Attack of
the rating agencies
Brazil
junked
The mystery is why it didn't happen sooner
The Economist, September 10th 2015 | SÃO PAULO
WHEN Dilma
Rousseff, Brazil's president, presented a budget with a gaping primary deficit
(before interest payments) of 0.5% of GDP last week, many (including this newspaper) despaired. It was only a matter
of time, the worriers warned, before such fiscal incontinence would cost Brazil
its cherished investment-grade credit rating. Few expected the raters to react
quite so quickly. On September 9th Standard & Poor's, which in 2008 had led
the way in upgrading Brazil to respectability, became the first agency to
downgrade the country's foreign-currency government debt back to junk. S&P
has kept Brazil on negative watch, saying it has a one-in-three chance of
sinking deeper into speculative territory.
To some
extent, S&P's decision had been priced in already. For months the cost of
insuring Brazilian government bonds against default has been higher than for
Turkish ones, which are rated as junk. Following last week's budget
announcement the real slid by 6% against the dollar.
As our
article went to press markets were nevertheless bracing for a jumpy Thursday
(S&P moved after they closed the night before). In after-hours trading in
New York, a basket of Brazilian equities lost 4%; Petrobras, the
state-controlled oil giant, saw its American-listed shares drop by 5%. Another
hint that not everything was priced in, notes Alberto Ramos of Goldman Sachs,
an investment bank, were the 200 anxious e-mails which flooded his inbox in the
hour following S&P's announcement.
Some capital
flight is inevitable. Pension and mutual funds which can only hold
investment-grade assets will now offload Brazilian government bonds at a
brisker pace, in anticipation of similar downgrades by Moody's and Fitch
(typically, two of the big three rating agencies need to declare junk status to
force divestment). This will not cripple Brazil of today, with its diversified
economy and plump foreign-exchange reserves, as it might have in more chaotic
days. But the government's already-high borrowing costs will rise further,
raising the risk of another downgrade. Capital will also become pricier for
companies. None of this will help Brazil shake off the recession it slid into
in the second quarter.
How
politicians will react is less clear. The downgrade is certainly a slap in the
face for the finance minister, Joaquim Levy, a hawkish former investment banker
brought in last year mainly to prevent it. To be fair, many of his proposed fiscal
measures, including modest cuts to welfare spending, were watered down by an
unruly Congress over which Ms Rousseff—with her popularity in single digits and
a huge corruption scandal plaguing her coalition—has no control. Only Congress
can unlock the roughly 90% of the budget that is currently ring-fenced, that it
might be sheared. S&P may yet motivate them to do so. Then again, now that
the cosh has fallen, congressmen (and ministers inimical to Mr Levy's
belt-tightening) may conclude that further austerity is pointless. It wouldn't
be the first time.
Related topics
Nenhum comentário:
Postar um comentário