Transcript Slide 1

1
Brazil:
Recent Economic Developments
Alexandre Schwartsman
November 2003
2
I. The 2002 Confidence Crisis
II. Challenges and Accomplishments:
a. External Adjustment
b. Disinflation
c. Fiscal Sustainability
d. Improving Public Debt Profile
III. Resuming Economic Growth
3
I. The 2002 Confidence Crisis
Sudden Stop
4
Capital Inflows(*)
(US$ billion)
61.7
52.8
US$ 8.9 billion
GAP
US$ 28.0 billion
GAP
24.8
2000
2001
2002
(*) FDI , medium and long term loans (excluding loans to the Central Bank)
Brazil Risk (Embi+)
5
Spread Over Treasury
Basis Points
2,500
2,000
1,500
1,000
Nov 18
572
500
Jan 02
Apr 02
Jul 02
Oct 02
Jan 03
Apr 03
Jul 03
Oct 03
Nominal Exchange Rate (R$/US$)
6
4.0
R$/US$
3.7
3.4
3.1
2.8
Nov 18
2.94
2.5
2.2
Jan 02
Apr 02
Jul 02
Oct 02
Jan 03
Apr 03
Jul 03
Oct 03
Real Effective Exchange Rate
7
4.00
3.80
Basket of 15 currencies
deflator: IPCA
3.60
3.40
R$/US$
3.20
3.20
3.00
2,856
2.80
2.60
Oct 03
2.86
2.40
2.40
2.20
2.00
2.00
1.80
1.60
1.40
Jun 89 Dec 90 Jun 92 Dec 93 Jun 95 Dec 96 Jun 98 Dec 99 Jun 01 Dec 02
GDP x Confidence Shocks
8
GDP in the Aftermath of very Large FX Shocks (%)
Brazil
2002/03*
Argentina Uruguay Thailand Malaysia S. Korea Mexico Russia
2002
2002
1998
1998
1998
1995
1998
1.0
-4.9
-7.4
-11.0
-10.8
* BCB forecast for 2003: 0.6%
-10.5
-6.7
-6.2
9
II. Challenges and Accomplishments:
a. External Adjustment
Current Account Deficit
10
40
US$ billion
35
33.4
30
25.3
25
24.2
23.2
20
15
7.7
10
-3.0*
5
0
1998
1999
2000
2001
2002
2003
* BCB forecast
Private External Debt: Rollover Rate
11
6-Month Moving Average
160
140
%
120
100
80
60
40
20
Jun 01
Oct 01
Feb 02
Jun 02
Oct 02
Feb 03
Jun 03
Oct 03
Trade Balance
12
12-Month, Accumulated
25
23.4
Oct
23.4
20
US$ billion
15
10
5
0
-5
-10
Jan 99
Jul 99
Jan 00
Jul 00
Jan 01
Jul 01
Jan 02
Jul 02
Jan 03
Jul 03
Trade Balance
13
12-Month, Accumulated
75
70.7
US$ billion
70
65
Imports
60
55
47.3
50
45
Jan Jul Jan Jul
96 96 97 97
Exports
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
98 98 99 99 00 00 01 01 02 02 03 03
Industrial Output and Imports
14
Seasonally Adjusted Data, 1996=100
120
Industrial Output
165
115
155
110
145
135
105
125
100
Imports of intermediate products
95
90
Jan 98 Jul 98 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03
115
105
95
Sep 03
Trade Balance - Volume Indices
15
Seasonally Adjusted
195
Exports
175
1996 = 100
155
135
115
95
Imports
75
75
Sep 03
90
Apr 03
Jul 03
Jan 03
Oct 02
Jul 02
Apr 02
Jan 02
Oct 01
Jul 01
Apr 01
Jan 01
Oct 00
Jul 00
Apr 00
Jan 00
Oct 99
16
Jul 99
Apr 99
Jan 99
Oct 98
Jul 98
Apr 98
Jan 98
1996 = 100
Trade Balance - Price Indices
12-Month, Moving Average
105
100
95
Imports
85
Exports
80
Terms of Trade
17
Export Prices / Import Prices
110
1996 = 100
105
100
95
91.4
90
85
