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S&P pushes Brazil credit rating further into junk to BB-

S&P said that despite “various policy advances” by the government of President Michel Temer, “Brazil has made slower-than-expected progress in putting in place meaningful legislation to correct structural fiscal slippage and rising debt levels…” © AFP/File / NELSON ALMEIDA

Washington, United States, Jan 12 – International credit ratings agency Standard and Poor’s on Thursday pushed Brazil further into junk territory, lowering the long-term ratings of Latin America’s biggest economy to BB-.

S&P said that despite “various policy advances” by the government of President Michel Temer, “Brazil has made slower-than-expected progress in putting in place meaningful legislation to correct structural fiscal slippage and rising debt levels on a timely basis.”

There was added uncertainty with Brazilian presidential elections later this year, it said.

The agency kept Brazil’s short-term rating at B.

It said there was “less than one-in-three likelihood” of it changing its long-term rating, either up or down, over the coming year.

“This reflects Brazil’s comparative external and monetary policy strengths that help offset significant fiscal weakness, an economy with growth prospects lower than peers, and our view that effectiveness of policymaking across branches of government has weakened,” it said.

It noted “lack of support” among Brazilian politicians for stronger fiscal measures, and expressed pessimism that whoever ends up leading the country after elections would have the “significant political capital” needed to pass reforms.

“While the economy has stabilized, we see slow growth and fiscal weaknesses as key credit constraints,” the ratings agency said.

Brazil’s economy is projected to grow two percent this year, according to an annual report by the United Nations-backed Economic Commission for Latin America and the Caribbean (CEPAL) released last month.

While unspectacular, that is far better than the 0.2 percent expected for 2017, or the two years of Brazil’s worst-ever recession preceding that.

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The government’s own projections are slightly more optimistic: three percent in 2018 and 1.1 percent in 2017.

Temer remains unpopular with voters, clouding the political outlook ahead of the presidential elections, the first round of which is scheduled for October 7, with a run-off on October 28.

The frontrunners for the election so far are leftist former president Luiz Inacio Lula da Silva and rightwing former army officer Jair Bolsonaro. Neither man is much welcomed by investors.

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