BRAZIL : Latest Developments in Public Debt Management

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BRAZIL Latest Developments in Public Debt
Management
Fabio de Oliveira Barbosa Secretary of the
National Treasury XIV Seminar on Regional
Fiscal Policy - ECLAC Santiago de Chile, January
2002

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Brazil Macroeconomic Framework

• The Real 8 consecutive years of stable
  economic environment, in spite of several
  international crises (Mexico, Asia, Russia,
  Argentina)
• Remarkable transition to the floating exchange
  rate regime
• GDP growth
• New BOP profile
• Declining current account deficit USD 23
  billion (2001) from USD 34 billion (1998)
• Large FDI flows financing C.Account deficit
  USD 22,6 billion (2001)
• Inflation Targeting Framework building a strong
  track record
• A New Fiscal Regime in Place
• - Since 1998, an impressive shift in primary
  flows was delivered
• - Structural reforms
• . Privatization
• . Administrative Reform - Social Security
  Reform
• . States and Local Governments Refinancing
  Agreements
• . Fiscal Responsibility Law

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Fiscal policy Primary targets met for 13
consecutive quarters ...

Source Central Bank of Brazil
4
... together with a much better distribution of
the fiscal effort.

32.872
13.734
Source Central Bank of Brazil
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The increase of net public sector debt reflected
not only the fiscal policy and the domestic and
international economic environment in the last 8
years...
Total
Central Government
States and Municipalities
State-owned enterprises
November
6
... but also decisive actions towards fiscal
transparency,
9,2
8,3
Source Central Bank
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Domestic debt dynamics growth components
... and the implementation of key government
programs, several of them associated with the
consolidation of the fiscal regime.
States and Municipalities R 329,4 billion
R 626,9 billion
Debt Management (cushion) R 44,8 billion
Exchange Rate R 74,4 billion
Public Programs R 44,8 billion
R 60,7 billion
Contingent Liabilities R 87,6 billion
Nominal Interest R 118,2 billion
Primary Surplus R 75,1 billion
Privatization R 58,2 billion
Source National Treasury and Central Bank
Includes remunerating factors. Privatization and
Primary Surplus basic interest rate (SELIC rate)

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HOWEVER, along with the recorded growth in public
debt, its funding structure has improved
remarkably...

• Brazils Debt Management Strategy
  Predictability, Transparency, Simplicity
• Focus on Domestic Capital Markets
• Objective Cost minimization in the long-term,
  prudent risk levels considered.
• Guidelines
• Refinancing risk at safe levels
• Gradual reduction of market risks
• Short term interest rates exchange rate
  Increasing share of fixed-rate instruments
• Consolidation of the domestic yield curve
• fixed-rate firm bid offer for long-term
  securities regular auction for indexed bonds
• Standardization of debt instruments Domestic
  exchange-offers fungible instruments
• ALM Framework

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... together with the successful sovereign
presence in the most relevant capital markets in
the world.

• Guidelines International Capital Markets
• Brazil Predictable, regular but moderate
  borrower
• Consolidation of Brazilian yield curves in
  strategic markets (USD, EURO, YEN) with liquid
  benchmarks
• Pave the way for other borrowers to access long
  term financing, not yet available in domestic
  capital markets
• Broadening of the investor base in Brazilian
  risk role in FDI/privatization
• As market conditions allow, gradual retirement of
  restructured debt.

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The results have been impressive...BRAZIL
Federal Government Domestic Debt
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... as showed by the sharp reduction of the
refinancing risk.
- Improved debt profile - Gradual increase of
the average life- Focus on short term maturities
(up to 12 months)- Prudent cash management
34,97
25,59
12
A very comfortable debt profile was achieved...
Federal Government Debt Maturity Profile 2002/03
13
... and a significant reduction of the average
funding cost has been observed.Federal
Government Domestic DebtAverage Funding Cost
18,98
14
The somewhat volatile macroeconomic environment
has prevented further progress also towards debt
duration...
56.58
7.82
6.99
15

... which now could be sought, given the prudent
refinancing risk level embedded in domestic debt
structure.
Assets and Liabilities Imbalances - R billion

December, 2001
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Annual Borrowing Plan 2002

• - Continued focus on refinancing risk
• Average maturity
• Limit for short term debt
• - Gradual duration increase
• - Further development of the domestic yield
  curve
• - Smoothening of debt maturity profile (buyback
  operations)
• - Debt instruments standardization proactive
  stance.

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Strategy for 2002Comparative Analysis
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BRAZIL Latest Developments in Public Debt
Management
Fabio de Oliveira Barbosa Secretary of the
National Treasury XIV Seminar on Regional
Fiscal Policy - ECLAC Santiago de Chile, January
2002