Transcript Slide 1

Brazil:
Recent Economic Developments
Henrique de Campos Meirelles
Febraban – Lima, March 2004
1
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
2
I. The 2002 Confidence Crisis
3
Sudden Stop
Capital Inflows(*)
(US$ billion)
70
60
52.8
50
40
36.9
30
25.5
23.2
20
10
0
2001
2002
2003
2004
BCB forecast
(*) FDI , medium and long term loans (excluding loans to the Central Bank)
4
The Inflation Risk: 2002
Monthly IPCA Annualized
42.9% p.a.
45
40
35
% p.a.
30
25
20
15
10
5
0
Jan 02
Mar 02
May 02
Jul 02
Sep 02
Nov 02
5
II. The Economic Policy in 2003/2004:
a. Fiscal Responsibility
6
Fiscal Responsibility
• 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.
7
4
3
Jan 04
Jul 03
Jan 03
Jul 02
Jan 02
Jul 01
Jan 01
Jul 00
Jan 00
Jul 99
Jan 99
Jul 98
Jan 98
Jul 97
Jan 97
Jul 96
Jan 96
Jul 95
Jan 95
Jul 94
% of GDP
Primary Surplus
12-Month, Accumulated
7
6
5
4.19
2
1
0
-1
-2
8
Net Public Sector Debt 1995-2010
60
55
50
% GDP
45
40
43.7%
35
30
Banco Central Estimative
25
20
1995
1997
1999
2001
2003
2005
2007
2009
2010
9
II. The Economic Policy in 2003/2004:
b. The External Adjustment
10
Nominal Exchange Rate: 2002/04
4.0
3.7
Basis Points
3.4
Mar 24
2.93
3.1
2.8
2,.
2.2
Mar 02
Jun 02
Source: Bacen
Set 02
Dez 02 Mar 03
Jun 03
Set 03
Dez 03 Mar 04
11
Exchange Rate Volatility
Moving Average of 21 days
25
% p.a.
20
15
10
5
0
Mar 03
May 03
Fonte: Bacen
Jul 03
Sep 03
Nov 03
Jan 04
Mar 04
12
Current Account
10
4.1
5
0.2
US$ billion
0
-5
-10
-7.7
-15
-20
-18.4
-25
-23.5
-25.3
-30
-24.2
-23.2
2000
2001
-30.5
-35
-33.4
-40
1995
* BCB forecast
1996
1997
1998
1999
2002
2003 2004*
13
Trade Balance
24
25
20
US$ billion
15
10
5
0
-5
-10
1995
* BCB forecast
1996
1997
1998
1999
2000
2001
2002
2003 2004*
14
Trade Balance
25
20
12-Month, Accumulated
Feb 04
26.1
US$ billion
15
10
Highest trade
balance surplus
ever recorded
5
0
-5
-10
Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04
15
Export Growth Diversification
Growth by Market and by Product: 2000/2003
Market
Absolute change
USD million
% change
Part
3,511.9
3,447.3
1,449.5
1,077.2
1,030.0
642.3
634.1
610.0
576.3
543.2
431.0
411.9
19.5%
19.2%
8.1%
6.0%
5.7%
3.6%
3.5%
3.4%
3.2%
3.0%
2.4%
2.3%
26.6%
317.7%
51.8%
254.7%
60.2%
110.6%
50.9%
24.2%
196.8%
53.9%
142.7%
72.8%
Others
3,633.8
20.2%
17,998.6
100.0%
Absolute change
USD million
United States
China
Netherlands
Russia
Mexico
South Corea
Chile
Germany
Iran
Spain
South África
Canada
Total
Market
% change
Part
Soybean
Petroleum Oil
Soy products
Chicken
Autovehicles
Fuel Oils
Raw Soy Oil
Cow meat
Engines
Raw Sugar
Iron/steel products
Iron ore
2,102.6
1,963.3
951.9
904.0
887.5
744.9
742.3
651.2
610.3
588.5
550.8
407.7
11.7%
96.1%
10.9% 1,238.0%
5.,3%
57.7%
5.0% 112.2%
4.9%
50.2%
4.1% 285.0%
4.1% 247.8%
3.6% 129.4%
3.4%
57.4%
3.3%
77.3%
3.1%
64.1%
2.3%
13.4%
55.9%
Others
6,893.6
38.3%
16.5%
32.7%
Total
17,998.6 100,0%
32.7%
16
Trade Balance
12-Month, Accumulated
75
74.8
US$ billion
70
65
Imports
60
55
50
Exports
48.7
45
Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan
96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04
17
Net Foreign Direct Investment
32.8
35
28.9
28.6
US$ billion
30
22.5
25
16.6
20
13.0
15
10.1
10
5
0
1998
* BC forecast
1999
2000
2001
2002
2003
2004*
18
External Debt (Excluding IMF)
260
US$ billion
240
220
200
180
US$192.3 bi
160
140
120
1991
* BC forecast
1993
1995
1997
1999
2001
2003
19
Net International Reserves
(IMF criteria)
29
27
US$ billion
25
Central Bank
announces policy
of accumulation of
reserves
23
21.2
21
19
17
15
13
Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03
Feb 04
20
II. The Economic Policy in 2003/2004:
c. Disinflation
21
Inflation Rate: IPCA 2002/04
Monthly Rate Annualized
45
40
35
% p.a.
