Transcript Slide 1

2010 Brazil Economic Conference
Henrique de Campos Meirelles
Brazilian-American Chamber of Commerce
October 2010
Brazil in 2003
60% of total sovereign debt denominated in dollars
IMF debtor country
High public debt to GDP ratio: 60.6%
Policy rate at 25%
Rising inflation
High country risk premiums and sovereign debt rated as
speculative grade
Unemployment rate at 12%
Minimum wage at US$ 60
2
Changes in Economic Policy
2003: Monetary and fiscal policy stance
Austere monetary policy
Strong fiscal adjustment
Quick disinflation
Jan 03: 30% (annual rate)
Jul 03: 0%
Inflation on target since 2004
Decrease in the public debt
Decrease in sovereign debt exposure on FX
As a result: decrease in country risk premium
3
Public Sector Net Debt
market
consensus
60.6
60
54.9
% of GDP
55
50.6
50
48.2
47.0
45
45.1
42.8
42.7
40.6
38.4
40
35
30
Dec
02
Dec
03
Dec
04
Sources: Central Bank of Brazil
Dec
05
Dec
06
Dec
07
Aug
08
Dec
08
Dec
09
Dec
10
4
Floating Exchange Rate Regime and
Build Up of International Reserves
international reserves allow for a
safe fluctuation of the exchange rate
USD billion
250
Oct 6th
278.7
Aug 08
205.1
200
150
100
50
0
Jan
02
Jan
03
Jan
04
Source: Central Bank of Brazil
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
5
Net External Debt and Risk
200
B+
160
USD billion
120 BB-
80
1Q03
165.2
BB-
S&P:
BBB-
Fitch:
BBB-
(↑)
Moody’s: Baa3
(↑)
4Q04
135.7
BB
40
0
BB+
-49.5
-40
BBB-
-80
1T 3T 1T 3T 1T 3T 1T 3T 1T 3T 1T 3T 1T 3T 1T 3T 1T
02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10
Sources: Central Bank of Brazil and S&P
6
Macroeconomic Responsability
Virtuous Circle:
inflation
targets
macroeconomic
stability
lower inflationary
risks
floating
exchange and
intl reserves
decaying net
foreign debt
reduced external
risk
primary
surpluses
decline in
public debt
lower fiscal risk
amplified
effect
reduction of
interest rate
with more
credibility
lower risk
premiums
7
Macroeconomic Policy Framework
 Macroeconomic fundamentals of inflation targeting,
fiscal responsibility, exchange rate flexibility,
combined with
 Adequate prudential policy and solid bank supervision,
resulted in
 capacity to absorb internal and external shocks
 macroeconomic and financial stability
 sustainable growth
 investment growth
 credit and capital market development
8
Investments x Country Risk
170
country risk - Brasil t-2
(right)
160
2Q 10
1810
1620
150
1430
investments
GFCF (left)
140
basis points
1995 = 100
2000
1240
130
1050
120
860
670
110
480
100
290
90
100
1Q
00
1Q
01
1Q
02
1Q
03
Sources: IBGE and JPMorgan
1Q
04
1Q
05
1Q
06
1Q
07
1Q
08
1Q
09
3Q
10
9
Credit – Outstanding Balances
R$ billion
1,600
46.2
50
1,400
45
1,200
40
35
1,000
30
800 25.7
25
600
% of GDP
consistent growth throughout the period
20
400
15
200
10
0
5
Jan
02
Jan
03
Jan
04
Source: Central Bank of Brazil
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Aug
10
10
Capital market – primary issues
100
R$ billion
80
60
40
20
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
Stocks
Commercial papers
Source: CVM (Brazilian Securities Comission)
*12 months to August
Others
11
Net Foreign Direct Investment
market
consensus
2010-14
37.8
50
2007-09
35.2
USD billion
40
30
2002-06
15.7
20
10
0
02
03
04
05
06
07
08
Source: Central Bank of Brazil (market consensus)
09
10
11
12
13
14
12
3rd preferred host economy for FDI for
the 2010-12 period
China
India
Brazil
United States
Russia
Mexico
United Kingdom
German
Indonesia
Vietnan
Tailand
Poland
France
Australia
Malaysia
Canada
Japan
Chile
South Africa
Peru
Spain
0
Source: UNCTAD
20
40
60
80
100
13
Brazilian External Liabilities
as a percentage of the gross external liabilities
2001
2010*
Others
26.4%
Fixed income
30.9%
FDI
32.8%
Stocks (domestic
and foreign)
9.9%
