beyondbrics

It’s been a long time coming but S&P has finally awarded Brazil with its first straight A. Okay, it may be an A- and it’s only on local currency debt, but for a country that was once laughed at by investors for its hyperinflation and continuous currency crises, it’s one hell of an achievement.

S&P upgraded Brazil’s long-term foreign currency sovereign rating to BBB from BBB- but raised its long-term local currency rating to ‘A-’ from ‘BBB+’.

From S&P:

“The upgrade of Brazil is supported by the current administration’s growing track record of prudent macroeconomic policies, including fairly consistent primary surpluses of close to 3% of GDP,” said Standard & Poor’s credit analyst Sebastián Briozzo.

During the government’s first year in office, fiscal results have been better than it originally budgeted for, providing greater scope for a more flexible monetary policy to play a more significant countercyclical role in moderating the negative effects of a potential decline in external demand.

“The combination of Brazil’s sustained political commitment to cautious economic policies, its diversified economy, and its gradually improving external profile should moderate the impact of potential external shocks and sustain its long-term growth prospects, in our opinion,” Mr. Briozzo added.

In fact, the market had upgraded Brazil long ago. For example, when Brazil sold $1bn of 30-year bonds earlier this month, they were yielding less than 5 per cent while the yield on 30-year bonds in A-grade Italy was trading at around 7 per cent.

Brazil certainly has its problems (poor education and health services, corruption, a ridiculously complicated tax system — to name but a few). But when it comes to safe places to keep your money, the country is gradually proving that it is now a much better bet than most of the developed world.

Related reading:
Brazil capital markets: more to do, beyondbrics
Brazil eases and tightens at once, beyondbrics
Brazil central bank: anything but staid, beyondbrics
Brazil’s inflation-targetting regime under siege, beyondbrics