Brazil reaches for investment grade

During the past week major rating agencies have upgraded Brazil's government issues. Standard & Poor's, for instance, upgraded Brazil's foreign debt to BB+. Fitch made a similar upgrade. Therefore, Brazil has come very close to the much desired investment grade. Other emerging countries, such as Mexiko, China or Russia, have already reached this grade. Among the emerging countries, Brazil has accumulated one the largest foreign debts worldwide. End of March the government domestic debt was estimated 1143 bln Real (around $603 bln), whereas the foreign debt amounted to 136 bln. Real (around $72 bln). The resulting global debt made around 65 percent of the GDP.

The upgrade to investment grade would bring tangible benefits to Brazil. The lower risk expectancy for bonds would be reflected in lower interest rates. Investment gade equally allows large institutional investors, such as insurance companies or pension funds, to aquire Bazilian government bonds. This would considerably enlare the investor community and also reduce expenses for debt servicing. Apart from these monetary benefits, the effect of the investment grade is also a psychological one. Brazil has gone through many financial and economical turmoils during the past decades. So the upgrade would serve as example that the pragmatic approach of Brazil's president Luiz Inácio da Silva have paid off well in the end.

Source: Neue Zürcher Zeitung





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