Emerging Markets : Net Benfits






President Lula: Basking in Brazil’s new net creditor status.


After holding its ranking as the world’s largest emerging markets debtor for several decades, Brazil in January became a net foreign creditor for the first time ever, with international reserves exceeding foreign liabilities by some $4 billion. Helping to reach the milestone were the country’s climbing reserves, which hit a record $171.6 billion on account of high commodity prices and strong investment flows, as well as the impact of Brazil’s IMF debt pay-off in 2005.

President Luiz Inácio Lula da Silva says the country should take advantage of its new financial standing by taking on additional debt, which would be earmarked for infrastructure development. Brazil’s net creditor status bodes well for its quest to attain a coveted investment-grade rating in late 2008 or early 2009. The sovereign is rated one notch below investment grade.



In another milestone, Brazil overtook China in February as the biggest market on Morgan Stanley Capital International’s global emerging markets index (MSCI GEM) for the first time. On February 20 Brazil had a 14.95% weighting in the benchmark index against China’s 14.15%. The index measures shares available to investors and not total market capitalization of traded companies, where China still leads.

The Lula administration submitted a new tax reform bill to congress that aims to cut taxes on investment and production, in a move to spark further economic growth. The bill would consolidate several federal and state-level corporate taxes, while cutting payroll taxes from 20% to 14% over the next six years. Legislators have been grappling with tax reform plans since 1996, while business leaders say taxes are a key obstacle to investments. Increased tax collection boosted federal revenues by 26% in January, to $37.2 billion, despite concerns that legislators’ refusal to extend a final transactions tax when it expired last December will reduce the government’s take.




Antonio Guerrero