Brazil Rating Slashed by S&P

By Douglas A. McIntyre Updated Sep 10, 6:11AM EDT · Published Sep 10, 5:10AM EDT

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Ongoing political turmoil, a scandal that has hit its huge oil company Petróleo Brasileiro S.A. (NYSE: PBR) and a tattered gross domestic product have caught up to Brazil, at least in the eyes of Standard & Poor’s. The rating agency downgraded the sovereign debt of the nation to BB+/B; Outlook Is Negative, just as powerful forces are in the midst of trying to replace President Dilma Rousseff. It is another nail in the coffin of the BRIC nations (Brazil, Russia, India and China), which were supposed to be the engine of the global economy in the 21st century.

The falling price of crude has not helped.

The rating agency’s researcher wrote:

We believe Brazil’s credit profile has weakened further since July 28, when we revised the outlook on Brazil to negative. At that time, we signaled increased execution risks to the corrective policy changes already underway, mainly stemming from fluid political dynamics in Congress associated with spillover effects from investigations of corruption at state-owned energy company Petrobras. We now perceive less conviction within the president’s cabinet on fiscal policy.

Brazil’s 2016 budget proposal tabled on Aug. 31 incorporated yet another revision to the government’s fiscal targets in a short period of time. The proposed budget is based on a primary deficit of 0.3% of GDP, rather than the previously revised 0.7% of GDP surplus target that was announced in July. This change reflects internal disagreement about the composition and magnitude of measures needed to redress the slippage in public finances.

And matters could get worse, according to S&P:

The negative outlook reflects our view that there is a greater than one–in–three likelihood that we could lower our ratings on Brazil again. We anticiapte [sic] that within the next year a downgrade could stem in particular from a further deterioration of Brazil’s fiscal position, or from potential key policy reversals given the fluid political dynamics, including a further lack of cohesion within the cabinet. A downgrade could also result from greater economic turmoil than we currently expect either due to governability issues or the weakened external environment.

The primary solutions to this may be the removal of Rousseff, and the recovery of oil prices to a level above $50 a barrel. Otherwise, Brazil is in for a long, hard road.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.