MercoPress. South Atlantic News Agency

Brazil makes history: first time ever net foreign creditor

Brazil which for decades was the world's largest emerging-market debtor became a net foreign creditor for the first time in January according to a report released Thursday by the Central Bank in Brasilia.

International reserves, swelled by record exports of agricultural commodities, oil and investment inflows exceeded gross foreign liabilities last January by about 4 billion US dollars. At the end of 2003 Brazil's net debt stood at 165 billion US dollars. Brazil's shift to net creditor is forecasted to bolster investor confidence in Latin America's biggest economy and help the country win an investment-grade rating. Brazil repaid its debt to the International Monetary Fund, that bailed out the country over four decades, in December 2005. "This, in net terms, means that the country has become a foreign creditor, something completely new in the country's economic history", said the Central Bank release. This represents an "unquestionable strengthening of the country's foreign situation based on trade balance figures (exports minus imports), current transactions (including the trade balance, services and unilateral income and transfers) and the record entry of foreign funds into the country". Brazilian exports have tripled since President Luiz Inacio Lula da Silva took office in 2003 because of increased world demand for soybeans, iron-ore, beef and cars. An accompanying surge in foreign direct investment, including stock and bond purchases by non-residents, also helped the Brazilian currency this week to appreciate to its strongest level since 1999. Foreign bond buyers have been lured by that an investment- grade rating could come this year or next, making Brazilian bonds the world's second-best performers over the past five years, returning 191%, according to JPMorgan Chase & Co. data. Only Ecuadorian bonds, which gained 234% rose more. Brazil's foreign currency debt rating of BB+ by Standard & Poor's and Ba1 by Moody's Investors Service are both one level below investment grade. Investment-grade standing gives countries greater access to international capital at lower borrowing costs. The world economic slowdown may test whether Brazil's efforts to diversify export markets and bulk up reserves will be enough to safeguard long-term growth, following almost five years of record commodity exports and low borrowing costs, said investors. The Central Bank concludes saying that "faced with an international scenario characterized by a considerable increase in uncertainty, by the volatility of foreign markets and by the deceleration of economic activity, the improvement of these figures tends to mitigate, although not totally eliminate, the impact of adverse external effects". An over-dependence on commodity sales abroad may cut Brazil's growth to 3% this year from about 5% should the slowing U.S. economy reduce demand, Morgan Stanley & Co. said in a report released last December. Meantime the Real rose for a fourth straight session, advancing 0.7% to 1.7102 per dollar and earlier touched 1.7046, the strongest level since May 1999. International reserves including cash and other financial assets rose to a record 171.6 billion US dollars in January, ten times the 17 billion when Lula assumed power. At the end of 2003, Brazil's debt topped international reserves by 165 billion, the bank said. The Brazilian central bank has purchased US dollars in currency markets almost every day since July 2006 to slow the Real's appreciation and increase international reserves. In a separate report, the central bank and the National Treasury said that local and foreign debt fell 1.7% to 1.31 trillion Reais in January from December. The stock of local debt, which makes up for 90% of total Brazilian liabilities, fell 1.7% and foreign debt dropped 1.4%, both institutions reported.