Brazil - Economic Outlook

1. Brazil - Economic Outlook OECD, Paris December 2008

2. Brazil Recent Performance

3. Sustainable growth rates with inflation under control GDP:Annual Real Variation (%) * BNDES (forecast). Source:IBGE.

4. Proper management of the public debt • Declining net debt Net External Debt – US$ billion • A net foreign creditor International Reserves: US$ 206.65 billion (26 Nov´08) Source: Banco Central

5. Low leverage in banking credit Total Credit (% of GDP) - Brazil • Credit / GDP has been growing in recent years…. Total Credit and Mortgage (% of GDP) • ….but it is still far below developed countries. Sources:Central Banks, IMF and World Bank.

6. Major impacts of the international crisis in Brazil

7. International crisis impact and Government´s response Since Sep´08, as a consequence of the global crisis, local liquidity has fallen. Immediate measures have been taken. RESPONSES IMPACTS • Temporary liquidity swap facilities with FED (US$ 30 billion) • Currency swap auctions • Short term export trade finance • Currency depreciation • Shortage of short-term export trade lines (ACCs) • Pressure on the interbank market • Liquidity constraint faced by small and medium-sized banks • Reserve requirements over local banking deposits have changed • Increase in local credit costs • Decrease in industrial output • Expectations: reduced 2009 GDP prospects • Decrease in commodity prices • Short term / Long-term finance provided by public banks • Mantainance of long-term investments (PAC) Liquidity in local credit market Liquidity in Foreign Currency Market

8. Some highlights on immediate responses... • Short term export trade finance • Central Bank is investing a small part of its international reserves in credit lines to local banks (onlending to exports) • BNDES announced a credit line of R$ 5 billions to trade finance • Reserve requirements over local banking deposits • Decreased • Loan portfolios and interbank deposits bought from smaller banks can be used instead of local Treasuries • Short term / Long-term finance provided by public banks • New BNDES lines for working capital (R$ 6 billions) • Agribusiness: Treasury announced renegotiation (BB is the main agent) and increased the amount directed to agriculture. • Housing and construction: additional support mainly from Caixa ACTIONS TAKEN OVER LIQUIDITY ISSUES NO SYSTEMIC SOLVENCY ISSUES IN BRAZIL

9. Some comments on permanent actions Despite the severity of international crisis, Brazil have the tools to overcome this critical stage and keep economic growth: • Brazilian public sector significantly deleveraged in foreign currency terms • Room to reduce reserve requirements over local banking deposits • Room to reduce interest rate • PAC (Growth Acceleration Program) • Strategic role of public banks

10. PAC: assuring investment on infra-structure *R$/US$ = 1.94 BNDES in PAC: 198 projects Associated investments – US$ 73 billion BNDES financing - US$ 36 billion

11. Public Banks: important source of domestic credit Top 3 Public = BB, BNDES & Caixa Top 3 Private = Bradesco, Itaú & Unibanco Top 3 Foreign = ABN Amro, HSBC & Santander Source:Central Bank Data of June 2008. OBS: There are two ongoing merger processes: ABN Amro / Santander and Itaú / Unibanco. Relevant sources of BNDES and CAIXA´s funding come from GOVERNMENT-ESTABLISHED FUNDS: BNDES: FAT (sources must be driven to create jobs) Caixa: FGTS (sources must be driven to sanitation & building construction)

12. Final Remarks

13. Future prospects • Infrastructure investment will lead growth of GDP • Key drivers: • Solid public sector • A healthy and capitalized banking system • Relevant role of public banks • Large number of high return/low risk projects in infrastructure (PAC) • A resilient and lean corporate sector

14. BRAZIL: ECONOMIC OUTLOOK Maria Isabel Aboim Deputy CFO Brazilian Development Bank - BNDES OECD, PARISDecember 2008