Jun 94 May 95 Apr 96 Mar 97 Feb 98 Jan 99 Dec 99 Nov 00 Oct 01 Sep 02
Sep 03
Trade Balance Evolution
18
Prices vs Quantities
Jan-Sep/2003
USD mn
2003 2002
Exports
Primary
Semimanufactures
Manufactures
Exports
Primary
Semimanufactures
Manufactures
45 510
15 522
7 995
28 279
37 026
12 412
6 245
23 696
8 484
3 110
1 749
4 584
%
23%
25%
28%
19%
Quantum
2003 2002
%
182
249
149
172
156
213
131
143
16%
17%
14%
20%
6 791 80%
2 186 70%
918 52%
4 690 102%
Price
2003 2002
81
70
83
83
%
78 4%
65 7%
74 12%
83 0%
1 693
925
831
- 106
20%
30%
48%
-2%
Export Growth Decomposition
19
MARKET
Absolute change % change
USD mn Share
PRODUCT
Absolute change % change
USD mn Share
China
Argentina
USA
Netherlands
Germany
Mexico
Korea
Spain
Chile
Italy
Other
1 611
1 468
1 336
792
502
334
304
281
271
253
2 120
17%
16%
14%
9%
5%
4%
3%
3%
3%
3%
2%
89.7%
89.6%
12.0%
34.6%
28.2%
20.1%
47.9%
33.4%
25.7%
19.0%
23.1%
Soy
1 812
Transport equipment 1 229
Metal
1 191
Oil & derivatives
832
Chemicals
742
Mechanical equipment 668
Paper & pulp
666
Meats
621
Textiles
289
Ore
224
Other
998
TOTAL
9 272
100%
21.3%
Total
9 272
20%
13%
13%
9%
8%
7%
7%
7%
3%
2%
11%
40.1%
19.5%
29.2%
30.1%
26.8%
33.2%
45.3%
27.6%
33.4%
9.3%
13.6%
100%
21.3%
60
80
70
12-month moving average
Jan 03
140
Jan 02
110
Jan 00
Jan 01
160
Jan 99
120
Jan 97
Jan 98
180
Jan 96
130
Jan 94
Jan 95
Unit Labor Cost: R$
Jan 93
90
Jun/94=100
100
Jan 92
Jan 03
Jan 02
Jan 01
Jan 00
Jan 99
Jan 98
Jan 97
Jan 96
20
Jan 95
Jan 94
Jan 93
Jan 92
1992=100
Unit Labor Costs
Unit Labor Cost: US$
120
100
80
60
40
Net Foreign Direct Investment
21
32.8
35
28.9
28.6
US$ billion
30
22.5
25
16.6
20
13.0
15
9.0
10
5
0
1998
1999
* BC forecast
2000
2001
2002
2003*
2004*
Current Account Deficit X FDI
22
35
30
US$ billion
25
20
15
9.4
10
5
0
-3.7
-5
-10
-13.1
-15
Current account deficit
Net FDI
External Financing Needs
Total External Debt
23
260
US$ billion
240
Jun 03
US$ 219 bi
220
200
180
Jun 03
US$ 189 bi
160
140
120
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1H2003
Total
*Estimated data
Total, excluding IMF
Current Account + Debt Amortizations
24
12-Month, Accumulated
90
80
US$ billion
70
60
50
40
30
26.8
20
23.1
10
0
-3.7
-10
Jan 98 Jul 98 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Oct 03
Current Account Deficit
Medium and Long Term Amortizations
Curr Acc Def + M/L Term Amort
Net Interest Payments/Exports
25
35
31.8
30
25
26.6
25.6
23.4
21.8
19.2
%
20
15
10
5
0
1998
1999
2000
2001
2002
1H2003
Exports/Total External Debt
26
35
31.8*
27.7
30
28.6
25.4
%
25
22.9
21.3
20
15
10
5
0
1998
1999
2000
* Preliminary data for external debt
2001
2002
1H2003
BoP - Uses and Sources
27
US$ billion
2001
2002
Year
Year
Jan-Oct
Year
-38.8
-7.7
-31.1
38.8
0.4
16.6
1.8
18.6
6.2
1.3
11.1
-17.6
3.9
-21.6
17.6
0.4
6.8
1.9
19.1
10.0
0.9
8.1
