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Henrique de Campos Meirelles Febraban – Lima, March 2004

Brazil: Recent Economic Developments. Henrique de Campos Meirelles Febraban – Lima, March 2004.

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Henrique de Campos Meirelles Febraban – Lima, March 2004

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  1. Brazil: Recent Economic Developments Henrique de Campos Meirelles Febraban – Lima, March 2004

  2. I. The 2002 Confidence Crisis II. Economic Policy in 2003/2004: a. Fiscal Responsibility b. The External Adjustment b. Disinflation d. Improving Public Debt ProfileIII. Current Outlook of the Brazilian EconomyIV. Towards Sustained Economic Growth

  3. I. The 2002 Confidence Crisis

  4. Sudden Stop Capital Inflows(*) (US$ billion) 70 60 52.8 50 40 36.9 30 25.5 23.2 20 10 0 2004 BCB forecast 2001 2002 2003 (*) FDI , medium and long term loans (excluding loans to the Central Bank)

  5. The Inflation Risk: 2002 Monthly IPCA Annualized 42.9% p.a. 45 40 35 30 25 % p.a. 20 15 10 5 0 Jan 02 Mar 02 May 02 Jul 02 Sep 02 Nov 02

  6. II. The Economic Policy in 2003/2004: a. Fiscal Responsibility

  7. Fiscal Responsibility • New Government committed to long-term fiscal sustainability: • - Increase in the consolidated public sector primary surplus to 4.25% of GDP. • - Approval of the social security reform. • - Approval of the tax reform. • - Extension to 2007 of tax on financial transactions and of delinking of central government revenues. • - Fiscal surplus is no more dependent on extraordinary revenues.

  8. Primary Surplus 12-Month, Accumulated 7 6 5 4 4.19 3 % of GDP 2 1 0 -1 -2 Jul 94 Jul 95 Jul 96 Jul 97 Jul 98 Jul 99 Jul 00 Jul 01 Jul 02 Jul 03 Jan 95 Jan 96 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04

  9. Net Public Sector Debt 1995-2010 60 55 50 45 40 43.7% % GDP 35 30 Banco Central Estimative 25 20 1995 1997 1999 2001 2003 2005 2007 2009 2010

  10. II. The Economic Policy in 2003/2004: b. The External Adjustment

  11. Nominal ExchangeRate: 2002/04 4.0 3.7 3.4 Mar 24 2.93 3.1 Basis Points 2.8 2,. 2.2 Mar 02 Jun 02 Set 02 Dez 02 Mar 03 Jun 03 Set 03 Dez 03 Mar 04 Source: Bacen

  12. Exchange Rate Volatility Moving Average of 21 days 25 20 15 % p.a. 10 5 0 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 Fonte: Bacen

  13. Current Account 10 4.1 5 0.2 0 -5 -10 -7.7 US$ billion -15 -20 -18.4 -25 -23.2 -23.5 -24.2 -25.3 -30 -30.5 -35 -33.4 -40 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004* * BCB forecast

  14. Trade Balance 24 25 20 15 10 US$ billion 5 0 -5 -10 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004* * BCB forecast

  15. Trade Balance 12-Month, Accumulated 25 Feb 04 26.1 20 15 Highest trade balance surplus ever recorded 10 US$ billion 5 0 -5 -10 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04

  16. Export Growth Diversification Growth by Market and by Product: 2000/2003 Absolute change Absolute change Market % change Market % change USD million Part Part USD million United States 3,511.9 19.5% 26.6% Soybean 2,102.6 11.7% 96.1% China 3,447.3 19.2% 317.7% Petroleum Oil 1,963.3 10.9% 1,238.0% Netherlands 1,449.5 8.1% 51.8% Soy products 951.9 5.,3% 57.7% Russia 1,077.2 6.0% 254.7% Chicken 904.0 5.0% 112.2% Mexico 1,030.0 5.7% 60.2% Autovehicles 887.5 4.9% 50.2% South Corea 642.3 3.6% 110.6% Fuel Oils 744.9 4.1% 285.0% Chile 634.1 3.5% 50.9% Raw Soy Oil 742.3 4.1% 247.8% Germany 610.0 3.4% 24.2% Cow meat 651.2 3.6% 129.4% Iran 576.3 3.2% 196.8% Engines 610.3 3.4% 57.4% Spain 543.2 3.0% 53.9% Raw Sugar 588.5 3.3% 77.3% South África 431.0 2.4% 142.7% Iron/steel products 550.8 3.1% 64.1% Canada 411.9 2.3% 72.8% Iron ore 407.7 2.3% 13.4% Others 3,633.8 20.2% 55.9% Others 6,893.6 38.3% 16.5% Total 17,998.6 100.0% 32.7% Total 17,998.6 100,0% 32.7%

  17. Trade Balance 12-Month, Accumulated 75 74.8 70 65 Imports US$ billion 60 55 48.7 50 Exports 45 Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04

  18. Net Foreign Direct Investment 32.8 35 28.9 28.6 30 22.5 25 16.6 20 US$ billion 13.0 15 10.1 10 5 0 2004* 1998 1999 2000 2001 2002 2003 * BC forecast

  19. External Debt (Excluding IMF) 260 240 220 200 US$ billion 180 US$192.3 bi 160 140 120 1991 1993 1995 1997 1999 2001 2003 * BC forecast

  20. Net International Reserves (IMF criteria) 29 Central Bank announces policy of accumulation of reserves 27 25 23 21.2 US$ billion 21 19 17 15 13 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Feb 04

