rating

PRESS RELEASE:S&P:Brazil Officials Showing`Prudent'Policy
2003-01-16 15:33 (New York)



The following is a press release from Standard & Poor's:

NEW YORK (Standard & Poor's) Jan. 16, 2003--Standard & Poor's Ratings Services today issued a new commentary article examining the challenges facing the Federative Republic of Brazil's President Luiz Inacio Lula da Silva and his administration in the year ahead. The article, entitled, "Challenges Ahead for Brazil in 2003," comments on the solid and consistent signals regarding economic policy sent by the new government thus far.
"Policy statements by the finance minister and central bank governor highlight a prudent and cautious policy stance," said Sovereign Analyst Lisa Schineller. "However, the government now needs to implement policies and demonstrate its ability to forge effective political alliances in order to extend the improvement in Brazilian asset prices and further enhance the its credibility," she added.
According to Ms. Schineller, given the scope of its fiscal and external vulnerabilities, Brazil's ratings ('B+' long-term foreign and 'BB' long-term local currency sovereign credit ratings) and negative outlook reflect the limited room for policy maneuverability in a challenging global and domestic environment.
"The new administration faces a formidable set of challenges in 2003, and during its tenure in office," Ms Schineller noted. "To tackle many of its difficult social problems, Brazil needs to realize its growth potential. In order to so, the country must first address its serious fiscal and debt-service pressures, which are unlikely to boost growth in the near-term," she said. Ms. Schineller added that, in doing so the administration could foster a "virtuous cycle."
The article examines Brazil's complex fiscal burden and reviews the importance of social security reform and of maintaining the terms of the Fiscal Responsibility Law and the states' debt renegotiation agreements. It also underscores that Brazil's external position is still vulnerable, and weaker than that of its credits.
"Brazil's ratings could come under downward pressure if the commitment to and implementation of disciplined fiscal and monetary policies and structural reform falter, or if policy responses to changing economic conditions prove to be inadequate," said Ms. Schineller. "Corporate distress and/or a systemic weakening of the banking system could also undermine creditworthiness. Brazil's credit standing could stabilize should the new administration obtain broad political support for maintaining a tight fiscal stance, implementing sound policy, and advancing reform that mitigates Brazil's economic vulnerabilities," she concluded.
Contact: Lisa M Schineller, New York (1) 212-438-7352
Helena Hessel, New York (1) 212-438-7349 Copyright 2003, Standard & Poor's Ratings Services

- - Opinion Update 28 DEC 2002 Brazil

- - Summary Opinion 8 DEC 2002 Brazil

- - Country Statistics 22 OCT 2002 Brazil

- - Rating Action 12 AUG 2002 MOODY'S DOWNGRADES BRAZIL

11jan03 estado

Sábado, 11 de janeiro de 2003



Sucesso de propostas econômicas pode elevar rating do País na S&P
Lisa Schineller, diretora da agência, diz que aumento na meta de superávit primário seria bem recebido

NOVA YORK - A diretora-adjunta de risco soberano para o Brasil da Standard & Poor's (S&P), Lisa Schineller, disse ontem que um aumento pelo governo na meta de superávit primário, que hoje é de 3,75% do PIB, seria muito bem recebido pela agência de classificação de risco americana. Segundo Lisa, o País pode ter a perspectiva negativa do seu rating soberano (B+) da S&P retirada, caso o governo do PT implemente as políticas que vêm sendo anunciadas até agora na área macroeconômica. Porém, o País poderia sofrer um rebaixamento, em caso de retrocesso no arranjo institucional e político que disciplinou as contas fiscais dos Estados e municípios, alertou a analista.

"Há rumores de elevação de superávit primário, o que seria visto favoravelmente por nós, dado ainda o nível da relação dívida/PIB, que tem caído, mas ainda está muito mais alto do que o observado no início de 2002", disse Lisa Schineller à Agência Estado.

"Sem dúvida, um aumento na meta do superávit primário seria muito bem recebido por nós, pois mostraria um compromisso deste governo com uma atitude fiscal sólida", acrescentou a principal analista para Brasil da S&P.

Ela acredita que é bem provável que o Fundo Monetário Internacional (FMI) solicite do governo Lula um aumento na meta como parte da revisão do atual acordo.

A combinação de dois fatores pode levar a perspectiva do rating brasileiro a deixar de ser negativa, segundo Lisa. A primeira é que o PT detalhe as iniciativas que vem anunciando, e estas se revelem consistentes. A analista refere-se a diversos temas, como a manutenção ou, de preferência, o aumento do superávit primário, a autonomia operacional do Banco Central e a reforma da Previdência. O segundo fator é que o PT mostre ser capaz de implementar essas medidas, especialmente as que dependem do Congresso.

Pelo lado negativo, diz Lisa, "qualquer escorregada na questão fiscal dos Estados e municípios, que eu não prevejo que vá acontecer, seria ruim para o rating, porque mostraria fraqueza institucional". Ela se refere não só à decisão do Supremo Tribunal Federal sobre a retenção de receitas tributárias do Rio de Janeiro (por descumprimento do acordo de renegociação da dívida), como também "às dificuldades do governo para lidar com as pressões políticas dos governadores".

