1. 1 Henrique de Campos Meirelles Davos, January 2004 Gearing Brazil for Growth

2. 2 I. The 2002 Confidence Crisis II. Economic Policy in 2003: 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) 61.7 52.8 24.8 2000 2001 2002 US$ 8.9 billion GAP US$ 28.0 billion GAP

5. 5 Brazil Risk: 2002 Sep 27 2,436 Spread 500 700 900 1,100 1,300 1,500 1,700 1,900 2,100 2,300 2,500 Jan 02Apr 02Jul 02Oct 02 Dec 02

6. 6 Nominal Exchange Rate: 2002 Oct 22 3.95 2.0 2.3 2.6 2.9 3.2 3.5 3.8 Jan 02Apr 02Jul 02Oct 02 R$/US$ Dec 02

7. 7 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

8. 8 II. The Economic Policy in 2003: a. Fiscal Responsibility

9. 9 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

10. 10 Primary Surplus 12-Month, Accumulated % of GDP -2 0 1 2 3 4 5 6 Jul 94 Mar 95 Nov 95 Jul 96 Mar 97 Nov 97 Jul 98 Mar 99 Nov 99 Jul 00 Mar 01 Nov 01 Jul 02 Mar 03 Nov 03 Nov 03 4.21%

11. 11 Net Public Sector Debt 1995-2010 20 25 30 35 40 45 50 55 60 19951997199920012003200520072010 41.4% % GDP Central Bank Estimate

12. 12 II. The Economic Policy in 2003: b. The External Adjustment

13. 13 Nominal Exchange Rate: 2003/04 R$/US$ 2.8 3.1 3.4 3.7 Jan 03 Feb 03Mar 03 Apr 03 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03 Jan 04 Jan 20 2.84

14. 14 Trade-Weighted Real Exchange Rate: 1995/03 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 Jan 95Jan 96Jan 97Jan 98Jan 99Jan 00Jan 01Jan 02Jan 03Dec 03 Basket of 15 currencies, deflated by consumer prices Average 1995-2003 2.89

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

16. 16 Current Account US$ billion * BCB forecast -33.4 -25.3 -24.2 -23.2 -7.7 4.1 -4.4 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 1998199920002001200220032004*

17. 17 Trade Balance -10 -5 0 5 10 15 20 25 1995199619971998199920002001200220032004* US$ billion * BCB forecast

18. 18 Trade Balance US$ billion Dec 03 24.8 12-Month, Accumulated -10 -5 0 5 10 15 20 25 Jan 99Jul 99Jan 00Jul 00Jan 01Jul 01Jan 02Jul 02Jan 03Jul 03 Highest trade balance surplus ever recorded

19. 19 Trade Balance US$ billion 12-Month, Accumulated Imports Exports 73.1 48.2 45 50 55 60 65 70 75 Jun 96 Dec 96 Jun 97 Dec 97 Jun 98 Dec 98 Jun 99 Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 Jun 02 Dec 02 Jun 03 Dec 03

20. 20 Imports to Industrial Output Ratio Seasonally Adjusted 75 80 85 90 95 100 105 110 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 Q3 03 1998 = 100

21. 21 Export Growth Decomposition % change % change USD mn% % Argentina1 9781894.0Soy2 1171735.2 China1 9051781.1Transport equipment1 6491318.4 USA1 194118.5Metal1 4581125.0 Netherlands 928831.7Mechanical equipment1 028836.4 Germany 574525.0Oil & derivatives1 018826.3 Mexico 394418.5Chemicals 971825.2 Spain 386336.7Meats 958830.6 Chile 365327.6Paper & pulp 784638.1 Italy 358321.7Textiles 468439.5 Korea 316340.0Iron Ore 445313.9 Other2 82025Other1 82714 TOTAL11 21710020.4Total12 72210021.1 MARKET (Jan-Nov)PRODUCT (Jan-Dec) Absolute change

22. 22 * 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*

23. 23 External Debt (Excluding IMF) Sep 03 US$ 192.5 bi 120 140 160 180 200 220 240 260 1991199319951997199920013Q2003 US$ billion

24. 24 II. The Economic Policy in 2003: c. Disinflation

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

26. 26 Market Inflation Expectation for 2003 Median of Expectations % 12.0 12.5 Dec 03 Result 9.3% peak 12.6%

