US Credit Rating Brazil Impact

The U.S. Congress voted last Tuesday to raise the U.S. debt ceiling hoping this will lower risks for the government and investors in Brazil.  Local authorities are reviewing their options for responding to the numerous potential impacts of the accord according to Brazil’s Vice Finance Minister, Nelson Barbosa.

In a series of speeches after the announcement of a new package of local industrial incentives, the VFM stated great relief that U.S. politicians made the choice to end the lengthy conflict over the matter of the debt ceiling and crisis. ”This measure resolves a political impasse and makes it clear that there won’t be a radical solution such as a default,” Barbosa said. “As such, it diminishes uncertainties.”

The U.S. Senate gave their final agreement to a proposal that would raise the U.S. debt ceiling by somewhere close to $2.4 trillion from its current $14.29 trillion.  The U.S. Congress’ refusal to come to an agreement about all of this in the past months created widespread financial sress in countries the world over including Brazil, which holds massive volumes of foreign reserves in U.S. dollars and also uses the U.S. currency as a reference for trade and exchange values. (See direct tv channel)

Barbosa last week was careful to explain it was still too early for the Brazilian government to isolate any potential repercussions the U.S. legislative deal might bring about, but said that local authorities expected greater budget restrictions in the U.S. will be helpful in restoring good faith between the two countries.

“We’re still studying what the effects will be,” he said. “The impact is to depend chiefly on U.S. growth, and indirectly on U.S. and international interest rates. This is the main transmission channel for decisions taken there in relation to Brazil.”

Brazil must be careful, as must all countries now. in its dealings with the U.S.  The United States economy is still weak and no significant growth is expected under the current administration.  The 2012 elections are the next bright ray of hope, provided that a republican candidate with sound financial policies is elected.