O atual rating soberano em moeda estrangeira do Brasil é B+, quatro degraus abaixo de BBB-, que é o rating a partir do qual se obtém o chamado "grau de investimento". Abaixo desse rating, as classificações indicam um risco especulativo. Em julho de 2002, a S&P rebaixou o Brasil de BB- para B+, e o novo rating ficou em perspectiva negativa, o que indica uma tendência de queda, mas não a curto prazo. A perspectiva da S&P pode durar até três anos, e pode ser retirada, não levando necessariamente ao rebaixamento.

Lisa Schineller disse que mantém a perspectiva negativa para a classificação de risco soberano do Brasil, "porque os riscos ainda tendem para o lado negativo em relação à economia brasileira". Segundo ela, devido à magnitude e à complexidade dos desafios econômicos que o Brasil enfrenta, será um ano difícil para qualquer governo ou autoridade econômica. (Fábio Alves/AE e Fernando Dantas)

12aug02 moody's downgrade

MOODY'S DOWNGRADES BRAZIL
2002-08-12 21:16 (New York)



New York New York
Vincent J. Truglia Luis Ernesto Martinez-Alas
Managing Director VP - Senior Credit Officer
Sovereign Risk Unit Sovereign Risk Unit
Moody's Investors Service Moody's Investors Service
JOURNALISTS: 212-553-0376 JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653 SUBSCRIBERS: 212-553-1653


MOODY'S DOWNGRADES BRAZIL

New York, August 12, 2002 -- Moody's Investors Service downgraded Brazil's country ceiling for foreign currency bonds and notes to B2 from B1, and the country ceiling for foreign currency bank deposits to B3 from B2.

Moody's said that no matter which candidate wins this fall's presidential election, the new administration will face growing fiscal pressures that could translate into risks in the external sector, especially as currency depreciation increases the burden on dollar borrowers.

Although the recently announced IMF program should help to stabilize the near-term situation as regards foreign-currency credit risk, Moody's believes the back-loaded and conditional nature of the program leaves a risk that the next administration will face challenges in meeting IMF targets on a sustained basis.

As a consequence of the country ceiling downgrades, all B1-rated foreign-currency bonds of the Republic of Brazil were downgraded to B2. Local-currency denominated bonds of the Republic of Brazil and of the Central Bank of Brazil were also downgraded to B2 from B1. The outlook for all the new ratings is stable.

Moody's noted that despite the success of the current administration in facing a number of adverse external economic and financial shocks, the next government will face a number of challenges. In order to maintain a stable public-sector debt dynamic, the next administration will need to maintain high primary surpluses on a sustained basis. At the same time, political pressure is building for the next administration to reactivate the economy. Achieving these two goals simultaneously under the best of circumstances may prove difficult.

Moody's noted that although the government has many tools at its disposal to deal with the country's debt dynamics, a number of these might heighten inflationary expectations. Although inflation in the short-run
might have a salutary effect on government revenues, given the familiarity of the Brazilian populace with inflation, any near-term benefits of "money illusion" might prove short-lived. This scenario would likely result in pressure on the exchange rate or interest rates.

Moody's also announced the downgrade to B2 from B1 of the foreign currency ratings of the cities of Rio de Janeiro and Curitiba, and of the states of Bahia and Ceara. These ratings are constrained by Brazil's foreign currency country ceiling. They also have a stable outlook.

Press releases will follow regarding other affected issuers.

02jul02 s&p downgrade + neg outlook

Summary Analysis-Federative Republic of Brazil
2002-07-02 17:48 (New York)

===============================================================================
Summary analysis -- Brazil (Federative Republic of) --------------- 02-Jul-2002
===============================================================================
CREDIT RATING: Country: Brazil
Local currency BB/Negative/B
Foreign currency B+/Negative/B Primary SIC: Sovereign
Mult. CUSIP6: 105756
===============================================================================
Credit Rating History:

Local currency Foreign currency
02-Jul-2002 BB/B B+/B
03-Jan-2001 BB+/B BB-/B
29-Feb-2000 BB/B B+/B
14-Jan-1999 BB-/B B+/B
===============================================================================
Rationale
On July 2, 2002, Standard & Poor's lowered its long-term local currency sovereign credit rating on the Federative Republic of Brazil to 'BB' from 'BB+', and its long-term foreign currency rating to 'B+' from 'BB-'. The downgrades reflect the rising public debt that further reduces fiscal flexibility. Ever-tighter fiscal management is necessary to maintain debt to GDP at current levels, given the worsening domestic debt profile and heightened market concerns over political uncertainties. Standard & Poor's believes that the government has reduced room to maneuver amid a challenging domestic and external environment both presently and after the October presidential elections. Moreover, the already weak external position is under increasing stress because of unrelenting market pressure. The negative outlook assigned to both ratings remained unchanged. Proactive economic management by the next administration is essential to reverse growth in the debt and to reduce external vulnerabilities. General government debt net of liquid assets is estimated by Standard & Poor's at close to 70% of GDP in 2002 up from 60% in 2001. (The 2002 figure is based upon an assumed year-end exchange rate of Brazilian reais 3 to US$1 and both incorporate a narrower definition of liquid assets than that used by the government.) Key challenges in achieving these goals include the possible further tightening of the primary (noninterest) fiscal stance coupled with an advance of the reform agenda that addresses the public-sector pension system and distortionary tax regime. Implementation of this reform has proven difficult even for the current disciplined financial team, and will certainly prove no easier for the next government. While Brazil's political system and institutions have strengthened under the Cardoso Administration and should lead to greater policy continuity going forward, they will be hard tested following the upcoming presidential election.