30
25
20
15
10
5
0
Jan 02 Apr 02
Jul 02
Oct 02
Jan 03 Apr 03
Jul 03
Oct 03
Feb 04
22
Market Inflation Expectations for 2004
IPCA (median)
8.5
8.0
%
7.5
7.0
6.5
6.0
6.0
5.5
Jan 03
Mar 03
May 03
Jul 03
Sep 03
Nov 03
Jan 04
Mar 04
23
Inflation expectations
IPCA in the next 12 months
13
12
11
%
10
9
8
7
6
5.5%
5
4Jan 02 Apr 02 Jul 02
Oct 02 Jan 03 Apr 03 Jul 03
Oct 03
Mar 04
24
II. The Economic Policy in 2003/2004:
d. Improving Public Debt Profile
25
FX Debt Rollover Rate
100
% of FX Debt Rollover Rate (including swap)
Principal + final coupon
90
80
70
%
60
50
40
30
20
10
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
03 03 03 03 03 03 03 03 03 03 03 03 04 04 04
26
Average Tenure
Domestic Public Debt
Average Tenure of Securities Issued
LFT
LTN (Fixed Rate Securities)
13
60
12
Months
50
11
40
10
30
9
20
8
10
7
0
6
Feb
03
Apr
03
Jun
03
Fonte: Bacen
Aug
03
Oct
03
Dec
03
Feb
04
Feb
03
Apr
03
Jun
03
Aug
03
Oct
03
Dec
03
Feb
04
27
Public Debt
Debt Indexed to the Exchange Rate / Total Debt
%
13
42
12
40
38
11
36
34
9
32
30
7
Prefixed Debt / Total Debt
13.6
10
8
6
28
26
5
4
24
22
19.0
3
2
20
18
1
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Feb
02 02 02 02 02 02 03 03 03 03 03 03 04
Fonte: Bacen
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Feb
02 02 02 02 02 02 03 03 03 03 03 03 04
28
III. Current Outlook of the Brazilian Economy
29
Brazil Risk: 2003/2004
1,450
1,350
1,250
Basis Point
1,150
1,050
950
850
Mar 25
577
750
650
550
450
350
Jan 03
Mar 03
May 03
Jul 03
Sep 03
Nov 03
Jan 04
Mar 04
30
Swap 360-day Rate
33
31
29
%
27
25
23
21
19
17
15
Jan 02
May 02
Sep 02
Jan 03
May 03
Sep 03
Mar 04
31
Real Interest Rate: 1997/2004
38
33
Average 2004 = 9.3%
The smaller rate of
pós-PlanoReal period
Average 97/99
21.4%
23
Average 00/02
15.8%
18
Average 03
13.2%
Fonte: Bacen
Feb 04
Sep 03
Apr 03
Nov 02
Jun 02
Jan 02
Aug 01
Mar 01
Oct 00
May 00
Dec 99
Jul 99
Fev 99
Sep 98
Apr 98
Nov 97
8
Jun 97
13
Jan 97
% p.a.
28
32
Real Interest Rate – 2003/2004
17
16
15
% p.a.
14
13
12
11
10
9.4%
9
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Mar
03 03 03
03 03
03
03 03
03 03 03
03
04 04
33
Sao Paulo Stock Exchange Index
Mar 25
21,721
24,000
Basis point
22,000
20,000
18,000
16,000
14,000
12,000
10,000
8,000
Feb 02
Jun 02
Oct 02
Feb 03
Jun 03
Oct 03
Feb 04
34
Private External Debt: Rollover Rate
6-Month Moving Average
160
140
120
%
100
80
60
40
20
Jul 01
Jan 02
Jul 02
Jan 03
Jul 03
Feb 04
35
Resilience to Shocks
 Brazil is currently in much better shape to deal with
adverse external shocks, compared to mid-90s and early00s:
 External adjustment
 Fiscal adjustment and structural reforms
36
Interest Payments/Exports
40
36.4
36
%
32
28
26.7
24
19.9
20
1996
1997
1998
* 2004 - BCB forecast
1999
2000
2001
2002
2003
2004*
37
Net External Debt/Exports
4.0
3.6
3.5
3.0
2.5
2.0
2.1
2.0
1.5
1.0
1996
1997
1998
* 2004 - BCB forecast
1999
2000
2001
2002
2003
2004*
38
IV. Towards Sustained Economic Growth
39
Industrial Output: 1996/2003
Quarterly Seasonally Adjusted Industrial Output
135
1991 = 100
130
125
4Q03 Vs 2Q03: +5.1%
120
2H03 Vs 1H03: + 2.2%
115
110
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
96 96 97 97 98 98 99 99 00 00 01 01 02 02 03
Source: IBGE
Q4
03
40
Retail Sales: 2000-2003
Quarterly Seasonally Adjusted Sales
101
100
2000 = 100
99
98
4Q03 Vs 2Q03: +3.4%
97
2H03 Vs 1H03: + 2.1%
96
95
94
93
92
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03
Source: IBGE
41
Wages in Industry
Seasonally Adjusted Real Wage
May 2003 = 100
108
107
106
105
104
103
102
101
100
99
98
May 03
Jun 03
Jul 03
Aug 03
Sep 03
Oct 03
Nov 03
Dec 03
42
GDP Growth
Seasonally Adjusted
1.50
(%)
0.11
1Q03
2Q03
3Q03
-0.81
Source: IBGE
4Q03
-0.93
43
GDP x Confidence Shocks
GDP in the Aftermath of very Large FX Shocks (%)
Indonesia Argentina Uruguay Thailand Malaysia S. Korea Ecuador Mexico
(2002)
(2002)
(1998)
(1998)
(1998)
(1999) (1995)
(1998)
+3.5
Russia Brazil
(1998) (2003)
0
-0.2 Brazil
(2004)
-2
-4
-4.9
-6
-6.7
-6.3
-6.2
-7.4
-8
-10
-11.0
-10.8
-10.5
-12
-13.3
* For 2004, BCB estimate.
44
Brazil:
Recent Economic Developments
Henrique de Campos Meirelles
Febraban – Lima, March 2004
45