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Brazilian Economy Outlook Brazilian Economy Outlook Presentation Transcript

  • Ministry of FinanceB R A Z I L I A N G O V E R N M E N T Brazilian Economic OUTLOOK 14 th Special Edition | February | 2012
  • Ministry of FinanceSummaryForeword 7Economic Activity 9Employment and Income 33Inflation 45Interest Rates and Credit 57Fiscal Policy 75External Sector 91 Special Edition | Year 2011International Overview 109Special Section – Brazil: A Decade of Progress 135Glossary 154 3
  • NOTEBrazilian Economic Outlook is published by the Ministry of Finance.The report consolidates and updates the main macroeconomicvariables resulting from the economic policy conducted by thefollowing Secretariats from the Ministry of Finance: Economic PolicySecretariat (SPE), National Treasury Secretariat (STN), InternationalAffairs Secretariat (SAIN), Secretariat for Economic Monitoring(SEAE) and Federal Revenue Secretariat (RFB).Data used in this report were updated by February 2nd, 2012.
  • Ministry of Finance2011 at a glance and prospects for 2012 ForewordIn the global context, 2011 was affected by the worsening of the 2008 financial crisis, sovereign debt problemswithin the Eurozone and the political gridlocks in the U.S. The quantitative easing policy fostered by the UnitedStates and Europe turned out to put upward pressure on commodity prices, fueling global inflationary processand leading to the breaching of inflation targets in most inflation targeting countries.The Brazilian government acted promptly to quell the acceleration of prices via macro-prudential and fiscalmeasures. It’s worth noting the fiscal consolidation program issued early in 2011, which helped to meet thefull primary surplus at the end of the year and had a decisive role in the monetary easing process. In the FXmarket, the management of capital inflows has been recognized by international experts and agencies, and ithas helped price stabilization policy in Brazil, in addition to financial stability.In 2011, the success of the economic growth model adopted by the Brazilian government included severalimportant measures, such as: new stages of “PAC” investment and strategy program, and “Minha Casa, MinhaVida” housing program; expansion of the “Bolsa Familia” conditional cash transfer program along with the“Brasil sem Miseria” program; the new industrial policy in the “Brasil Maior” plan; expansion of the “Simples”tax regime for microenterprises; “Pronatec” program aiming technical and professional qualification of workersand “Crescer”, a productive-oriented microcredit program. Furthermore, several measures of bureaucratic Special Edition | Year 2011rightsizing and modernization were taken by the Internal Revenue Service and the National Treasury. It is stillworth mentioning the consolidation of a long-term minimum wage increase policy, with a real increase of66% since 2003, reaching R$ 622 in January 2012.As a result of the growth model, Brazil has become the world’s 6th largest economy. Forecasts from internationalagencies indicate that the country may be the 5th largest world power in the near future. The year of 2012 has 7
  • Ministry of Financestarted with a more competitive exchange rate, lower interest rates, sound fiscal and financial institutions, low Forewordunemployment, controlled inflation, high consumer and business confidence, along with a strong portfolio ofpublic and private investments for the coming years in various sectors of the economy.For 2012, the Federal Government will work to support the well-succeeded growth model, encouraging publicand private investments in infrastructure and industry, increasing professional qualification, and substantiallyreducing extreme poverty. Special Edition | Year 2011 8
  • Brazilian EconomyOUTLOOK Economic Activity Ministry of Finance B R A Z I L I A N G O V E R N M E N T
