By Jeffrey T. Lewis and Will Connors
SÃO PAULO--President Dilma Rousseff got a big break on Monday
night when Standard & Poor's Ratings Services maintained
Brazil's investment-grade credit rating, but Friday's coming report
on economic growth is expected to bring the embattled president
more bad news.
Ms. Rousseff, who was re-elected last October, has seen her
approval rating plummet, as the stagnant economy, her government's
efforts to raise taxes and cut spending and a corruption scandal at
state-controlled oil company Petroleo Brasileiro SA have undercut
her standing with voters.
The kickbacks-and-bribery scandal at Petrobras is weighing on
the Brazilian economy, S&P analysts said in a conference call
on Tuesday. Earlier this week, S&P lowered its outlook for the
oil company, but held back from downgrading its credit rating. Last
month, Moody's Investors Service downgraded Petrobras' debt to junk
status.
Petrobras is an investment powerhouse which traditionally has
been responsible for about 10% of total annual business investment
in the country. But the scandal has pushed the company to slash
spending in that vital area. "The Petrobras story is frustrating
the growth story," explained Lisa Schineller, managing director for
Latin America at S&P.
Ms. Rousseff dodged a bullet with S&P's decision on Brazil's
sovereign debt. A downgrade would have pushed the country's rating
down into junk status, raising borrowing costs. It would also have
been a blow to the president's battered prestige and to her efforts
to improve the government's fiscal situation and to restore
confidence in its economic policy.
S&P cited those efforts when it maintained its "BBB-"
long-term foreign currency sovereign credit rating and its "A-3"
short-term foreign currency rating, both with a stable outlook.
The ratings company said it expects Ms. Rousseff and Brazil's
Congress to continue supporting the politically difficult austerity
program proposed by Finance Minister Joaquim Levy.
Mr. Levy has announced tax increases and spending cuts, but many
of the measures will require congressional approval at a time of
growing tension between the president and Congress. "Clearly here
key policy initiatives are being engineered," said Ms. Schineller.
"We'll be looking for execution in the rest of the year."
S&P also highlighted challenges posed by the country's weak
economy. Brazil's statistics agency will release on Friday its
report for gross domestic product in 2014, and economists expect it
to show a contraction. GDP will also shrink in 2015, by about 1%,
according to a weekly survey of economists carried out by the
central bank. If that comes to pass, it would mark Brazil's first
back-to-back annual GDP contraction since the Great Depression.
Brazilian central bank President Alexandre Tombini echoed some
of S&P's assessment about the weak economy in testimony in the
country's Senate on Tuesday, saying Brazil is passing through an
important and necessary adjustment and that 2015 will be a year of
transition.
"The government is proposing and adopting deep and wide fiscal
changes with spending cuts," he said. "This will contribute to the
transition being fast" and to the benefits arriving quickly.
-- Luciana Magalhaes in São Paulo contributed to this
article.
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