Brazil Downgrade Threat ‘Off the Radar,’ BNDES President Says
Threats that the world’s second-largest emerging market will suffer a sovereign credit rating downgrade are “off the radar,” according to Luciano Coutinho, president of Brazil’s BNDES development bank.
“I don’t see reasons for Brazil to have a downgrade, there aren’t objective reasons,” Coutinho said yesterday in an interview at the World Economic Forum in Davos, Switzerland. “The government has shown commitment to stability, to maintaining tighter fiscal policy.”
Standard & Poor’s in June placed Brazil’s rating on negative outlook, and Moody’s Investors Service in October lowered its outlook to stable from positive, citing a deteriorating debt profile and evidence of slow growth. In a Nov. 21 Bloomberg Global poll, 39 percent of investors said the rating would probably or certainly be cut in the following 12 months.
Brazil’s government in the second half of last year raised some taxes in a bid to boost revenue, increasing levies on some cars while boosting fees for the use of debit cards abroad. The central government last year exceeded its primary surplus target, which excludes payments on interest, Finance Minister Guido Mantega said Jan. 3.
“Whereas a year ago or 18 months ago the attitude of the authorities regarding the ratings agencies was one of benign neglect and not having the time to talk to them, quite clearly they’re now threatened,” Paulo Vieira da Cunha, head of macroeconomic research for investment manager ICE Canyon LLC. “Now I think they’re paying quite a bit of attention and as you can see senior officials are addressing the issue.”
The risk of downgrade has diminished as perception of Latin America’s largest nation has improved, Coutinho said, adding that the two rating companies have expressed a “rather rational, reasonable” position. BNDES will need fewer loans from the Treasury in 2014 compared to last year, he said without providing figures.
Brazil’s gross debt fell to 58.5 percent of gross domestic product in November from a more than two-year high of 59.8 percent the same month the prior year. In November 2011, gross debt was 54.5 percent of GDP.
Still, government spending rose 14 percent in the first 11 months of 2013 from the previous year while revenue grew 12 percent, according to Finance Ministry data. Brazil’s economy expanded 2.3 percent in 2013, according to economists surveyed by Bloomberg, versus 1 percent in 2012 and 2.7 percent the prior year. That would make Brazil’s average three-year growth rate lower than that of China, Russia and South Africa.
Brazil’s five-year credit default swaps, which protect bondholders against non-payment, have increased six basis points to 199 basis points this year.
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