Source: Central Bank of Brazil
Others
13.2%
Fixed income
18.6%
*August
FDI
37%
Stocks (domestic
and foreign)
31.3%
14
Exports
2010-14
229.6
250
USD billion
200
150
2000-09
111.1
100
1990-99
42.7
1980-89
25.5
50
80
85
90
95
Source: Central Bank of Brazil (market consensus)
00
05
10
14
15
Exports’ Diversification
30
27.8
27
24
USA
Europe
21.4
% 21
18
23.7
Latin America
15
Asia
12
9.9
9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
Source: Central Bank of Brazil
* July
16
Price Stability and Real Payroll Growth
18
135
16
130
14
125
real
payroll
12
120
10
115
8
Jan 03 = 100
% change in 12 months
stability generates increasing well-being
110
6
IPCA
4
105
2
100
-
95
Jan
03
Jan
04
Jan
05
Source: Central Bank of Brazil
Jan
06
Jan
07
Jan
08
Jan
09
Jul
10
17
Formal Job Creation
from January to August
thousands
2000
1954
14 million jobs
created since 2003
1804
average 04-07
1312
1500
1000
average 00-03
741
680
500
average 96-99
128
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: MTE/CAGED
18
Unemployment in Brazil
seasonally adjusted
13
12
11
% 10
9
8
7
6.73
Jan
03
Source: IBGE
Jan
04
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Ago
10
19
Unemployment Rate
South Africa
Spain
Lithuania
Croacia
Ireland
Colombia
Greece
Poland
Hungary
Portugal
India
Turkey
Euro zone
United States
France
Belgium
Venezuela
Finland
Italy
Chile
Canada
Argentina
United Kingdom
Germany
Sweden
Brazil
Source: Bloomberg
25.3
20.3
18.3
16.4
13.6
13.3
11.8
11.4
11
10.8
10.7
10.5
10
9.6
9.3
8.9
8.7
8.5
8.42
8.3
8.1
7.9
7.8
7.6
7.4
6.73
relatively dynamic
labor market
20
Income Inequality Reduction
0.57
Gini Index
0.566
0.56
0.56
0.558
0.553
0.55
0.545
0.54
0.535
0.532
0.528
0.53
0.52
0.52
0.514
0.509
0.51
0.50
98
99
Source: IBGE/PNAD
01
02
03
04
05
06
07
08
09
21
Middle Class Growth and
Poverty Reduction
From 2003 to 2009
 35.7 million people have entered the middle class
 20.5 million have crossed the poverty line upwards
2010-2014 forecast for the current trend
 36.0 million more will enter the middle class
14.5 million more will come out of poverty
Family Grant Program (Bolsa Família): reduction of people
in extreme poverty from 12% to the 4% level
Source: FGV-CPS
22
Lower Level of Poverty
30
28.1
% of population
25.4
25
22.8
19.3
20
18.3
16.0
15.3
15
10
2003
Source: CPS/FGV
2004
2005
2006
2007
2008
2009
23
Social Mobility
millions of people
A/B
C
D
E
200
31
20
13
150
66
+44.1%
95
100
+19.0%
113
47
44
50
49
40
29
16
2009
2014*
0
2003
Source: Finance Ministry; * estimated
24
Performance Before and After the Crisis
compared to other emerging markets
7.5 (*) Brazil
GDP real growth %
6.1
5.1
5.8
5.6 (*) EME ex. Brazil,
India and China
3.5
-0.2
-2.1 (*)
2007
2008
Source: FMI (WEO Oct 2010); * estimated
2009
2010
25
GDP Growth
annual real growth rate
7
7.3%
6
5
5.1%
(2006-2008)
4
3
3.3%
(2003-2005)
2
2.1%
1
(1999-2002)
0
-0.2%
-1
99
00
01
02
03
Sources: IBGE and Central Bank of Brazil
04
05
06
07
08
09
10
26
Agenda for the Future
 Level of Domestic Saving
 Quality of Public Expenditures
 Investment Rate and Infra-Structure
 Education
 Review and Simplification of the Tax System
 Legal Environment more favorable to Business
 Incentive to Long Term Investment
27
Investment prospects - industry
BRL billion
Growth
2005-2008
2010-2013
%
Oil and Gas
160
340
112.9
Mining
53
52
-2.7
Steel
26
51
99.5
Petrochemical
20
34
70.9
Automobile
23
32
37.8
Electric/Electronics
15
21
39.0
Pulp and Paper
17
19
10.6
Total
314
549
74.8
Source: BNDES
28
Investment prospects - infrastructure
BRL billion
Growth
2005-2008
2010-2013
%
Electricity
67
98
45.2
Telecommunication
66
67
2.1
Sanitation
22
39
76.5
Railways
19
56
195.3
Highways
21
36
73.0
Ports
5
15
217.9
Total
199
310
55.6
Source: BNDES
29
Henrique de Campos Meirelles
October 2010