Here's What Brazil Investors, Lawmakers Are Saying About S&P Cut

Brazil Returns to Junk Status, Bonds Tumble
  • Currency could plunge to 3.90 per U.S. dollar: Brasil Plural
  • Government reaffirms commitment to fiscal consolidation

Brazil had its credit rating cut to junk by Standard & Poor’s on Wednesday after the close of markets, with a negative outlook. The downgrade sent the ETF that tracks Brazilian shares plunging in late trading. Here’s what lawmakers and investors are saying:

MARKET REACTION:
* Brasil Plural: "If the timing of the downgrade was only mildly surprising, the combination of downgrade with negative outlook is a genuine negative surprise," according to a note signed by Mario Mesquita, partner and chief-economist at the firm and a former central bank director. Asset prices should react "in a major way," with the currency likely to breach 3.90 per U.S. dollar on Thursday and stocks selling off. Other rating companies will probably follow S&P in downgrading, according to the note.

* Alberto Ramos, chief economist for Latin America at Goldman Sachs: while not shocking, downgrade is a serious sign for the government and probably a personal defeat to Finance Minister Joaquim Levy, he said by phone. Cut “is partly priced in, but not entirely.”

* Daniel Weeks, chief economist at Garde Asset Management: negative outlook was a surprise and many investors won’t wait for another rating company to downgrade the nation to sell Brazil assets, he said by phone. Negative reaction could spread to other emerging-markets as well. "Brazil is a big market and this will stress other emerging nations,” he said.

* Jose Francisco de Lima Goncalves, chief economist at Banco Fator: the downgrade is largely priced in as perceptions of Brazil have worsened due to inability to present a balanced budget and economic recession, he said by phone. Assets will experience “some stress” on Thursday, but not in the long term.

* Eurasia: Downgrade will not generate support for fiscal adjustment plan, Eurasia says in research note. The loss of investment grade has the potential to weaken Levy within the government, and risk of him leaving post has increased.

GOVERNMENT:
* Joaquim Levy, Brazil’s Finance Minister: Process to guarantee primary surplus target of 0.7%/GDP in 2016 will be completed in coming weeks with delivery of proposals related to spending and revenue discussed with Congress, Finance Ministry says in e-mailed statement sent by ministry’s press department. Government understands that fiscal effort is essential to balance economy in uncertain global environment, and legislative actions to be taken in coming months to boost efficiency, predictability and productivity of economy.

* Nelson Barbosa, Brazil’s Planning Minister: Downgrade doesn’t change Brazil’s recovery path and government is “continuing its effort to improve economic growth and Brazil’s fiscal situation,” he told reporters in Brasilia. Barbosa defended the decision to present a transparent budget for 2016, and said the government continues to honor its commitments and contracts. Brazil is adopting measures as quickly as possible, he said, adding that new measures will be introduced if necessary. S&P’s downgrade will be reversed as soon as economic conditions improve, according to Barbosa.

LAWMAKERS:
* Eduardo Cunha, President of Brazil’s Lower House: downgrade is "very bad," shows government needs to do its part and cut spending, he says in message sent via Whatsapp.

* Renan Calheiros, President of Brazil’s Senate: "The only thing that will get Brazil out of this situation is resuming growth," he told reporters in Brasilia.

* Eunicio Oliveira, senate leader for allied party PMDB: Downgrade won’t influence outlook for President Rousseff to stay in office, he told reporters in Brasilia. "This is bad for Brazil in terms of investments, but we’re a huge country with a lot of potential. It’s just a crisis, which we have to overcome."

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