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S&P cuts Brazil credit rating as pension reform doubts grow

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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.

[BRASILIA] Ratings agency Standard & Poor's cut Brazil's credit rating on Thursday as doubts grew about the result of 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 said there was 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.

Brazilian Finance Minister Henrique Meirelles had met with ratings agencies to try and stave off a downgrade after the government delayed to February a vote on pension reform that had initially been expected last year.

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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.

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.

A spokesman for Brazil's central bank declined to comment. The finance ministry did not immediately comment.

"This was already on the horizon as a possibility, given the process around the pension vote," said Wellington Moreira Franco, secretary-general for President Michel Temer's office."I think it's a warning of the economic and social consequences of not approving pension reform."

REUTERS