NEWSMAKERS: BRAZIL
Brazilian Finance minister Guido Mantega may be dealing with both internal and external headwinds, but he—and Brazil—are still standing. In March ratings agency Standard & Poor’s cut its long-term foreign currency sovereign credit rating on Brazil to BBB- from BBB and its long-term local currency rating to BBB+ from A-.
| Mantega takes on internal and external headwinds. |
Less demand for Brazilian oil, metals and agricultural goods in Asia will take its toll on the economy. Added to that, under Mantega the country has been raising interest rates, cutting taxes and ramping up spending on social programs in an effort to bolster the economy. Lisa Schineller, managing director and sovereign rating analyst at Standard & Poor’s, notes: “Low growth prospects reflect both cyclical and structural factors, including investment as a share of GDP of only 18% in 2013 and a slowdown in growth in the labor force. Combined, these factors underscore the government’s diminished room for maneuver in the face of external shocks.”
Transparency has also been an issue under Mantega’s watch. Changing government policies have hindered much-needed investments in the country’s infrastructure, but recent progress has been made in terms of the country’s concessions framework for infrastructure projects. Meanwhile, loans approved by state banks have “undermined policy credibility and transparency” and have raised the country’s debt burden outside of the budget.
Still, Brazil remains an investment-grade country, and the economy is growing. Plus, Standard & Poor’s has since changed Brazil’s outlook to stable from negative, which means further downgrades to the country’s credit ratings are unlikely over the next six months and beyond.
The Brazilian economy grew 2.3% in 2013, a figure Mantega has said should repeat itself in 2014. S&P is less optimistic. “We expect low growth in Brazil to persist over the next several years, with real GDP expanding by 1.8% in 2014 and 2% in 2015. This outlook reflects some modest improvement in exports this year, and an expected stronger contribution in 2015, from lagged effects of real depreciation,” the agency said in a statement announcing cuts to the country’s ratings.
