WASHINGTON (MNI) - The following is the text of a statement by Moody's Investors Service Thursday indicating Brazil's Baa3 bond rating with a positive outlook captures an improved credit profile and favorable prospects medium-term, February 25:

In its annual sovereign report on Brazil, Moody's Investors Service indicates that the Baa3 government bond ratings with a positive outlook capture both the material improvement that has been observed in the sovereign credit profile and the presence of favorable medium-term prospects as the country is well-positioned to resume growth at a fast pace.

"Brazil's performance during the recent global turmoil confirmed its economic and financial resilience," said Moody's Vice President Mauro Leos, regional credit officer for Latin America and author of the report. "A short-lived GDP contraction, minimal weakening of the country's international reserve position and lack of financial stress in the banking system reflect increased shock absorption capacity which is consistent with the government's investment-grade ratings."

Moody's upgraded Brazil's ratings from Ba1 to Baa3 and assigned the positive outlook in September 2009, incorporating a favorable assessment of policy continuity on the fiscal and monetary fronts.

According to Moody's, Brazil's fiscal challenges include a persistent upward trend in primary spending, government debt ratios that are above peer group benchmarks --gross debt amounts to 60% of GDP -- and gross financing needs that exceed 10% of GDP.

"The government's balance sheet has strengthened steadily as an improved debt structure has significantly reduced credit exposure to exchange rate and interest rate risks," said Leos. "Foreign currency-denominated debt now accounts for less than 10% of government debt, while floating rate debt has steadily declined during the last six years to 33% at year-end 2009."

With presidential elections only a few months away, differences between the two main contenders --Jose Serra and Dilma Rousseff -- are considered to be more of style than of substance. The report reiterates Moody's view that low susceptibility to political event risk, a crucial component of Brazil's investment-grade rating, incorporates the presumption that policy continuity is likely, regardless of who wins the elections.

"The positive outlook assigned to Brazil's ratings takes into consideration that the recent episode of global financial turmoil did not seriously impact the country's medium-term prospects," said Leos. "If the policy stance builds on the progress made in previous years, the deterioration reported in government debt indicators during 2009 could be reversed, increasing the probability that Brazil's sovereign ratings could be placed on review for upgrade next year."

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