  21. II. The Economic Policy in 2003/2004: c. Disinflation

  22. Inflation Rate: IPCA 2002/04 Monthly Rate Annualized 45 40 35 30 25 % p.a. 20 15 10 5 0 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Feb 04

  23. Market Inflation Expectations for 2004 IPCA (median) 8.5 8.0 7.5 % 7.0 6.5 6.0 6.0 5.5 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04

  24. Inflation expectations IPCA in the next 12 months 13 12 11 10 9 % 8 7 6 5.5% 5 4 Mar 04 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03

  25. II. The Economic Policy in 2003/2004: d. Improving Public Debt Profile

  26. FX Debt Rollover Rate % of FX Debt Rollover Rate (including swap) Principal + final coupon 100 90 80 70 60 % 50 40 30 20 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 03 03 03 03 03 03 03 03 03 03 03 03 04 04 04

  27. Average Tenure Domestic Public Debt Average Tenure of Securities Issued LFT LTN (Fixed Rate Securities) 13 60 12 50 11 Months 40 10 30 9 20 8 10 7 6 0 Feb Apr Jun Aug Oct Dec Feb Feb Apr Jun Aug Oct Dec Feb 03 03 03 03 03 03 04 03 03 03 03 03 03 04 Fonte: Bacen

  28. Public Debt Prefixed Debt / Total Debt Debt Indexed to the Exchange Rate / Total Debt 13.6 13 42 12 40 11 38 10 36 9 34 8 32 % 7 30 6 28 5 26 4 24 19.0 3 22 2 20 18 1 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Feb Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Feb 02 02 02 02 02 02 03 03 03 03 03 03 04 02 02 02 02 02 02 03 03 03 03 03 03 04 Fonte: Bacen

  29. III. Current Outlook of the Brazilian Economy

  30. Brazil Risk: 2003/2004 1,450 1,350 1,250 1,150 1,050 950 Basis Point 850 Mar 25 577 750 650 550 450 350 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04

  31. Swap 360-day Rate 33 31 29 27 25 % 23 21 19 17 15 Jan 02 May 02 Sep 02 Jan 03 May 03 Sep 03 Mar 04

  32. 38 33 Average 2004 = 9.3% The smaller rate of pós-PlanoReal period 28 Average 97/99 21.4% 23 % p.a. Average 00/02 15.8% 18 Average 03 13.2% 13 8 Jul 99 Sep 98 Sep 03 Feb 04 Jan 97 Fev 99 Jan 02 Jun 97 Jun 02 Apr 98 Apr 03 Oct 00 Dec 99 May 00 Aug 01 Nov 97 Nov 02 Mar 01 Real Interest Rate: 1997/2004 Fonte: Bacen

  33. Real Interest Rate – 2003/2004 17 16 15 14 13 % p.a. 12 11 9.4% 10 9 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Mar 03 03 03 03 03 03 03 03 03 03 03 03 04 04

  34. Sao Paulo Stock Exchange Index Mar 25 21,721 24,000 22,000 20,000 18,000 Basis point 16,000 14,000 12,000 10,000 8,000 Feb 02 Jun 02 Oct 02 Feb 03 Jun 03 Oct 03 Feb 04

  35. Private External Debt: Rollover Rate 6-Month Moving Average 160 140 120 100 % 80 60 40 20 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Feb 04

  36. Resilience to Shocks • Brazil is currently in much better shape to deal with adverse external shocks, compared to mid-90s and early-00s: • External adjustment • Fiscal adjustment and structural reforms

  37. Interest Payments/Exports 40 36.4 36 32 % 28 26.7 24 19.9 20 1996 1997 1998 1999 2000 2001 2002 2003 2004* * 2004 - BCB forecast

  38. Net External Debt/Exports 4.0 3.6 3.5 3.0 2.5 2.0 2.1 2.0 1.5 1.0 1996 1997 1998 1999 2000 2001 2002 2003 2004* * 2004 - BCB forecast

  39. IV. Towards Sustained Economic Growth

  40. Industrial Output: 1996/2003 Quarterly Seasonally Adjusted Industrial Output 135 130 125 1991 = 100 4Q03 Vs 2Q03: +5.1% 2H03 Vs 1H03: + 2.2% 120 115 110 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q4 96 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 Source: IBGE

  41. Retail Sales: 2000-2003 Quarterly Seasonally Adjusted Sales 101 100 99 98 4Q03 Vs 2Q03: +3.4% 2H03 Vs 1H03: + 2.1% 97 2000 = 100 96 95 94 93 92 1Q 00 2Q 00 3Q 00 4Q 00 1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03 4Q 03 Source: IBGE

  42. Wages in Industry Seasonally Adjusted Real Wage May 2003 = 100 108 107 106 105 104 103 102 101 100 99 98 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03

  43. GDP Growth Seasonally Adjusted 1.50 0.11 1Q03 2Q03 (%) 3Q03 4Q03 -0.81 -0.93 Source: IBGE

  44. GDP x Confidence Shocks GDP in the Aftermath of very Large FX Shocks (%) +3.5 Indonesia Thailand Argentina Uruguay Malaysia S. Korea Ecuador Mexico Russia Brazil (2003) (1998) (1995) (1998) (2002) (2002) (1998) (1998) (1998) (1999) 0 Brazil -0.2 (2004) -2 -4 -4.9 -6 -6.3 -6.2 -6.7 -7.4 -8 -10 -10.5 -10.8 -11.0 -12 -13.3 * For 2004, BCB estimate.

  45. Brazil: Recent Economic Developments Henrique de Campos Meirelles Febraban – Lima, March 2004

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