27. 27 Market Inflation Expectations for 2004 5.5 6.0 6.5 7.0 7.5 8.0 8.5 Jan 03Mar 03May 03Jul 03Sep 03Nov 03Jan 04 % 6.0%

28. 28 Real Interest Rate: 2000-2003 Swap 360 days, deflated by expected inflation 8 10 12 14 16 18 20 22 24 Jan 00Jul 00Jan 01Jul 01Jan 02Jul 02 Jan 03 % p.a. Jul 03 Jan 04

29. 29 II. The Economic Policy in 2003: d. Improving Public Debt Profile

30. 30 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 03Feb 03Mar 03Apr 03May 03Jun 03Jul 03Aug 03Sep 03Oct 03Nov 03Dec 03

31. 31 Domestic Public Debt Fixed Rate Debt/Total Debt % % 20 22 24 26 28 30 32 34 36 38 40 42 Apr 02Sep 02Feb 03Jul 03Dec 03 1 2 3 4 5 6 7 8 9 10 11 12 13 Apr 02Aug 02Dec 02Apr 03Aug 03Dec 03 FX Debt/Total Debt 12.51 22.06

32. 32 Government Securities – Auction Rates 15 16 17 18 28 out4 nov11 nov20 nov25 nov2 dec9 dec18 dec Maturity Oct 2004Maturity July 2005 % LTN (fixed rate security) at Public Offerings 6 jan

33. 33 LTN (Fixed Rate Securities) LFT Months Average Tenure - Domestic Public Debt Average Tenure of Securities Issued 6 11 16 21 26 31 36 41 46 51 56 Dec 02 Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03 6 7 8 9 10 11 12 13 Feb 03 Mar 03 Apr 03 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03 Dec 03

34. 34 III. Current Outlook of the Brazilian Economy

35. 35 400 900 1,400 1,900 2,400 Jan 02Apr 02Jul 02Oct 02Jan 03Apr 03Jul 03Oct 03Jan 04 Brazil Risk: 2003/2004 Basis Point 420

36. 36 Swap 360-day Rate 15 17 19 21 23 25 27 29 31 33 Jan 02Apr 02Jul 02Oct 02Jan 03Apr 03Jul 03Oct 03Jan 04 %

37. 37 Sao Paulo Stock Exchange Index 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 Jan 02Apr 02Jul 02Oct 02Jan 03Apr 03Jul 03Oct 03Jan 04 Basis point Jan 21 23,260

38. 38 Private External Debt: Rollover Rate Moving Average, 6 months % 20 40 60 80 100 120 140 160 Jul 01Nov 01Mar 02Jul 02Nov 02Mar 03Jul 03Nov 03

39. 39 IV. Towards Sustained Economic Growth

40. 40 Industrial Production 2003 Seasonally Adjusted Index Jan 2003=100 94 96 98 100 102 104 106 JanFebMarAprMayJunJulAugSepOctNovDec* * BCB forecast

41. 41 Durable Goods Production Seasonally Adjusted Index May 2003=100 90 95 100 105 110 115 120 125 MayJunJulAugSepOctNov

42. 42 Car Sales Seasonally Adjusted Domestic Sales May 2003=100 90 100 110 120 130 140 150 160 Jun 03Jul 03Aug 03Sep 03Oct 03Nov 03Dec 03

43. 43 Capital Goods Output May 2003=100 90 95 100 105 110 115 120 Jun 03Jul 03Aug 03Sep 03Oct 03Nov 03

44. 44 Wages in Industry Seasonally Adjusted Real Wage May 2003 = 100 115 117 119 121 123 125 127 May03Jun 03Jul 03Aug 03Sep 03Oct 03

45. 45 Capacity Utilization Seasonally Adjusted Moving Average 3 months % 72 73 74 75 76 77 78 79 80 81 82 Jan 93 Jan 94 Jan 95 Jan 96 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Nov 03

46. 46 GDP x Confidence Shocks GDP in the Aftermath of very Large FX Shocks (%) 2002 1998 19951998 1.1 -11.0-10.8 -10.5 -7.4 -6.7 -6.2 -4.9 BrazilArgentinaUruguayThailandMalaysiaS. KoreaMexicoRussia 2002/03* * Average for 2002/2003. For 2004, BCB estimate. 3.5 Brazil 2004*

47. 47 Henrique de Campos Meirelles Davos, January 2004 Gearing Brazil for Growth