MercoPress. South Atlantic News Agency

Investment grade for Brazil; stock market balloons 6.3%

Brazil's Ibovespa stock exchange index jumped to a record on Wednesday after Standard & Poor's unexpectedly raised the country's credit rating to investment grade. S&P Ratings Services Brazil's debt rating announcement from BB+ to BBB- sent domestic stocks soaring 6.3% hitting a new intraday record of 67,854.

The long-awaited upgrade came two months after Brazil's Central Bank declared that the nation's debt crisis was over because Latin America's largest country had emerged as a net foreign creditor for the first time. "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 credit analyst Lisa Schineller in a statement announcing the rating boost. "Net general government debt remains higher than that in many BBB peers, but a fairly predictable track record of pragmatic fiscal and debt management policies mitigates this risk," she said. Brazil became a net foreign creditor for the first time this year, inflation dropped to a seven-month low in February and the benchmark interest rate was at a record low 11.25% before this month's increase. The country's trade surplus was 40 billion US dollars and the economy grew 5.7% last year, the fastest since 2004. Despite tighter global credit conditions, Brazil's maturing growth outlook continues to attract foreign direct investment, diverse in terms of size and destination. FDI inflows accumulated through April 2008 are estimated at 12.4 billion US dollars, on track to match last year's record 34.6 billion. Central Bank president Henrique Meirelles told reporters that the upgrade illustrates the newfound stability of Brazil's once notoriously volatile economy. Predictable government monetary policy along with steady Brazilian growth has prompted most experts to forecast that the country's traditional boom-and-bust economic cycles are a thing of the past. Brazil is riding a boom in demand for key exports such as beef, iron ore and soy. International reserves nearly tripled from 64 billion in 2003 to 188.2 billion US dollars in February, the Central Bank said. Brazilian companies are also raking in record profits as businesses expand rapidly and consumers take out loans in droves to buy new cars and homes. The upgrade is a huge victory for President Luiz Inacio Lula da Silva, elected in 2002 amid predictions by investors that the former radical union leader would wreck the economy. Market observers had been expecting that Brazil would receive an investment grade rating some time this year. In early April, Fitch Ratings upgraded Peru to investment grade.