Brazil Is Resilient to Commodities Drop, Fitch Says (Update1)
By Fabiola Moura
June 5 (Bloomberg) -- Brazil's export diversity makes it less vulnerable than other commodity producers to a decline in international prices for raw materials, said Shelly Shetty, a senior director at Fitch Ratings in New York.
``No one is forecasting a huge hit in commodities prices, but if it happens, Brazil is in a better position to absorb the shock'' than other commodities producers like Peru and Kazakhstan, Shetty said at a presentation at the Brazil-American Chamber of Commerce in New York.
Fitch last week raised Brazil's foreign debt rating to investment grade, following an increase by Standard & Poor's a month earlier, as record commodity exports bolster foreign reserves and growth in Latin America's biggest economy.
Brazil, once the world's largest emerging-market debtor, became a net foreign creditor for the first time in January. The economy expanded 5.4 percent in 2007, the fastest rate in three years, buoyed by rising exports and falling interest rates.
Concerns about Brazil's rising inflation rate led the central bank to increase interest rates to 12.25 percent from 11.75 percent late yesterday, matching the expectations of economists surveyed by Bloomberg. It was the second rate increase in 2008 after two years of cuts.
`A Game Plan'
``The Brazilian central bank recognizes the real problem of inflation,'' Shetty said. ``They have a game plan and they are executing it.''
Brazil's debt, roughly 67 percent of the country's gross domestic product, still is Fitch's main concern, Shetty said. The New York-based credit-ratings company believes that the country can sustain a high level of debt burden, she said.
``There are several mitigating factors, like the policy framework and external ratios,'' said Shetty.
On May 30, one day after Fitch raised Brazil's credit rating, Finance Minister Guido Mantega ordered a budget cut of 13 billion reais ($8 billion), or 0.5 percent of gross domestic product, to be put in a proposed sovereign wealth fund. Shetty believes it would be better to cut debt, but the creation of the sovereign fund is ``the second best option. The good news here is that they are not spending the money.''
To contact the reporter on this story: Fabiola Moura in New York at fdemoura@bloomberg.com. |
