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UPDATE 1-S&P cuts Brazil debt rating as pension reform doubts grow

Fri 12th January, 2018 12:20am
(Adds finance ministry comment, administration source quote, 
context) 
    By Jake Spring and Lisandra Paraguassu 
    BRASILIA, Jan 11 (Reuters) - Ratings agency Standard & 
Poor's cut Brazil's credit rating further below investment grade 
on Thursday as doubts grew about a presidential election in 
October and a push to trim its costly pension system, seen as 
vital to closing a huge fiscal deficit. 
    S&P lowered its long-term rating for Brazil sovereign debt 
to BB- from BB previously, with a stable outlook, citing less 
timely and effective policymaking. S&P also cited a risk of 
greater policy uncertainty after this year's elections. 
    The decision underscored concerns that a business-friendly 
reform agenda proposed by the unpopular President Michel Temer 
may stall this year as a looming presidential race shortens the 
legislative calendar. 
    The Finance Ministry said in a statement that it would 
continue to push for an overhaul of Brazil's social security and 
tax policies, adding that S&P's decision underscored the urgency 
of those fiscal reforms. 
    Finance Minister Henrique Meirelles had met with ratings 
agencies to try and stave off a downgrade after the government 
delayed until February a vote on pension reform that had been 
expected last year.  urn:newsml:reuters.com:*:nL1N1OI1LO 
    "I think it's a warning of the economic and social 
consequences of not approving pension reform," said Wellington 
Moreira Franco, secretary-general for President Michel Temer.  
    The move by S&P brings its long-term sovereign rating for 
Brazil three notches below investment grade. Brazil is rated Ba2 
by Moody's Investors Service and BB by Fitch Ratings, both two 
notches into "junk" territory. 
    Brazil lost its investment grade rating in 2015 as the 
country headed into its deepest recession in decades and the 
government of then-President Dilma Rousseff failed to tame a 
budget deficit that exploded when a commodities boom faded. 
    The S&P downgrade "is a negative development but it was 
expected, particularly after pension reform was delayed. It's 
not breaking news for markets," said Goldman Sachs economist 
Alberto Ramos in by telephone. 
    Brazilian index fund iShares MSCI Brazil ETF  EWZ  slipped 
0.3 percent in after-market trading in New York after gaining 
1.9 percent during the session. 
    "Regarding the economic effect, we will need to observe the 
market in the coming days. But this will aid the reform effort," 
a member of Temer's economic team said on condition of 
anonymity. 
    A spokesman for Brazil's central bank declined to comment. 
    The downgrade highlights the stakes heading into this year's 
wide-open presidential election, with key fiscal measures 
hanging in the balance and voters seething after years of 
corruption scandals that tarred major political parties. 
    Many in Brazil regarded S&P's decision to award Brazil an 
investment-grade rating in 2008, then the 14th government to 
receive the distinction, as validation of the country's growing 
leadership among emerging markets. 
    Since taking office last year, Temer has vowed to regain 
Brazil's investment grade by cutting red tape, halting growth of 
public debt and privatizing state firms. 
    Yet Temer has struggled to close the deficit and was forced 
to shelve much of his reform agenda last year as he fought 
corruption charges that sank his approval rating into single 
digits.  urn:newsml:reuters.com:*:nL2N1M90R0 
 
 (Reporting by Jake Spring and Lisandra Paraguassu; Additional 
reporting by Bruno Federowski in Sao Paulo, Marcela Ayres in 
Brasilia and Kanika Sikka in Bengaluru; Editing by Brad Haynes, 
Sandra Maler and Richard Chang) 
 ((jake.spring@thomsonreuters.com; +55 61 99653-2429; Reuters 
Messaging: jake.spring.thomsonreuters.com@reuters.net / Twitter: 
@jakespring)) 
 
Keywords: BRAZIL SOVEREIGN/DOWNGRADE
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