Fitch downgrades Brazil, Meirelles calls for credible targets

Thu May 5, 2016 9:24pm EDT
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By Alonso Soto and Aluisio Alves

SAO PAULO (Reuters) - Fitch Ratings downgraded Brazil's sovereign debt further into junk territory on Thursday, citing a deeper-than-expected economic contraction and changing fiscal targets that have undermined credibility.

Fitch downgraded Brazil to BB from BB+ with a negative outlook a week before a Senate vote that is expected to lead to the ouster of unpopular leftist President Dilma Rousseff.

Henrique Meirelles, a likely finance minister if Vice President Michel Temer becomes president, said the first step Brazil must take is to establish realistic targets.

"Everyone increasingly needs to know that what is signaled, what is declared a goal or a target, will be achieved," he said during a televised interview with Globo News.

The ratings agency in December had stripped Brazil of its investment-grade status in what was a bitter reversal for Latin America's largest economy, seven years after a commodities-fueled boom helped propel it to the coveted top rating.

Fitch said the outlook had weakened further since December, with a 3.8 percent economic contraction expected in 2016 due to "the high level of political uncertainty" as well as deteriorating labor markets and a slowdown in Brazil's top trading partner, China.

If the Senate votes on May 11 to try Rousseff on charges of allegedly manipulating budget accounts, as expected, she will immediately be replaced by Temer during the six-month trial.

"This (downgrade) is due to lack of fiscal control and the absence of political and economic direction in the country," Andre Perfeito, chief economist with Gradual Investimentos. "The arrival of Temer is not being seen as the solution to the fiscal problems which are very deep given the fall in revenues."   Continued...

The Fitch Ratings logo is seen at their offices at Canary Wharf financial district in London,Britain, March 3, 2016.  REUTERS/Reinhard Krause