Henrique de Campos Meirelles

1
Brazil Recent Economic Developments
Henrique de Campos Meirelles April 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
Nov 02
Sep 02
Jul 02
May 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
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 Estimate
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 Exchange Rate 2002/04
4.0
3.7
3.4
Apr 16 2.91
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
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
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
Mar 04 27.2
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
change
Market
change
Market
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
Iron ore
407.7
2.3
13.4
Canada
411.9
2.3
72.8
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
77.5
75
70
65
Imports
US billion
60
55
50.3
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
US192.3 bi
160
140
120
1991
1993
1995
1997
1999
2001
2003
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
0.47
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
6.1
6.0
5.5
Jan 03
Mar 03
May 03
Jul 03
Sep 03
Nov 03
Jan 04
Apr 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
LTN (Fixed Rate Securities)
LFT
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
20
2
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
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
Apr 16 591
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
Apr 16 15.47
17
15
Jan 02
May 02
Sep 02
Jan 03
May 03
Sep 03
Apr 04
32
Real Interest Rate 1997/2004
40
36
32
Avg 04 9.3
28
Avg 97/99 21.4
p.a.
24
Avg 00/02 15.8
20
Avg 03 13.2
16
12
8
jan
jul
jan
jul
jan
jul
jan
jul
jan
jul
jan
jul
jan
jul
jan
97
97
98
98
99
99
00
00
01
01
02
02
03
03
04
33
Real Interest Rate 2003/2004
17
15.7
16
15
14
13
12.0
p.a.
12
11
10
9.4
9.4
9
8
7
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr 16
03
03
03
03
03
03
03
03
03
03
03
03
04
04
04
04
34
Sao Paulo Stock Exchange Index
Apr 19 21,567
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
Apr 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 2000/2004
106
Seasonally Adjusted Industrial Output
104
102
100
2002 100
98
96
Feb 04 Vs Jun 03 4.7 Feb 04 Vs Feb 03 2.9
94
92
Jul 00
Jul 01
Jul 02
Jul 03
Oct 00
Oct 01
Oct 02
Oct 03
Jan 00
Apr 00
Jan 01
Apr 01
Jan 02
Apr 02
Jan 03
Apr 03
Feb 04
41
Retail Sales 2000-2004
Seasonally Adjusted Retail Sales 3-Month Moving
Average
108
Jan 04 vs May 03 6.6 Jan 04 vs Jan 03 5.5
107
106
105
104
103
2003 100
102
101
100
99
98
97
Jul 00
Jul 01
Jul 02
Jul 03
Jan 00
Apr 00
Oct 00
Jan 01
Apr 01
Oct 01
Jan 02
Apr 02
Oct 02
Jan 03
Apr 03
Oct 03
Jan 04
42
Industrial Employment
101.0
100.5
100.0
Jun 03 100
99.5
99.0
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
03
03
03
03
03
03
03
04
04
43
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
44
Leading IndicatorsCorrugated Paper and Cars
Output
Seasonally Adjusted (2000100)
Cars Output
Corrugated Paper Output
130
100
125
98
120
96
115
94
110
92
105
90
100
88
95
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
03
03
03
03
03
03
04
04
03
03
03
03
03
03
04
04
45
GDP Growth
Seasonally Adjusted
1.50
0.11
1Q03
2Q03
()
3Q03
4Q03
-0.81
-0.93
Source IBGE
46
GDP x Confidence Shocks
GDP in the Aftermath of very Large FX Shocks ()
3.5
Indonesia
Thailand
Brazil
S. Korea
Malaysia
Mexico
Ecuador
Uruguay
Russia
Argentina
(2003)
(1995)
(1998)
(1999)
(2002)
(1998)
(1998)
(1998)
(1998)
(2002)
0
Brazil
-0.2
(2004)
-2
-4
-4.9
-6
-6.2
-6.3
-6.7
-7.4
-8
-10
-10.5
-10.8
-11.0
-12
-13.3
For 2004, BCB estimate.
47
Brazil Recent Economic Developments
Henrique de Campos Meirelles April 2004