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Standard & Poor’s

Brazil ‘BBB-‘ Long-Term Foreign Currency Rating Affirmed;

Outlook Remains Stable

April 06, 2009

Standard & Poor’s Ratings Services today said it affirmed its ‘BBB-/A-3’ long- and short-term foreign currency sovereign credit ratings on the Federative Republic of Brazil. At the same time, Standard & Poor’s affirmed its ‘BBB+/A-2’ long- and short-term local currency ratings on Brazil. The outlook on both of the long-term ratings remains stable. We also affirmed our ‘BBB+’ transfer and convertibility assessment and our ‘brAAA’ national scale rating on Brazil.

“The low investment-grade rating on Brazil remains supported by a solid commitment to prudent macroeconomic policies during times when the international credit crunch and global economic slowdown have significantly affected the local economy,” said Standard & Poor’s credit analyst Sebastián Briozzo. “The reaffirmation of this commitment remains critical for Brazil to protect the recent improvement in fundamentals and to regain a sustainable growth trajectory once the global economy stabilizes.”

President Lula’s strong popularity likely will facilitate the implementation of policy to deal with significant economic challenges in 2009. However, “challenges will continue in 2010, a year with presidential elections, as the economy recovers only gradually,” said Mr. Briozzo.

Despite Brazil’s improved fundamentals, economic activity was significantly affected by global financial instability. Accordingly, growth estimates for 2009 have been revised downward recently. “We now expect Brazil’s GDP to decline by about 1% in 2009, compared with 5.1% growth in 2008,” said Mr. Briozzo.

Although complying with the government’s primary surplus target will be increasingly challenging because of the underperformance of fiscal revenue, we expect longer-term implications for debt sustainability to be contained. Standard & Poor’s expects the general government deficit to reach 3.0% of GDP in 2009, deteriorating only slightly compared with a deficit of 2.1% in 2008. This assumes a primary surplus for the nonfinancial public sector of 2.0% of GDP in 2009, less than the government reaffirmed target of 3.3% of GDP (3.8% when excluding some capital investment projects in the government’s target calculation).

“The government’s relatively high debt level and still-high interest burden remain major weaknesses to the ratings on Brazil,” said Mr. Briozzo. “These two factors will require fiscal responsibility over the medium term.” In addition, the remarkable reduction in Brazil’s external vulnerabilities provides additional cushion to weather the negative shock.

Standard & Poor’s outlook on Brazil remains stable, reflecting the greater degree of macroeconomic flexibility Brazil has accumulated over the past five years, particularly on the external side, to deal with the growing challenges from the international financial crisis and its effects on the local economy. Nonetheless, given Brazil’s remaining vulnerabilities, particularly on the fiscal side, a strong commitment to prudent macroeconomic policies remains fundamental to contain any worsening of Brazil’s credit quality.

Analytic services provided by Standard & Poor’s Ratings Services (Ratings Services) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. The credit ratings and observations contained herein are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor’s may have information that is not available to Ratings Services. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process.

Ratings Services receives compensation for its ratings. Such compensation is normally paid either by the issuers of such securities or third parties participating in marketing the securities. While Standard & Poor’s reserves the right to disseminate the rating, it receives no payment for doing so, except for subscriptions to its publications. Additional information about our ratings fees is available at

By: Sebastian Briozzo, Primary Credit Analyst and Lisa M Schineller, Secondary Credit Analyst

Source: Standard & Poor’s (

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