In This Issue: Brazil Poised To Shape Its Future As Elections Loom: In the four years since the last presidential election in 2002, Brazil has made remarkable progress. The financial turmoil of that year's second half had extremely negative implications for credit quality across the spectrum. Since the last election, however, the government's continuation of sound macroeconomic policies resulted in reduced fiscal and external vulnerabilities, and four years later, Brazil's sovereign credit ratings are the highest they have ever been. Challenges Facing Brazil's Next Government: Passing and implementing challenging policy or reform measures often are more difficult absent an economic crisis. The still-abundant global liquidity conditions also mean that investors are less discerning and are imposing less pressure-at least for now-for further policy improvement. Brazilian Banks Are Prepared For Growth: The Brazilian banking industry has had two major problems for a very long time: the low level of financial intermediation and extremely high banking spreads. Both are difficult to solve in the short term, but the government is expected to keep working hard to maintain a positive trend in coming years. Brazilian Industrials Have Come A Long Way And There Is Still More To Do: While many of the Brazilian entities that we rate compare well with their international peers in terms of operating efficiency and cost competitiveness, the overall ratings on these entities are, and will continue to be, strongly tied to the risks of operating in Brazil, the so-called country risks. Regulatory Framework Fosters Improved Credit Risk For Brazilian Electric Sector: After the Brazilian electric utilities' privatization in the late 1990s (which affected mostly distributors), the entire sector went through three stages related to the debilitating electricity rationing that began in 2001: prerationing (1997-2001), rationing (2001 to mid-2003), and postrationing (from mid-2003). However, the industry has gone through a substantial transformation since 2004. The Next Big Step For Brazilian Securitization: Structured finance was an intimidating concept to Brazilian investors not too long ago. But once the market came to better understand and mitigate the various risks associated with structured bonds, domestic and foreign investors began arriving en masse. | 