  • Ministry of FinanceEconomic growth even under worsening international crisis Economic ActivityBy the third quarter of 2011, government policies and international crisis worsening have put the Brazilian economy intoa process of accommodation. From that time on, policies have been gradually withdrawn, especially those for easingeconomic activity. Late in 2011, the country’s economic performance started to rebound even under the aggravation inthe international landscape. Such recovery can be seen through the economic indicators such as Economic Activity Indexof the Central Bank of Brazil, industrial production and energy consumption.The quality in 2011 GDP growth has been even more important than its expansion pace. Investment has grown fasterthan household and government consumptions, which indicates increase in the productive capacity higher than demandin the coming years. Thus, the Government announced a set of measures in 2011 focusing on the strengthening of thedomestic industry. Such policy is called “Plano Brasil Maior” filled with tax proposals, trade policy and a wide workforcequalification program.It’s also worth mentioning the vigorous growth of “PAC” investment and strategy program, from R$ 29.7 billion in 2010to R$ 35 billion in 2011. The disbursements of “Minha Casa, Minha Vida” housing program amounted to R$ 41.4 billion,compared to R$ 37.2 billion in 2010. Special Edition | Year 2011 10
  • Ministry of FinanceA sustainable economic growth in Brazil Economic ActivityThe year of 2011 was important to consolidate the Brazilian long term growth path in an environment ofinternational growth slowdown. After a lower growth in 2011, the Brazilian economy will grow faster in2012. Since investments will come from both private and public sectors, the average growth rate until 2014will be higher than previous four years.GDP Growth (% YoY) International International International 7.5 International Crisis Crisis Crisis Crisis 6.1 5.7 5.2 4.3 4.8% 4.0 4.6% Average 3.2 Average 5.5 6.0 Special Edition | Year 2011 5.2 2.7 4.5 Data: % annual 3.5% 3.2 Average 1.7% * 2011: IBGE data accumulated in 0.3 Average the first three quarters over the 0.0 same period in 2010 1.3 1.1 ** Ministry of Finance estimates -0.3 Source: IBGE and Ministry of Finance Elaboration: Ministry of Finance 98 99 00 01 02 03 04 05 06 07 08 09 10 * ** ** ** 11 12 13 1419 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 11
  • Ministry of FinanceIndex indicates growth in the economic activity Economic ActivityAccording to the IBC-BR (Economic Activity Index of Central Bank of Brazil), there has been a 1.15%expansion in November 2011 compared to the previous month. Therefore, a positive change is expected inthe third and fourth quarters of the year. Economic Activity Index (index number, seasonally adjusted) 150 140.19 135 120 Special Edition | Year 2011 105 Data: index number, seasonally adjusted (2002=100) 90 Source: Central Bank of Brazil 10 06 03 04 8 09 No 11 11 7 3 05 00 0 00 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 l2 c2 ay p n v n r v g ct Ju Se Ap De No AuJa Ju M O 12
  • Ministry of FinanceIndustrial production Economic ActivityIndustrial production grew 0.3% in 2011 below the 10.5% posted in 2010. In the first three months of theyear, there was a general increase in the level of production due to the expansion pace in 2010. In 2011, themain highlights are the transportation sector and the capital goods industry as a whole, with a 3.3% hikein annual terms.Industrial Production Index (index number, seasonally adjusted)135 127.7124113 Special Edition | Year 2011102 91 Data: index number, seasonally adjusted (average 2002=100) 80 Source: IBGE 09 10 11 06 08 1 07 08 01 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 c2 ct De O 13
