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Fri, May 02, 2008 - Page 10 News List

Brazilian stocks soar on S&P debt rating upgrade


Brazil celebrated a landmark improvement in its debt rating on Wednesday, as Standard & Poor?? Ratings Services (S&P) issued a long awaited-upgrade that sent Brazilian stocks soaring.

The move to investment grade status represents a key benchmark in the booming nation?? economic transformation, signaling that Brazil is now officially recognized as a safe place for investors to park money. Strong foreign investment could increase as a result even as the rest of the world suffers financial jitters.

??razil is entering into the club of the most respected nations,??Brazilian Finance Minister Guido Mantega said.

Brazilian President Luiz Inacio Lula da Silva called it ?? conquest by the Brazilian people they??e been waiting for many, many years.??

S&P?? announcement comes just two months after Latin America?? largest country emerged as a net foreign creditor, prompting the Central Bank to declare Brazil?? debt crisis over.

??he upgrades reflect the maturation of Brazil?? institutions and policy framework, as evidenced by the easing of fiscal and external debt burdens and improved trend growth prospects,??S&P credit analyst Lisa Schineller said in a statement announcing the rating boost.

Brazil?? benchmark Ibovespa stock market index jumped 6.3 percent on the news, closing at a record 67,869.

The Brazilian real also rose sharply against the US dollar.

Central Bank President Henrique Meirelles said it illustrated the newfound stability of Brazil?? once notoriously volatile economy.

Brazil defaulted on its debt and declared a moratorium on debt payments in the 1980s, but predictable monetary policy and steady growth in recent years have most experts calling the boom-and-bust economic cycles a thing of the past.

Brazil is also riding on a boom in demand for beef, iron ore, soy and other key exports.

Its trade surplus came in at US$40 billion last year, and international reserves nearly tripled from US$64 billion in 2003 to US$188.2 billion in February, the Central Bank said.

Coupled with rising foreign investment and high domestic interest rates, net currency inflows reached a record US$87.5 billion last year.

Brazilian companies are also raking in record profits as businesses take out loans to expand and droves of consumers buy new cars and homes on credit.

While Moody?? Investors Service and Fitch Ratings still rate Brazilian debt at one notch below investment grade, the S&P upgrade is a huge victory for Silva. When he was elected in 2002, some investors predicted the once-radical union leader would wreck the economy.

Instead, Silva surprised financial players and angered his leftist base by sticking to an orthodox monetary policy. This brought bigger corporate profits, but also helped the poor by reducing inflation and creating more jobs in the nation of nearly 190 million.

Brazil now appears on track for sustained economic growth of between 4 percent and 4.5 percent, following gains of 5.7 percent last year, Schineller said.

Despite a global credit crunch, this ??aturing growth outlook??makes Brazil an attractive investment option, S&P said, noting that direct foreign investment is on track to match last year?? US$34.6 billion record.

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