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

2. 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 Profile III. Current Outlook of the Brazilian Economy IV. Towards Sustained Economic Growth

3. 3 I. The 2002 Confidence Crisis

4. 4 Sudden Stop Capital Inflows(*) (US$ billion) (*) FDI, medium and long term loans (excluding loans to the Central Bank) 52.8 25.5 23.2 36.9 0 10 20 30 40 50 60 70 200120022003 2004 BCB forecast

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

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

7. 7 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. Fiscal Responsibility

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

9. 9 Net Public Sector Debt 1995-2010 % GDP 20 25 30 35 40 45 50 55 60 199519971999200120032005200720092010 43.7% Banco Central Estimative

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

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

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

13. 13 Current Account US$ billion * BCB forecast -18.4 -23.5 -30.5 -33.4 -25.3 -24.2 -23.2 -7.7 4.1 0.2 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 1995199619971998199920002001200220032004*

14. 14 Trade Balance US$ billion * BCB forecast -10 -5 0 5 10 15 20 25 1995199619971998199920002001200220032004* 24

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

16. 16 USD million Part United States3,511.919.5%26.6% China3,447.319.2%317.7% Netherlands1,449.58.1%51.8% Germany610.03.4%24.2% Mexico1,030.05.7%60.2% Iran576.33.2%196.8% Spain543.23.0%53.9% South África431.02.4%142.7% Chile634.13.5%50.9% Russia1,077.26.0%254.7% South Corea642.33.6%110.6% Others3,633.820.2%55.9% Total17,998.6100.0%32.7% % change Absolute change Market USD million Part Soybean2,102.611.7%96.1% Iron ore407.72.3%13.4% Autovehicles887.54.9%50.2% Soy products951.95.,3%57.7% Fuel Oils744.94.1%285.0% Chicken904.05.0%112.2% Raw Soy Oil742.34.1%247.8% Engines610.33.4%57.4% Cow meat651.23.6%129.4% Iron/steel products550.83.1%64.1% Others6,893.638.3%16.5% Total17,998.6100,0%32.7% % changeMarket Absolute change Canada411.92.3%72.8% Petroleum Oil1,963.310.9%1,238.0% Raw Sugar588.53.3%77.3% Export Growth Diversification Growth by Market and by Product: 2000/2003

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

18. 18 * BC forecast Net Foreign Direct Investment US$ billion 28.9 28.6 32.8 22.5 16.6 10.1 0 5 10 15 20 25 30 35 199819992000200120022003 13.0 2004*

19. 19 External Debt (Excluding IMF) US$ billion * BC forecast US$192.3 bi 120 140 160 180 200 220 240 260 1991199319951997199920012003

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

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

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

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

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

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

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

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

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

29. 29 III. Current Outlook of the Brazilian Economy

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

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

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

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

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

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

36. 36  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 Resilience to Shocks

37. 37 Interest Payments/Exports 20 24 28 32 36 40 199619971998199920002001200220032004* 19.9 % 26.7 36.4 * 2004 - BCB forecast

38. 38 Net External Debt/Exports 2.0 3.6 2.1 1.0 1.5 2.0 2.5 3.0 3.5 4.0 199619971998199920002001200220032004* * 2004 - BCB forecast

39. 39 IV. Towards Sustained Economic Growth

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

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

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

43. 43 GDP Growth -0.81 -0.93 0.11 1.50 1Q032Q03 3Q034Q03 (%) Source: IBGE Seasonally Adjusted

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

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