-24.9
3.0
-27.9
24.9
0.5
9.0
2.6
24.1
12.1
1.3
10.7
11.5
-4.6
-5.1
4.3
-0.3
11.1
-4.3
-2.5
-1.6
-14.8
4.9
-3.0
-4.1
-2.0
-9.1
Uses
-58.4
Current account
-23.2
Medium and long term amortizations
-35.2
Sources
58.4
Capital account
0.0
Foreign Direct Investment
22.5
Portfolio investments
2.2
Medium and long-term disbursements
34.6
Bonds, notes and commercial papers 17.0
Trade credit
3.3
Loans
14.3
Loans to the Monetary authority (IMF)
Short-term and other
Brazilian investments abroad
Of which: bank deposits
Reserve assets
6.6
0.3
-4.6
0.0
-3.3
2003
28
II. Challenges and Accomplishments:
b. Disinflation
Inflation Targeting - IPCA
29
12.5
%
12
11
10
9
8
7
6
5
4
3
2
Upper
10.0
Central
8.0
8.9
8.5
Upper
8.0
Central
6.0
6.0
Lower
6.0
Upper
6.0
Upper
5.5
Central
4.0
Lower
2.0
1
0
2000
Target
Central
5.5
Central
3.5
Lower
4.0
1999
Upper
8.0
7.7
Lower
3.0
Lower
1.5
2001
IPCA
2002
2003
Adjusted Target
2004
Upper
7.0
Central
4.5
Lower
2.0
2005
-0.5
IPCA-15
IPCA
0.5
Nov 03
Sep 03
Jul 03
May 03
Mar 03
Jan 03
Nov 02
Sep 02
Jul 02
May 02
Mar 02
Jan 02
%
IPCA and IPCA-15 Inflation
30
3.5
3.0
2.5
2.0
1.5
1.0
0.17
0.0
60
Oct 03
Jul 03
Apr 03
Jan 03
90
Oct 02
Jul 02
Apr 02
Jan 02
Oct 01
Jul 01
Apr 01
Jan 01
Oct 00
Jul 00
Apr 00
Jan 00
Oct 99
Jul 99
Apr 99
Jan 99
%
IPCA: % of Items with Price Increases
31
Jan
85.9%
85
80
75
70
65
61.1%
55
50
IPCA, Tradable,
Non-tradable and Regulated Prices
12-month, accumulated change
24
22
20
18
16
14
12
10
8
6
4
18.86
15.39
13.98
IPCA
Tradables
Non Tradables
Regulated
Oct 03
Jul 03
Apr 03
Jan 03
Oct 02
Jul 02
Apr 02
8.14
Jan 02
%
32
IPCA, Tradable,
Non-tradable and Regulated Prices
33
3-month Moving Average, Annual
50
30
20
10
IPCA
Tradable
Non Tradable
Regulated
Oct 03
Sep 03
Aug 03
Jul 03
Jun 03
May 03
Apr 03
Mar 03
Feb 03
Jan 03
Dec 02
Nov 02
Oct 02
Sep 02
Aug 02
Jul 02
Jun 02
May 02
Apr 02
0
Mar 02
%
40
IPCA: Market Expectations - 2003
34
13.0
12.5
12.0
11.0
10.5
Nov 18
9.36
10.0
Nov 03
Oct 03
Sep 03
Aug 03
Jul 03
Jun 03
May 03
Apr 03
Mar 03
9.0
Feb 03
9.5
Jan 03
%
11.5
IPCA: Market Expectations – 2003
35
Distribution of 2003 market IPCA expectations (%)
100
9,39%
9,76%
Relative freqency (%)
90
80
70
9,61%
60
50
40
30
20
10
0
7-8%
8-9%
Sep 15
9-10%
Oct 20
10-11%
Nov 17
11-12%
IPCA: Market Expectations 12-Month Ahead
36
15
13
9
1st Quartil
Median
3rd Quartil
Nov 03
Oct 03
Sep 03
Aug 03
Jul 03
Jun 03
May 03
Apr 03
Mar 03
5
Feb 03
7
Jan 03
%
11
IPCA: Market Expectations – 2004
37
Mean and Median
8.5
8.0
7.0
6.5
Mean
Median
Nov 03
Oct 03
Sep 03
Aug 03
Jul 03
Jun 03
May 03
Apr 03
Mar 03
5.5
Feb 03
6.0
Jan 03
%
7.5
IPCA: Market Expectations – 2004
38
Distribution of 2004 market IPCA expectations (%)
relative frequency (%)
70
60
50
40
30
20
10
0
3-4%
4-5%
5-6%
Sep 15
6-7%
Oct 20
7-8%
8-9%
Nov 17
9-10%
