Moody's Says Whoever Wins Brazil's Elections Will Pass Reforms

(Bloomberg) -- Moody’s maintained Brazil’s credit rating, but revised its outlook to stable from negative, on expectations that whoever wins October’s elections will pass fiscal reforms.

In a surprise move Moody’s said on Monday that Brazil’s next government will have to comply with the public spending ceiling implemented by the current administration. That should force whoever is in power to come up with much needed economic reforms, Samar Maziad, a senior analyst at Moody’s Investors Service, said in a phone interview after the statement was published.

Brazil’s finance ministry said the decision was due to the actions taken by the economic team since May 2016, following the impeachment of President Dilma Rousseff.

Moody’s pronouncement is at odds with widespread investor concern over the outcome of October’s elections and the trajectory of economic policy from 2019 onward. After the Supreme Court paved the way for ex-president Luiz Inacio Lula da Silva’s arrest, local assets rallied. As the election front-runner, Lula had spooked investors with his pledge to roll back economic reforms. But the rally soon fizzled, as even with Lula likely out of the running, the winner of the vote is far from clear.

The ex-president’s not the only cause for concern. The economic thinking of Joaquim Barbosa, a former Supreme Court judge many consider a possible contender for the presidency, is largely unknown. Over the weekend he joined the PSB political party, holding out the possibility he is thinking about a run for Brazil’s top job.

"No one knows who is going to be in Joaquim Barbosa’s economic team," said Luiz Eduardo Portella, a partner-manager at Modal Asset. "As he is competitive, this is scary."

--With assistance from Rachel Gamarski

To contact the reporters on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net, Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net.

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Bruce Douglas, Raymond Colitt

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