* Protesters urge better public services as economy falters
* S&P may downgrade Brazil if gov't spends more, debt rises
* Decision is not imminent; move expected within 12-24 mths
By Walter Brandimarte
RIO DE JANEIRO, July 3 Nationwide protests could
force Brazil to increase spending on public services at a time
when its fiscal performance falters, Standard & Poor's warned on
Wednesday, adding however that it is in no rush to decide
whether to lower the country's debt ratings.
The ratings company, which last month said there was a
one-in-three chance the country could lose its "BBB" rating over
the next two years, said a decision on the matter will mostly
hinge on Brazil's policy response to an adverse environment of
low economic expansion and fragile investment growth.
A debt downgrade could come "if there is a greater sense of
intervention in the public sector, which will increase debt
levels," Sebastian Briozzo, S&P's lead analyst for Brazil, told
investors and journalists in a web conference.
"There is very limited room to maneuver on the fiscal side,"
Briozzo said. He added, however, that S&P "does not foresee any
rapid change" in Brazil's ratings, but intends to make a
decision in the next 12 to 24 months.
S&P was the first of the three major ratings agencies to
lift Brazil to investment grade five years ago, when the country
benefited from a commodities boom and was considered an
The company's downgrade warning last month was seen as yet
another sign of foreign investors' disappointment with Latin
America's largest economy, which seems to be headed to a third
straight year of subpar growth.
Briozzo said S&P revised Brazil's rating outlook to negative
on June 6 because "we've seen some signs of potential use of
fiscal policy in a way that is not consistent with the current
In recent months Brazil has deployed a series of tax breaks
and other fiscal stimulus, in a failed attempt to shore up the
economy. Those measures, along with weak economic growth, have
lowered Brazil's primary surplus to 1.95 percent of its gross
domestic product, less than the 2.3 percent the government has
promised to deliver.
S&P would probably be comfortable with a primary surplus of
about 2 percent of GDP, Briozzo said.
Since S&P revised Brazil's rating outlook to negative,
Brazil's political and economic outlook was complicated by an
unexpected wave of mass protests demanding better public
transport, hospitals, and schools.
S&P does not see any governability issues arising from the
protests. It believes the demonstrations may result in
additional emphasis on structural reforms, but it also worries
about the costs to meet protesters' demands for better public
"Before these events happened, the strategy was that private
investment had to take the lead, but there was no sense of
urgency," said Briozzo.
"These demonstrations have shaken the status quo, and there
could be a new sense of urgency (for reforms). How it translates
into action, we'll have to see."