Brazil's ratings are constrained by:
-- A large general government debt burden and its significant vulnerability to interest- and exchange-rate movements. Interest on the debt is very high, projected to be at least 9% of GDP in 2002-or 25% of revenue. Progress made on maturity lengthening since 1999 has come under pressure since last year, and current debt management operations have shortened it further by several months.
-- An external position that is vulnerable to shifts in investor confidence. External debt net of liquid assets is projected to average 250% of exports of goods, services, and transfers (or current account receipts (CAR)) in 2002-2003. This is twice as high as Brazil's peer credits and reflects the high external indebtedness of the private, rather than the public, sector, against a small export base. Private-sector amortizations are large and the stock of private sector external debt remains burdensome over the medium-term.
-- Structural economic weaknesses. Various fiscal distortions undermine the competitiveness of the economy and expansion of the export base, and limit spending on much-needed social programs amid social and income inequality. Additional challenges include deepening the local capital market, and judicial and political reform.

The ratings are supported by:
-- A fiscal debt burden that is predominantly held domestically and denominated in reais. A relatively deep and captive domestic capital market for government securities mitigates rollover risk. Domestic agents hold 94% of domestic debt. Moreover, while technically open, the capital account is more tightly controlled/monitored by the central bank, providing a greater disincentive for capital outflows by the middle class. The government's relatively low level of external debt has a beneficial maturity profile.

-- A consistent macroeconomic framework over the last four years, which includes a floating exchange rate and successful inflation and fiscal consolidation strategies. The general government primary (noninterest) surplus averaged 2.6% of GDP in 1999-2001, and is projected to slightly exceed 3% in 2002-2003.
-- Strengthened institutional underpinning for better economic management. This support extends beyond the executive branch of government, to congressional and local government officials across party lines, and is underpinned by fiscal responsibility legislation. In addition to legislation that includes the fiscal responsibility law and state/debt renegotiation agreements, increased transparency and public and political awareness are expected to provide a check on fiscal imprudence.
Outlook
Managing Brazil's fiscal and external vulnerabilities requires an ongoing commitment to appropriate polices in a demanding internal and external environment, and allows little room for policy slippage. Brazil's ratings could come under downward pressure if there is further slippage in budgetary performance; if the commitment to a tight fiscal stance and structural reform falter; or if policy responses to changing economic conditions prove to be inadequate. Alternatively, Brazil's credit standing could stabilize if the government takes additional steps to significantly reduce the size of the budget deficit or advance the reform agenda.

Contact: Lisa M Schineller, New York (1) 212-438-7352
Helena Hessel, New York (1) 212-438-7349
Regina Nunes, Sao Paulo (55) 11-5501-8937
David T Beers, London (44) 20-7847-7101
Copyright 2002, Standard & Poor's Rating Services
Provider ID: 00179618
-0- Jul/02/2002 21:48 GMT



Standard & Poor's Schineller Comments on Brazil Debt Downgrade
2002-07-02 20:33 (New York)


Sao Paulo, July 2 (Bloomberg) -- Lisa Schineller, an analyst at Standard & Poor's, comments on the company's decision to downgrade its credit ratings for Brazil.
Standard & Poor's lowered Brazil's long-term foreign currency debt rating to B+ from BB-, on a par with countries such as Senegal and Jamaica, and its local currency rating to BB from BB+. The company also maintained its ``negative'' outlook on the ratings, signaling further downgrades may come. The following comments come from a statement by Standard & Poor's.

``Ever-tighter fiscal management is essential to maintain debt-to-GDP at current levels, given the worsening domestic debt profile and heightened market concerns over political uncertainties. Standard & Poor's believes that the government has reduced room to maneuver amid a challenging domestic and external environment, both presently and after the October presidential elections.
``The negative outlooks are maintained given that the fiscal and external vulnerabilities require an ongoing commitment to appropriate policies in a demanding internal and external environment and allow little room for policy slippage. Brazil's political system and institutions have strengthened under the Cardoso administration and should lead to greater policy continuity going forward, but they are likely to be tested following the upcoming presidential election.''

--Charles Penty in Sao Paulo (5511) 3048-4641, or
cpenty@bloomberg.net through the San Francisco newsroom (415) 912-
2980. Editor: Marley.