Jeremy Warner's Outlook: Brazil secures investment grade

So that's the Brazilian economic miracle over then. The credit rating agencies have become so discredited by failure to anticipate the mortgage-backed securities meltdown, that it now seems entirely reasonable to think the opposite of whatever they say. Thus a triple A rating should logically be read as junk, while junk may actually be lower risk than what the agencies think justifies investment grade.

What, then, to make of Standard & Poor's decision to raise its credit rating on Brazil from junk to investment grade? This is quite a milestone for Brazil, a country more often associated with hyper-inflation, military dictatorship, debt default, transvestites, thongs, fugitive train robbers, extreme bikini waxing and carnival than a safe place for your money.

None the less, things have changed markedly in recent years, and greatly assisted by the commodities boom, Brazil is today one of the world's most important emerging market economies. Far from being another Hugo Chavez, Luiz Inácio Lula da Silva, President of Brazil since 2002, has proved himself the capitalists' friend, with a whole series of market-based reforms which have resulted in a relatively stable economic outlook.

Brazil is not as strongly growing as China and India, and inflation is on the rise, but Government debt does at least now seem to be under control, there's an independent central bank, fiscal policy is more transparent than it used to be, and of course unlike China, Brazil is self sufficient in food and natural resources. The recent discovery of oil in significant quantities further bolster its credentials as a "lucky nation", a bit like Australia.

The result is substantial inflows of foreign investment and a stock market which, unlike almost everywhere else in the world, is still hitting new highs. The public sector remains big and entrenched and there are all the usual problems associated with developing countries – high rates of poverty and poor levels of education. "Custo" Brazil (corruption) remains a severe constraint on market-led growth.

Much of Brazil's new-found prosperity and wealth is down to the commodities boom. Once that goes pop, the country could easily sink back again. Even so, there seems rather more reason to trust Standard & Poor's new-found faith in Brazil than its assessment of American sub-prime mortgage lending.