Brazil's president says economy will recover, avoid credit downgrade

  • Business
  • Wednesday, 29 Oct 2014

RIO DE JANEIRO:  Newly re-elected President Dilma Rousseff said on Tuesday that the Brazilian economy will recover in her second term and avoid a downgrade of its credit rating.

In television interviews two days after narrowly defeating market darling Aecio Neves, Rousseff repeated her offer to sit down with business leaders to hear their views on the state of the economy and discuss changes in policy.

Earlier on Tuesday, a senior analyst at Moody's Investors Service said the ratings agency was in no rush to decide whether to cut Brazil's rating but could act quickly if it determines that Rousseff is not making significant changes in her second term.

"Brazil is going through a situation that is still difficult, but we can overcome this if we all join together with the clear aim of restoring economic growth," she said in an interview with the Bandeirantes television network.

"Up to now, there is no indication that there will a reduction of the investment grade in the immediate future," she added.

Rousseff faces the daunting task of regaining investor trust in her management of a stagnant economy afflicted by high inflation and deteriorating fiscal accounts.

Rousseff mentioned reforms of Brazil's onerous tax system but gave no other details of her plans and declined to discuss who she might name as Brazil's next finance minister.

Some investors are hopeful that the threat of a credit downgrade next year will force Rousseff to adopt more market-friendly policies to lift confidence

"There is now the view that the near-term outlook may not be as bad as expected," Aryam Vasquez, economist with Oxford Economics, said in a note to clients. Vasquez said there is growing evidence a second Rousseff mandate could put more emphasis on fiscal discipline and inflation targeting.

Less than two months after Moody's threatened to downgrade Brazil if the government did not change tack, agency analyst Mauro Leos gave a potential vote of confidence to Rousseff's pledge for "new government, new ideas."

"If there is a new team, a new policy, a new approach, it's only fair for us to see how their plan is and how they implement their programs," Leos told Reuters from New York.

"We don't have to rush to a decision. We can wait anywhere from 12 to 18 months to reach a final conclusion as to whether conditions are improving or not."

Rousseff's narrow victory underscores the challenge she will face in pleasing both those who voted for policy continuity and the skeptical private sector. Such a juggling act will be needed if she is to make much-needed investments to restore growth in Latin America's largest economy, Leos said.

Uncertainty over Rousseff's economic policies will likely linger over the next couple of months as she makes cabinet appointments that will signal if her second term will be "the same but different or just more of the same," Leos said.

"If evidence is clear at some point that the government is unable or unwilling to make sufficient changes ... then we'll be ready to take a stand."

On Sept. 9, Moody's revised the outlook on Brazil's Baa2 rating to negative, less than five weeks before the first round of presidential elections. Last month, before Rousseff was re-elected, Leos said the agency could wait until 2016 to resolve that outlook.

The country currently stands two notches into investment-grade zone for Moody's and also for Fitch Ratings, which keeps a stable outlook on its rating. So far, only Standard & Poor's has cut Brazil's government debt to the near-junk level of BBB-minus.  - Reuters

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