Possible Downgrade Reflects Reality of Economy in Brazil

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The possibility of having Brazil’s credit rating drop down from investment grade into junk status caused additional turbulence to the country’s economic market, with the stock market closing down and the US dollar appreciating. Finance Minister, Joaquim Levy, stated the measure reflects the difficulties seen in the political and economic scenarios.

“Brazil’s debt ratings reflect the reality of the economy,” Levy told reporters on Thursday in São Paulo, admitting that the country may lose its investment grade as soon as the first quarter of 2016.

The turbulence in congress, with the possibility of impeachment proceedings against President Dilma Rousseff and the ousting of Chamber of Deputies president, Eduardo Cunha, along with Moody’s announcement led to a volatile day in the markets on Thursday. The São Paulo’s Bovespa Index closed down by 1.04 percent while the U.S. dollar rose by 1.7 percent against the Brazilian real, closing at R$3.801/US$1.

For Levy the current political instability has had significant effects on the economy, “Economic targets are being highly influenced by foreign factors, including those of a political nature,” said the official.

According to the note distributed by the Finance Ministry, however the government continues committed to reducing earmarked spending and to raising taxes to ease fiscal adjustment and contain public debt growth. On Wednesday Moody’s Rating Services announced it was putting the country’s Baa3 rating on review for a downgrade.

While waiting for congress to approve measures which would increase government revenues and decrease spending, the ministry also announced it was preparing other measures which could increase private investments starting next year. Among these measures are private concession programs for some of the nation’s rail lines, highways, ports and airports. The government hopes to attract both domestic and foreign investors to Brazil’s infrastructure projects.