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| Café Brazil: FT Latin America Agenda | |
03/04/08 09:24 AM |
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Brazil as a creditor | |
| BrazilMax Moderator 365 Posts 3 Brownie Points São Paulo |
>From incorrigible debt defaulter to a proud creditor: on the surface at least Brazil has made a profound transformation over the last few years. And this week´s confirmation of the country´s change in status is one more factor that paves the way for the grant of a much coveted investment grade by international rating agencies. But the government would be unwise to go overboard with the celebrations. True, the solid build up of reserves (up nearly fourfold) since 2003 now means that Brazil has a very solid cushion to survive any volatility on international markets, a fact which has helped explain continued appreciation of its currency in recent weeks. But as Vitoria Saddi suggests in a recent article in RGE Monitor the quality of these reserves might not be so good as first appears since a significant part of them has come by virtue of portfolio investment in local stocks and bonds. Such investments tend to be volatile and could leave quite quickly were investors suddenly to lose their appetite for Brazilian risks, as a result, for example, of a downturn in commodity prices. Since on a gross basis external debt has not fallen by much - it has dropped by less than 10 per cent since 2003 from $215bn to $198bn - Brazil creditor status could be more precarious than it seems. Richard Lapper
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