The vanishing surplus

The end of the festa

WHEN Brazil won an investment-grade credit rating in 2008, Luiz Inácio Lula da Silva, the then president, compared its earlier, junk-rated incarnation to a ne’er-do-well who spends twice as much as he earns, mainly on gambling and booze. Henceforth, the president crowed in typically folksy fashion, Brazil would be a respectable worker who “looks after the family”. Yet under Lula’s protégée and successor, Dilma Rousseff, Brazil risks falling off the wagon.

On July 28th Standard & Poor’s, a rating agency, said the country may lose its cherished status if it doesn’t sober up. The warning was precipitated by the government’s decision last week to lower its targets for primary surpluses (ie, before debt-service costs) for 2015-18. The goal for this year and next shrank from 1.1% and 2% of GDP, respectively, to 0.15% and 0.7%. The target for 2017 was cut from 2% to 1.3%, even though the IMF had recently suggested that it ought to go up to 2.5%. “The government seems to have thrown in the towel on the fiscal adjustment,” complains one investment banker. The other big rating agencies are...Continue reading

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