Brazil’s Global Bonds Get a BB- from Fitch

Fitch Ratings, the international rating agency, has today assigned a ‘BB-‘ rating to the global bonds to be issued in exchange for some US$ 5.6 billion in C-bonds. The outlook on the rating is stable.

As part of a liability management operation, the Brazilian treasury announced this week the issuance of the new global bonds in exchange for the C-bonds which were issued as part of the restructuring of Brazilian sovereign debt during the 1980s debt crisis.


The new bonds have a longer duration than the C-bonds, improving the overall debt profile of the treasury.


Brazil’s sovereign ratings, which were affirmed last week, reflect a balance between the favorable trends in Brazil’s external finances and the risk that political gridlock could hamper improvements in public debt dynamics and constrain economic growth.


Officials of the PT (Workers Party) party have been accused of bribing congressman for key votes, and coalition members accused of improper use of funds in the postal and reinsurance authorities.


The Lula government has acted to contain the negative fallout by dismissing some officials allegedly involved. Corruption investigations could prevent the passage of reforms and stymie the budgetary process, though Fitch does not expect any major fiscal or monetary policy slippage as a result.


A downside political scenario cannot be ruled out, however, in which key economic policy officials are implicated and forced to resign and some policy slippage ensues.


Difficulty getting important government positions confirmed by the Senate is possible, for example, in the event of the resignation of a central bank board member. Uncertainty about the outcome of the October 2006 national elections has increased as well.


Brazilian balance of payments performance continues to be favorable, with annual export growth over the last 2 1/2 years averaging 26%.


However, certain commodity prices (for steel and agricultural goods) have moved lower, global growth is softening, and the Brazilian Real has strengthened, resulting in signs of slower Brazilian export growth.


Export growth and a paydown of external obligations have driven improving performance on one of Fitch’s key external solvency indicators.


Net external debt (NXD) to current external receipts (CXR) is expected to fall to just over 100% by year-end 2005 and to 90% next year from 233% in 2002, though this still lies well above the forecast 2005 ‘BB’ median of 43% for this indicator.


On public finances, last year the Lula government outperformed its original primary budget surplus target of 4.25% of GDP, achieving 4.6% on strong tax revenue growth.


Nevertheless, given how robust 2004 GDP growth was (4.9%) and how high 2004 general government (GG) debt was (75% of GDP), perhaps more of the windfall could have been saved.


GG debt to GDP compares unfavorably to the ‘BB’ median of 51%, but relative to GG revenues, at 200%, GG debt is lower than the ‘BB’ median of 235%. Furthermore, Brazil’s government has nearly 10% of GDP in liquid deposits at the central bank.


Fitch Ratings – www.fitchratings.com

Tags:

You May Also Like

UN Wants Brazil to End Discrimination on AIDS Treatment

With the goal of promoting awareness of the link between AIDS and tuberculosis and ...

Brazilian Indians Want UN Declaration Applied to Them

Sixty one indigenous people from Brazil and other Latin American countries met in BrasÀ­lia ...

Brazilian Embraer’s Lineage 1000 Jet Gets US’s FAA Certification

Brazilian aircraft maker Embraer has received the Type Certificate (TC) and the Supplemental Type ...

Catholic Church Gets Credit for Wider User of Condom in Brazil

Recent research has revealed a greater willingness on the part of the Brazilian population ...

Among 11 Candidates, Dilma Has 38% of Votes for Brazilian Presidency

A poll conducted by Brazil’s Public Opinion and Statistics Institute (IBOPE) shows that candidate ...

Unicef Donates to Stop Deaths of Brazilian Indian Kids

The United Nations Children’s Fund (Unicef) announced the donation of US$ 100 thousand for ...

Brazil Amazon’s Expedition Tries to Prevent Extinction of the Manatee

A expedition that has been studying the situation of the Amazon manatee (Expedição Peixe-Boi ...

Sweden Partipates in Brazilian Seminar on Women Trafficking

The international human traffic network is the third most lucrative in the world, with ...

Brazil Reasoning to Go to Iran: Let’s Make a Deal Before the Chinese Do It

Brazil’s minister of Development, Industry and Foreign Trade, Miguel Jorge, just went to Iran ...

After Iran Warning Obama Sends to Brazil His Number One Man for LatAm

The governments of Brazil and Bolivia reacted strongly to the US message to Latin ...