(The following statement was released by the ratings agency)
NEW YORK, April 29 - Standard & Poor's Ratings Services said today that it revised its outlook on its long-term local and foreign currency sovereign credit ratings on the Federative Republic of Brazil to stable from negative. Standard & Poor's also affirmed its 'BB' long-term local, 'B+' long-term foreign, and 'B' short-term local and foreign currency sovereign credit ratings on the republic.
"The stable outlook reflects recent progress and prospects for a further strengthening of Brazil's fiscal position," said sovereign analyst Lisa Schineller. "President Luiz Inacio Lula da Silva and his administration have
thus far demonstrated a commitment to stabilize the stock of government debt," she added.
According to Ms. Schineller, first, the government raised the primary (noninterest) surplus target for the nonfinancial public sector for 2003 to a new target of 4.25% of GDP, up from the budgeted 3.75% of GDP (fiscal
performance to date suggests the target could be surpassed). Second, the budget directives law it presented to Congress on April 15, 2003, maintains the higher 4.25% of GDP primary surplus target for 2004, and probably through 2006.
"Reflecting an improved fiscal stance and some real appreciation of the exchange rate, the net general government debt burden is projected to decline this year," Ms. Schineller noted. "However, the debt burden still remains high, leaving limited room for countercyclical fiscal policy and entailing large primary surpluses over the medium term," she said.
The quality of ongoing fiscal adjustment and the sustainability of a decline in the government debt burden are also supported by the government's commitment to pass social security and tax reform, which is to be presented to Congress on April 30, 2003. Standard & Poor's expects that this important reform will be legislated, reflecting a broad political recognition that it is needed to ensure Brazil's fiscal viability over the longer term. Both the electorate and Congress are more inclined to support this reform following several years of debate that has raised the social consciousness of its importance.
Ms. Schineller said that, given Brazil's large fiscal and external vulnerabilities, there is little room for policy slippage. "Timely and resolute progress on pension and tax reform should bolster the country's longer-term growth prospects by addressing several structural weaknesses in the public sector," she explained. "Successful consolidation of reform and a proactive debt management strategy that reduces the stock of dollar- and
interest-rate indexed securities and that extends tenors could strengthen Brazil's credit standing. Brazil's ratings could come again under downward pressure if there is slippage in the current strong budgetary performance and the commitment to a tight fiscal stance and structural reform falters," Ms. Schineller concluded.
posted by A. Song. # 11:33 AM 
