See below for a press release issued by Standard and Poor, upgrading Brazil's credit rating from Standard to Positive. This is the second change since an upgrade in 2008 from junk to standard, following the rapid rise of the emerging nation. Many problems remain, but the foundation for fast, sustained growth is finally in place for the Latin American giant.
NEW YORK (Standard & Poor's) May 23, 2011-- Standard & Poor's Ratings Services today said it revised its outlook on its long-term foreign currency sovereign credit rating on the Federative Republic of Brazil to positive from stable. The outlook on the long-term local currency rating remains stable. At the same time, Standard & Poor's affirmed its 'BBB-/A-3' long- and short-term foreign currency ratings and its 'BBB+/A-2' long- and short-term local currency ratings on Brazil.
"The positive outlook reflects Brazil's strengthening prospects for steady, long-term GDP growth, along with modest current account and fiscal deficits that should gradually reduce the country's vulnerability to negative external shocks," said Standard & Poor's credit analyst Sebastian Briozzo. "Brazil's diverse economic structure, expanding middle class, and the potential for higher exports should sustain both GDP growth and external liquidity in the next three to five years."
Political consensus in favor of cautious fiscal and monetary policies likely would contain the risk of economic dislocation that could result from potential shocks. Recent steps to contain short-term inflationary pressures demonstrate the government's commitment to contain macroeconomic risks.
Brazil's limited fiscal flexibility and high domestic interest rates will continue to require that the government remain strongly committed to a prudent economic approach. The positive outlook reflects the increasing likelihood that the pillars supporting Brazil's macroeconomic stability will continue to strengthen in the coming years, gradually reducing the sovereign's fiscal restrictions and vulnerability to external shocks. Good long-term growth prospects, combined with improving external liquidity and slowly improving local capital markets, could bolster the government's capacity to manage sudden adverse changes in global economic conditions and to maintain stability.
Conversely, failure to contain inflation at levels that maintain the credibility of the central bank's inflation targeting policy, combined with looser fiscal policy and potentially greater recourse to lending by government-owned banks, could stall the recent improvement in Brazil's macroeconomic pillars and add downward pressure on the rating.
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This article was written by Christian Pielow from the Association of Executive Search Consultants (AESC).
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