Brazil: S&P Cuts Credit Rating to BBB Minus

EspañolStandard & Poor’s cut Brazil’s sovereign debt rating closer to speculative territory on Monday, downgrading its long-term debt rating to BBB minus. Despite President Dilma Rouseff’s efforts to revive the economy with tax cuts and social spending, Brazil has suffered slow growth that averaged about 2 percent in recent years.

S&P said the downgrade “reflects the combination of fiscal slippage, the prospect that fiscal execution will remain weak amid subdued growth in the coming years, a constrained ability to adjust policy ahead of the October presidential elections, and some weakening in Brazil’s external accounts.”

The Brazilian finance ministry rejected S&P’s arguments for the downgrade. “The Brazilian economy has low external vulnerability because it holds the fifth largest volume of international reserves among G20 nations,” it said in a statement. The statement also emphasized that Brazil is one of the world’s five largest recipients of foreign direct investments, which totaled US$65.8 billion for the country during the last twelve months.

Opposition leader Aécio Neves said the downgrade was due to the “manipulation” of fiscal accounts by Rouseff’s government, “exorbitant” public spending, and “leniency” with inflation. Analysts said that the downgrade could lead some investors to sell Brazilian assets, while others may focus on the fact that S&P is unlikely to downgrade Brazil any further.

Sources: Reuters and América Economía.

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