Standard & Poors sees Brazilian recession in '99
Reuters, Friday, October 02, 1998 at 13:46
NEW YORK, Oct 2 (Reuters) - International rating agency
Standard & Poor's predicted on Friday that Brazil would head
into severe recession next year, but that the direct effects on
neighboring countries should be limited.
The credit-rating agency, in a conference call with
investors, said it expected Brazil to announce a financial
reform package some time this month, following a presidential
election set for Sunday.
Standard & Poor's analyst Lacey Gallagher said four years
of delays on key fiscal reforms had left Brazil's public
finances critically exposed. She said the crisis will come no
matter what policies Brazil pursues to defend its currency from
devaluation.
"Brazil is going to have a severe recession next year; it's
unavoidable," Gallagher said. "The direct effects are fairly
limited because Brazil is a fairly closed economy, and so the
imports that it buys from other countries are relatively
small."
Brazil is laboring under a budget deficit of roughly 8.0
percent of gross domestic product. Standard & Poor's gave the
nation a negative credit rating earlier this month. Gallagher
said the only thing that would improve Brazil's credit
worthiness would be long-term structural reforms.
Gallagher said she expected to see a combination of short-
and medium-term economic measures, with a leading reform being
that of social security.
"It is the biggest drain on public finances. That is the
most important thing that has to be approved by Congress,"
Gallagher said.
The Brazilian Congress only narrowly turned down social
security reform measures a few months ago and a revised plan
may get legislative approval, she said.
Gallagher said the direct effects of a Brazilian recession
on Argentina, South America's second-largest economy, would not
be severe.
She said Brazil buys less than one-third of Argentina's
exports, comprising only 3.4 percent of Argentina's gross
domestic product.
Gallagher said events in the rest of the world could have a
far deeper impact on Argentina.
Copyright 1998, Reuters News Service |
