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Sacramento might want to call Brasilia for some advice

July 7, 2009 |  1:00 am

California, which supposedly would be the world's eighth-largest economy if it were a standalone, might need to take some lessons in financial management from Brazil, which actually is the world's eighth-largest economy.

On the same day that the Golden State's credit rating was cut one notch closer to junk status by Fitch Ratings, Brazil was told by Moody's Investors Service on Monday that the country's credit grade may be raised from junk to investment-grade -- which would further burnish the nation's status as an emerging economic and financial power.

From Bloomberg News:

Brazil’s credit ratings were put on review for an increase to investment grade by Moody’s Investors Service, which cited the country’s “demonstrated resilience to shocks” in the global economy.

Brazil-flag Moody’s placed both the country’s foreign and local ratings of "Ba1," or one level below investment grade, on review for upgrade. Moody’s is the only one of the three major rating companies that has Brazil below investment grade. Both Standard & Poor’s and Fitch Ratings raised Brazil to "BBB-minus," the lowest investment-grade rating, last year.

An investment-grade rating from all three ratings firms could lower Brazil's cost of borrowing and widen the investor audience for its debt. California is facing just the opposite: Market yields on the state's bonds have jumped over the last six weeks as the  budget crisis in Sacramento has worsened and investors have been less willing to hold the state's paper.

More from Bloomberg on Brazil:

Moody’s decision to signal it may raise Brazil to investment grade amid the global recession underscores President Luiz Inacio Lula da Silva’s success in stockpiling foreign reserves and extending debt maturities since taking office in 2003. Brazil had record reserves of more than $200 billion when the financial crisis deepened in September, allowing the central bank to sell dollars and contain [its currency's] decline while it cut interest rates to shore up a slumping economy.

The global credit crisis and recession have uncovered “underlying structural strengths” in Latin America’s biggest economy, Moody’s said.

“The Brazilian authorities’ policy response has been effective in containing the impact of the global crisis, thus providing evidence of increased resilience to shocks, a characteristic integral to an investment-grade credit profile,” Moody’s said.

The Brazilian stock market, by the way, was up 37% in the first half of the year, compared with the 1.8% gain for the U.S. Standard & Poor's 500 index.

-- Tom Petruno

Image: The Brazilian flag. The inscription reads, "Order and Progress."