1. 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

2. 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

3. 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

5. 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

7. Domestic debt dynamics: growth components
... and the implementation of key government programs, several of them associated with the consolidation of the fiscal regime.
Domestic debt dynamics: growth components
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
Source: National Treasury and Central Bank Includes remunerating factors. Privatization and Primary Surplus: basic interest rate (SELIC rate)
Privatization
R$ 58,2 billion

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

9. Guidelines : International Capital Markets
... 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.

10. The results have been impressive
The results have been impressive... BRAZIL: Federal Government Domestic Debt

11. ... 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 Debt:Average 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. Assets and Liabilities Imbalances - R$ billion
... which now could be sought, given the prudent refinancing risk level embedded in domestic debt structure.
Assets and Liabilities Imbalances - R$ billion
December, 2001

16. 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.

17. Strategy for 2002 Comparative Analysis

18. 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