The ratings on the Federative Republic of Brazil are supported by: A consistent macroeconomic framework, entailing a fiscal consolidation strategy and floating exchange rate regime; A strengthened institutional environment, including the smooth political transition to a Partido dos Trabalhadores (PT) government in 2002-2003; and A significant portion of government debt issued domestically, in local currency, and held by residents. The ratings are constrained by: A large general government debt burden (51% of GDP), and composition of domestic debt that is vulnerable to interest-rate movements and short-term; An external position that, although improving, remains vulnerable due to a high stock of external debt and an export base of only 20% of GDP; and Structural economic and institutional weaknesses, which limit investment