IPCA: 12-month Accumulated Change
39
18
16
13.98%
14
%
12
10
Dec 04
6.0%
8
6
4
2
market
expectations
0
Jan 99
Oct 99
Jul 00
Apr 01
Jan 02
Oct 02
Jul 03
Apr 04
40
II. Challenges and Accomplishments:
c. Fiscal Sustainability
Primary Surplus
41
12-Month, Accumulated
7
6
5
4.16
3
2
1
Target for 2003: 4.25%
0
-1
Sep 03
Oct 02
Nov 01
Dec 00
Jan 00
Feb 99
Mar 98
Apr 97
May 96
Jun 95
-2
Jul 94
% of GDP
4
Net Public Sector Debt - % of GDP
42
65
Sep 02
62.5%
% of GDP
60
57.7%
55
50
45
Oct 00
Mar 01
Aug 01
Jan 02
Jun 02
Nov 02
Apr 03
Sep 03
Net Public Sector Debt Increase
Decomposition - % of GDP
43
1999
2000
2001
2002
2003
99-03
Net debt increase
7.4%
-0.2%
3.8%
3.2%
1.2%
15.4%
1. Primary surplus
-3.0%
-3.3%
-3.5%
-3.4%
-3.7%
-14.4%
2. Pure interest on the debt
8.4%
6.8%
7.0%
7.3%
7.4%
31.1%
3. Depreciation on domestic debt
3.8%
0.8%
1.5%
4.9%
-1.4%
8.0%
4. Depreciation on foreign debt
4.2%
0.8%
1.5%
4.5%
-1.8%
7.4%
5. Skeletons
0.0%
0.8%
1.5%
0.9%
0.1%
2.8%
6. Privatization proceeds
-0.9%
-1.8%
-0.1%
-0.2%
0.0%
-2.2%
7. Effect of GDP growth
-5.2%
-4.3%
-4.1%
-10.9%
0.6%
-17.3%
Debt dynamics (1+2+7)
0.2%
-0.8%
-0.6%
-6.9%
4.2%
-0.6%
Currency (3+4)
8.0%
1.6%
3.0%
9.4%
-3.2%
15.4%
Net "skeletons" (5+6)
-0.9%
-1.0%
1.4%
0.7%
0.1%
0.6%
Memo:
Net Public Sector Debt and
Real Exchange Rate
44
63
4.0
3.5
3.0
NPSD
45
2.5
36
2.0
Real Exchange Rate
Sep 03
Feb 02
Jul 00
Dec 98
May 97
Oct 95
Mar 94
1.5
Aug 92
27
Jan 91
% of GDP
54
Total Tax Burden –
Federal and Sub-National Governments
45
37
35.9%
% of GDP
35
33
31
29
27
25
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Central Government Fiscal Performance
% of GDP
46
Jan-Sep
1998 1999 2000 2001 2002 2002 2003 change
I - NATIONAL TREASURY
1.5
3.2
2.9
3.0
3.7
4.3
5.0
0.7
Revenues
15.1
16.6
16.4
17.5
19.0
19.1
18.4
-0.7
Transfers
Net revenues
3.0
12.1
3.5
13.2
3.7
12.8
3.8
13.6
4.2
14.7
4.3
14.8
4.1
14.4
-0.2
-0.5
Expenditures
10.3
9.7
9.6
10.3
10.8
10.3
9.1
-1.2
5.0
5.1
5.1
5.4
5.5
5.4
5.0
-0.4
0.5
4.8
0.3
0.6
4.0
0.3
0.5
4.0
0.3
0.6
4.4
0.4
0.6
4.7
0.2
0.6
4.3
0.2
0.5
3.5
0.3
-0.1
-0.8
0.1
-0.9
-1.1
-1.3
-1.1
-1.5
-0.4
Payroll
Unemployment benefits
OCC
Subsidies
II - INSS
-0.8 -1.0
Revenues
5.1
5.0
5.1
5.2
5.4
5.1
4.9
-0.2
Benefits
5.9
6.0
6.0
6.3
6.7
6.2
6.4
0.2
III - CENTRAL BANK
Central Government Primary Result
0.0
0.7
-0.1
2.2
0.0
1.9
-0.1
1.8
-0.1
2.4
-0.1
3.1
-0.1
3.5
0.0
0.3
Total Revenues
Transfers
20.2
3.0
21.7
3.5
21.5
3.7
22.7
3.8
24.4
4.2
24.2
4.3
23.4
4.1
-0.9
-0.2
Primary expenditures
16.5
16.0
15.9
17.0
17.7
16.8
15.8
-1.0
Memo:
Social Security Deficit
47
4.5
4.0
4.2
4.1
3.8
4.2
3.7
3.5
% of GDP
3.0
2.5
2.0
1.5
1.0
0.8
1.0
0.9
1.1
1.3
0.5
0.0
1998
1999
Public Sector
2000
2001
Private Sector
2002
48
II. Challenges and Accomplishments:
d. Improving Public Debt Profile
