Fitch Rates Brazil's Upcoming 20-Year US$-Denominated Global Bonds 'BB-'.

NEW YORK -- Fitch Ratings, the international rating agency, today assigned a prospective 'BB-' rating to the upcoming 20-year, US$-denominated global bonds to be issued by the government of Brazil. Brazil's sovereign ratings reflect the ongoing strong international trade performance of South America's largest economy, its declining public and external debt burdens, and a demonstrated commitment to sound macroeconomic policies. The Rating Outlook is Stable.

Exports have expanded 32% in 2004 over 2003, reflecting both price and volume increases and growth in a broad array of manufactured and primary exports to diverse destinations. Brazil's trade surplus has exceeded most expectations this year, at US$33.7 billion, yielding a current account surplus of approximately 1.9% of GDP. Economic growth has proceeded apace, with Fitch estimating a 5% expansion 2004, moving imports up markedly, but not creating substantive balance of payments pressures. As domestic demand and imports grow more briskly in 2005, the trade and current account surpluses can be expected to narrow.

External financing needs, which Fitch forecasts at US$32 billion this year, up about US$5 billion from 2004 due to an expected narrowing current account surplus, remain heavy due to the legacy of past borrowing. Nevertheless, the net external debt burden is estimated at 125% of broad exports at year-end 2004, down from a high of 308% in 1999, but likely to fall below 100% over the next two years.

The fiscal authorities continue to outperform their fiscal targets, with the public sector primary surplus totaling 4.61% of GDP in 2004, yielding a nominal deficit of 2.68%, down from 5.08% in 2003. The authorities raised the full-year 2004 target to 4.5% of GDP in September, though the 2005 target remains at 4.25%, which is nonetheless 0.5% of GDP higher than the previous government's target. Exceptional tax performance has been underpinned by the economic upturn as well as by the reform of the Cofins (social security) tax in 2003.

With this as a backdrop, Brazil's public and external debt burdens have moved down, with gross general government debt expected to be down nearly 4% of GDP from 2003 to approximately 75% of GDP by year-end 2004, though Brazil's public and external debt ratios still exceed the 'B' and 'BB' medians for these measures.