Brazil’s rating downgrade caught the government off-guard

Early on Thursday afternoon, Finance Minister Henrique Meirelles used Twitter to celebrate an article by The Financial Times. The piece highlighted how Brazil’s auto exports had risen by 46 percent in 2017. “Brazil is exporting more cars, with better prices and better quality,” says the FT article. Minutes later, however, Meirelles got the news that ratings agency S&P had downgraded Brazil further into junk territory.

S&P cut Brazil’s credit rating from BB to BB- over the government’s struggles to approve an overhaul of the country’s costly pension system. The downgrade reflects how markets have grown skeptical of the government’s ability to pass its business-friendly (but unpopular) agenda. As the country holds its general elections in October, many congressmen might prefer to avoid approving pieces of legislation that could cost them votes.

S&P analyst Lisa Schineller released a statement justifying the decision. “Despite...