Domestic Securities- Average Tenor
49
38
Months
36
34
32
31.4
30
28
26
Dec 99
May 00 Oct 00
Mar 01
Aug 01 Jan 02
Jun 02 Nov 02
Apr 03
Oct 03
Domestic Public Debt
50
FX Debt/Total Debt
Fixed Rate Debt/Total Debt
%
%
42
10
40
9
38
8
36
7
34
6
32
5
30
4
28
Oct 03
24.4% 3
26
2
Oct 03
9.9%
24
1
Jan 02Apr 02Jul 02Oct 02Jan 03Apr 03Jul 03Oct 03 Jan 02Apr 02Jul 02Oct 02Jan 03Apr 03Jul 03Oct 03
FX Debt Rollover Rate
% of FX Debt Rollover Rate (including swap)
Principal + final coupon
51
100
90
80
70
%
60
50
40
30
20
10
0
Jan 03 Feb 03 Mar 03 Apr 03 May 03 Jun 03 Jul 03 Aug 03 Sep 03 Oct 03 Nov 03
FX Indexed Debt
52
78
FX Debt (Including Swaps) Outstanding – US$ billion
76
US$ billion
74
72
70
68
66
64
62
59.3
60
58
Jan 02
Apr 02
Jul 02
Oct 02
Jan 03
Apr 03
Jul 03
Oct 03
53
III. Resuming Economic Growth
Selic and Swap Rates
54
33
31
Swap 360
29
27
%
25
23
21
Selic
19
18.8%
17
17.5%
15
Jan 00
Sep 00
May 01
Jan 02
Sep 02
May 03
Nov 03
Real Interest Rates
55
Real Selic Rate
Real 360-day Rate
18
24
% p.a.
17
16
22
15
20
14
18
13
12
16
11
14
10
12
9
10
8
Jan 02
Apr 02
Jul 02
Oct 02
Jan 03
Apr 03
Jul 03
Oct 03
Jan 02
Apr 02
Jul 02 Oct 02
Jan 03
Apr 03
Jul 03 Oct 03
Credit with Nonearmarked Funds
56
90
Monthly Average Interest Rate
40
Companies
right scale
85
35
75
30
70
25
65
Households
left scale
60
20
Jun 00 Nov 00 Apr 01 Sep 01 Feb 02 Jul 02 Dec 02 May 03 Oct 03
*Preliminary Figures for October
% p.a.
% p.a.
80
Industrial Output
57
Seasonally adjusted
135
1992 = 100
130
125
120
115
110
Q1
96
Q3
96
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
Industrial Output by Category
Seasonally adjusted
58
190
180
170
1992 = 100
160
150
140
130
120
110
100
90
Q1
96
Q3
96
Q1
97
Q3
97
Durable
Q1
98
Q3
98
Q1
99
Q3
99
Intermediate
Q1
00
Q3
00
Q1
01
Non-durable
Q3
01
Q1
02
Q3
02
Capital
Q1
03
Q3
03
Car Sales:
Domestic Demand vs. Net Exports
59
180.000
40.000
170.000
30.000
160.000
20.000
Vehicles
150.000
140.000
10.000
130.000
0
120.000
-10.000
110.000
-20.000
100.000
90.000
Jan
94
Jan
95
Jan
96
Jan
Jan
Jan
97
98
99
Domestic Demand
Jan
Jan
Jan
00
01
02
Net Exports
Jan
03
-30.000
Car Sales
60
Domestic Sales, seasonally adjusted
170
160
1993=100
150
140
130
120
110
100
jan 02
abr 02
jul 02
out 02
jan 03
abr 03
jul 03 Oct 03
Capacity Utilization
61
Seasonally Adjusted
82
81
80
79
%
78
77
76
75
74
73
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul jan Jul
93 93 94 94 95 95 96 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03
Capital Goods Absorption
Domestic Production + Imports – Exports
3-month, moving average
62
140
135
Dec 1998=100
130
125
120
115
110
105
100
95
90
jan/99
jul/99
jan/00
jul/00
jan/01
jul/01
jan/02
jul/02
jan/03
jul/03
Banco Central do Brasil
63
Brazil:
Recent Economic Developments
Alexandre Schwartsman
November 2003