muddled economic policy. S&P said its decision was based on the mounting political problems faced by President Rousseff that have muddled economic policy.

Standard & Poor's has stripped Brazil of its investment-grade credit rating, further hampering President Dilma Rousseff's efforts to regain market trust and pull Latin America's largest economy out of recession.

 The faster-than-anticipated downgrades, which will likely rock Brazilian financial markets on Thursday, is a major setback for Rousseff as she tries to kick-start the economy and shore up public finances that many investors fear have spiraled beyond her government's control.

S&P cut Brazil's rating to BB-plus, which denotes substantial credit risk, from BBB-minus. The outlook on the new rating remains negative, which means additional downgrades are possible in the near term.

The stripping of investment grade status, which Brazil won in 2008, represents the loss of a key instrument that solidified Brazil's emergence as an economic power during a decade-long commodities boom that fizzled in recent years.

The downgrade is expected to increase borrowing costs for the government and Brazilian companies. It will also cause Brazilian assets to lose valuable funding because many investors are not allowed to buy or hold onto investments that are not rated investment grade.

S&P said its decision was based on the mounting political problems that have muddled economic policy.

These problems, S&P said, have been weighing on the government's “ability and willingness” to submit a 2016 budget consistent with the significant policy fixes Rousseff promised after she won re-election last year.

When Brazil first got the coveted investment-grade stamp from S&P, after decades of financial volatility, it was considered a star among developing nations.

Leveraging soaring export and tax revenue at the time, the ruling Workers' Party broadened generous social welfare programs and encouraged lending by public banks, fueling a prolonged consumer boom.

Combined, the measures lifted 40 million people out of poverty. Once Rousseff took office, however, the economy began to slow down sharply and last quarter it officially entered a recession, with similar prospects for the rest of the year and in 2016.

Top Comments

Disclaimer & comment rules
  • ElaineB

    As I posted to the Brasiliero Gang:

    Brazil downgraded to JUNK status. How is that good for Brazil?

    Worst recession for 25 years.
    Real has dropped by 20% against the dollar.
    Inflation at 30%.
    Rampant corruption.
    Infighting in the government on how to implement austerity. (Yes, austerity)
    World recession on commodities.

    None of this is good news for Brazil, sadly.

    Why are the Brasiliero Gang pinning their hopes on a phrase 'BRIC' coined in 2001 by an economist working for Goldman Sachs? It was a paper predicting EMERGING markets. It was produced to advise about long term investment and suggested that Brazil, Russia, India and China could EMERGE to greater status in 2050. A lot has changed since then.

    The only country of the original four still worth long term investment at reasonable risk is India. The rest are in the shit. It may change, of course, and a lot depends on confidence and INVESTMENT from outside the countries.

    The Brasiliero Gang fail to understand that in order to EMERGE they need investment. When you have been downgraded to JUNK status it is very hard to attract the investment you need.

    This JUNK status means money will be leaving Brazil (as pointed out by Skip) and the money your country will have to borrow becomes more expensive.

    The idea that Brazil, or even South America, can operate independent from the rest of the world and without trading is a complete nonsense.

    Sep 10th, 2015 - 09:29 am 0
  • Brasileiro

    @1
    I stopped reading when you said 30% inflation. I can not talk to anyone who has a complete ignorance of Brazil. Please, if you want to talk about Brazil do a kindness to both of us: STUDY.

    Sep 10th, 2015 - 10:48 am 0
  • Skip

    One small typo. Instead of a “1” a “3” was typed.

    Wow doesn't take much for this new Brasileiro to run away.

    But not having an answer is pretty much how Dilma runs the country so doesn't surprise me this is repeated by a Brazilian.

    What's the bet the Brazilian economy shrinks by nearly 3% this year (and mine doesn't shrink at all).

    Sep 10th, 2015 - 11:28 am 0
Read all comments

Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!