1. Can Brazil Qualify for the Investment Grade League? Shelly Shetty Senior Director

2. Agenda Brazil’s Macro Picture Brazil’s Credit Dynamics Brazil versus India: Comparing Two of the BRICs

3. Agenda Brazil’s Macro Picture Brazil’s Credit Dynamics Brazil versus India: Comparing Two of the BRICs

4. Brazil in a Snapshot 2003200420052006200720082009 Real GDP growth (%)1.15.72.93.75.44.34.1 Consumer prices (ann. avg. % change) 14.36.15.72.73.74.0 CXR (% change)18.728.722.318.819.48.48.5 CAB (% of GDP)0.71.71.61.20.3-0.7-1.2 Govt. balance (% of GDP)-5.8-3.4-3.6-3.5-2.4-2.3-2.2 Source: Fitch Ratings.

5. Brazil’s likely to be more resilient to external turmoil >Ample international liquidity >Lower external financing needs >Liability management has reduced FX exposure of public debt >Central bank has the choice to let FX act as a shock absorber External Financing Needs (USD Bn) Source: Fitch Ratings.

6. Brazil Exports to Major Markets Note: Europe – EU & Eastern Europe countries, Latin America – Aladi & Mercosur Source: Ministerio do Desenvolvimento, Industria e Comercio Exterior. 2007 2001 In 2007, Brazil exported USD$11bn to China, up from USD$2bn in 2001. Brazil’s more diversified export base provides cushion

7. Agenda Brazil’s Macro Picture Brazil’s Credit Dynamics Brazil versus India: Comparing Two of the BRICs

8. Brazil upgraded to ‘BB+’ in May 2007 >Rapid growth in international reserves has reduced Brazil’s external vulnerability >Solid improvement in external solvency ratios >Brazil has emerged as a net public sector external creditor >Continued macroeconomic and political stability Source: Fitch Ratings.

9. What is slowing Brazil’s ascent to Investment Grade? >A heavy public debt burden >Unfavorable domestic debt profile >Weaker growth prospects compared with IG Sovereigns >Public debt dynamics not improving fast enough Brazil Key Indicators 2008 BBB Median Real GDP growth (%, 5 yr avg)4.45.3 GDP per capita (USD)8,0317,286 Consumer prices (% change)4.05.7 CAB (% of GDP)-0.7-1.5 Govt. balance (% of GDP)-2.7-1.7 Govt. debt (% of GDP)65.224.9 Govt. debt (% of revenue)171.5102.5 Net external debt (% of CXR)-13.79.6 Net public external debt (% of CXR)-45.4-25.6 External debt service (% of CXR)18.210.1 Liquidity ratio (%)196.2161.2

10. Still Unfavorable Domestic Debt Composition Average term of fed securities (number of months) Source: Bacen. Domestic Debt by Type Source: Fitch estimates using BCB data.

11. >Brazil’s resilience in the unfavorable external environment >Central bank’s monetary and currency management >Signs of sustained investment and GDP growth >Improvements in external solvency and liquidity ratios >Fiscal performance >Reform progress Real Interest Rate – Selic* 2003-2007 *Note: Uses average nominal Selic and prospective inflation (IPCA index) for the next 12 months. Source: Bacen. What will Fitch Ratings monitor in the coming months?

12. Why Peru was upgraded first to IG BrazilPeruBBB Median Source: Fitch Ratings.

13. But Brazil outshines Peru on Governance Indicators Source: World Bank and Fitch.

14. Agenda Brazil’s Macro Picture Brazil’s Credit Dynamics Brazil versus India: Comparing Two of the BRICs

15. Brazil and India: Similar in many respects >Large and closed economies –Brazil GDP (2007 e ): USD1.2 trn –India GDP: (2007 e ): USD 1.1 trn >Weak Public Finances >Deep and sophisticated domestic bond markets >Robust external liquidity and solvency ratios >Suffer from cumbersome coalition politics but India was assigned IG in August 2006. GDP Growth by sectors Source: National Authorities

16. India’s growth story more sustainable >Higher saving and investment levels >India’s manufacturing sector restructured since mid-90s >India has shifted towards knowledge economy >India is less commodity dependent but Brazil’s Per Capita Income is nearly 7 times that of India. Saving and Investment rates Source: Fitch Ratings.

17. India’s Debt Dynamics more favorable >GOI issues mainly long-term fixed rate bonds >GOI issues 10-year fixed rate bond at 8% >GOI domestic markets very captive in nature >GOI has no external bond debt General Government Debt (%GDP) Source: Fitch Ratings.

18. India’s fiscal problems may have easier solutions Source: Fitch Ratings. Revenues (% GDP)

19. External strengths: India’s international reserves more robust International Liquidity ratio (%) International Reserves/GDP (%) Source: Fitch Ratings.

20. Brazil’s Relative Strengths >Brazil’s financial markets have been repeatedly tested >Brazil’s has consistently run primary surpluses >Improvement in Brazil’s external solvency ratios more dramatic >Higher level of per capita income and greater political stability Source: Fitch Ratings.

21. Fitch Ratings www.fitchratings.com New York One State Street Plaza New York, NY 10004 +1 212 908 0500 +1 800 75 FITCH Fitch GroupFitch Ratings Fitch Solutions Algorithmics London 101 Finsbury Pavement London EC2A 1RS 44 20 7417 4222 Singapore 6 Temasek Blvd. #35-03/04/05 Suntec Tower Four Singapore 038986 +65 6336 6801