On July 2, 2002, Standard&Poor's lowered its long-term local currency sovereign credit rating on the Federative Republic of Brazil to 'BB' from 'BB+', and its long-term foreign currency rating to 'B+' from 'BB-'. The downgrades reflect the rising public debt that further reduces fiscal flexibility. Ever-tighter fiscal management is necessary to maintain debt to GDP at current levels, given the worsening domestic debt profile and heightened market concerns over political uncertainties. Standard&Poor's believes that the government has reduced room to maneuver amid a challenging domestic and external environment both presently and after the October presidential elections. Moreover, the already weak external position is under increasing stress because of unrelenting market pressure. The negative outlook assigned to
