Feb. 21 (Bloomberg) -- Brazil, the world's largest emerging-market debtor for decades, became a net foreign creditor for the first time in January.

International reserves, swelled by investment inflows and record exports of agricultural commodities and oil, probably exceeded gross foreign liabilities last month by about $4 billion, Banco Central do Brasil said today in a report.

``This is the most significant economic event that's happened to Brazil in a long time,'' said David Cortes, who manages about $200 million of emerging market debt, including Brazilian bonds, for BullTick LLC in Miami.

Brazil's shift to net creditor status may bolster investor confidence in Latin America's biggest economy and help the country win an investment-grade rating. Brazil repaid its debt to the International Monetary Fund, the Washington-based lender that bailed out the country over four decades, in December 2005.

``This is unheard of in the history of our economy,'' the Brasilia-based bank said.

Brazilian exports have tripled since President Luiz Inacio Lula da Silva took office in 2003 on rising world demand for soybeans, iron-ore, beef and cars. An accompanying surge in foreign direct investment, including stock and bond purchases by non-residents, led the currency to appreciate to its strongest level in more than eight years today.

``This achievement is the direct outcome of our implementation in recent years of prudent and consistent macroeconomic policies,'' Henrique Meirelles, the country's central bank president, said in an e-mailed statement from Brasilia.

`Right Path'

International reserves, including cash and other financial assets, rose to a record $171.6 billion in January, more than ten times the $17 billion that the country had when Lula assumed power. At the end of 2003, Brazil's debt topped international reserves by $165 billion, the bank said.

Foreign bond buyers have been lured by the prospect Brazil could attain an investment grade rating this year or next, making the country's bonds the world's second-best performer over the past five years, returning 191 percent, according to JPMorgan Chase & Co. data. Only Ecuadorean bonds, which gained 234 percent, rose more.

``It's a confirmation of a good trend that will probably lead to investment grade for Brazil,'' said Cristina Panait, an emerging-market strategist at Los Angeles-based Payden & Rygel, which manages more than $50 billion in assets. ``Brazil is on the right path.''

U.S. Slowdown

Brazil's foreign currency debt rating of BB+ by Standard & Poor's and Ba1 by Moody's Investors Service are both one level below investment grade. Investment-grade standing gives a country greater access to international capital at lower borrowing costs.

``This status puts us closer to winning investment grade,'' Finance Minister Guido Mantega told reporters in Rio de Janeiro.

The yield to the 2015 call date on Brazil's 11 percent bonds due in 2040, one of the most widely traded emerging-market securities, fell 9 basis points, or 0.09 percentage point, to 5.59 percent, according to JPMorgan Chase & Co. The bond's price rose 0.6 cent to 132.65 cents on the dollar.

The bank said the creditor status ``tends to mitigate, although far from annulling completely, the impact of adverse external effects'' of ongoing turmoil in global credit markets.

`Solvency'

The world economic slowdown may test whether Brazil's efforts to diversify export markets and bulk up reserves are enough to safeguard long-term growth after almost five years of record commodity exports and low borrowing costs, said investors such as Jaime Valdivia.

An over-dependence on commodity sales abroad may cut Brazil's growth to 3 percent this year from about 5 percent should a slowing U.S. economy reduce demand, Morgan Stanley & Co. said in a report released Dec. 10.

``There's a subtle but profound difference between liquidity and solvency,'' said Valdivia, who manages about $1 billion in emerging market assets for Emerging Sovereign Group in New York. ``Brazil is very liquid at this point, but it may be far from having reached the status of a solvent economy.''

Taxes, Spending

Winning investment-grade rating may take longer than some analysts expect unless Brazil cuts spending and taxes, Valdivia said.

The real rose for a fourth straight session, advancing 0.8 percent to 1.7095 per dollar today. It touched 1.7046 earlier in the day, the strongest level since May 1999.

The central bank has purchased U.S. dollars in currency markets almost every day since July 2006 to slow the real's appreciation and increase international reserves.

In a separate report, the bank and the National Treasury said that local and foreign debt fell 1.7 percent to 1.31 trillion reais in January from December. The stock of local debt, which makes up 90 percent of total Brazilian liabilities, fell 1.7 percent and foreign debt dropped 1.4 percent last month, both institutions said.

To contact the reporter on this story: Guillermo Parra-Bernal in Sao Paulo at at gparra@bloomberg.net

Last Updated: February 21, 2008 18:00 EST