  • Ministry of FinanceRetail sales growth slows down Economic ActivityIn the accumulated 12 months up to November, retail sales grew 7.0% and broad retail sales grew 7.7%.For the whole 2011, the sector’s performance should be less than in 2010, when it accumulated respectiveincreases of 10.9% and 12.2%.Retail Sales Volume (%, 12-month basis) Total Per Sector 16 18.6 Equip. and mat. to esc., inf. and communication Retail Monthly Survey 14 Furniture and household 16.9 Art Farm., Doctors. ort. of perf. and cosm 10.4 Retail Monthly Survey 12 (Broad)* Material of construction 10.0 10 Books, newspapers, magazines and stationery 9.0 Retail Sales Per Sector 7.7 8 Vehicles, motorcycles, parts and accessories 8.4 Data: % in a 12-month basis up Special Edition | Year 2011 Textiles, apparel and footwear 5.0 to November 2011 6 7.0 Other personal and household articles 4.8 4 * Including automobiles, 4.2 Hyper&Supermkt, Food, Beverages and Tobacco motorcycles, parts and pieces, 4.2 2 Hypermarkets and supermarkets and construction materials Fuels and lubricants 2.1 0 Source: IBGEM 009M 010Ap 008 Se 009 S e 10 11 g 1 v 11Au 01 Elaboration: Ministry of Finance 20 20No 20 2 2 2 r2 2 p p v ar arNo 14
  • Ministry of FinanceCapacity utilization slows down in 2011 Economic ActivityIn line with the slowdown in industrial activity throughout the year, indicators of the Installed CapacityUtilization (NUCI) showed some decline in 2011. For 2012, more positive economic performance figuresare expected and are likely to be reflected in a more intense capacity utilization of the domestic industry.Installed Capacity Utilization Level (%, seasonally adjusted) 89 87 85 83 83.4 NUCI - CNI Special Edition | Year 2011 81.5 NUCI - FIESP* 81 80.9 NUCI - FGV 79 Data: %, seasonally adjusted 77 * Covering the industry of São Paulo only 75 Source: CNI, Fiesp and FGV Se 07 Se 08 Se 09 Se 10 v 1 06 n 7 n 8 n 9 n 0 M 07 M 08 M 09 M 10 M 11 De 011 1 No 201 Elaboration: Ministry of Finance 0 0 0 1 01 20 20 20 20 20 20 20 20 20 20 20 20 20 20 2 c2 ay ay ay ay ayp p p p p nSe Ja Ja Ja Ja Ja 15
  • Ministry of FinanceCapacity utilization per sector Economic ActivityThe process of accommodation of the economy had a slight decrease in its capacity utilization indexes.However, the sectoral levels have been within regular economic activity conditions.Installed Capacity Utilization Level per Sector (%, seasonally adjusted) NUCI per Setor Dec 2010 Dec 2011 Average by Sector* NUCI per Sector 84.9 83.4 82.6 General Industry 90.3 88.6 84.6 Construction material 91.2 87.1 84.5 Non-metallic minerals 90.1 86.6 81.5 Material of Transport 85.2 86.3 84.7 Clothing and Footwear 89.2 85.9 80.8 Durable goods 78.3 85.0 76.7 Electrical equipment 85.2 84.5 82.0 Mechanics 88.8 84.4 83.7 Plastic products 84.5 83.3 80.4 Special Edition | Year 2011 Capital goods 83.1 83.0 82.1 Food 85.0 82.9 80.3 Consumer goods 80.2 81.5 78.2 Other products 74.5 69.9 69.5 Pharmaceutical products 92.1 91.7 92.3 Pulp and Paper 85.0 84.1 84.5 Chemistry 85.9 83.8 86.2 Data: %, seasonally adjusted Intermediate goods 89.3 83.6 88.5 Metallurgy 86.4 83.1 86.5 * Period: 2000-2011 Textiles 82.0 79.8 79.9 Source: FGV Non-durable goods 75.1 75.8 77.8 Elaboration: Ministry of Finance 16 Furniture 75.1 75.8 77.8
  • Ministry of FinanceConfidence in the Brazilian economy remains positive Economic ActivityThe Industry Confidence Index has stabilized since November, closing at 101.8 points in 2011. In January2012, there was an even better performance (102.3 points). On the other hand, consumer confidenceended the year at 119.6 points and reached 116.0 in January. Despite the marginal decline, the indicator isstill at optimistic levels and a gradual recovery for the industry is expected in 2012.Industry and Consumer Confidence Indexes (points, seasonally adjusted)130120 116.0110 Special Edition | Year 2011 Optimistic 102.3100 Pessimistic Consumer Confidence Index 90 Industry Confidence Index Data: points, seasonally adjusted 80 Source: FGV n 10 n 11No 20 0No 20 1Ap 20 0Ap 20 1M 20 0 ay 10 c 10 c 11M 20 0Au l 20 0 g 10M 20 1 ay 11M 20 1Au l 20 1 g 11 12O 20 0O 20 1 n 10 n 11 v 10 v 11 ct 1 ct 1 ar 1 ar 1 b 1 r 1 Ju 201 b 1 r 1 Ju 201 Se 201 Se 201Ju 20Ju 20 Elaboration: Ministry of FinanceFe 20De 20De 20Fe 20 20Ja 20Ja 20 p p nJa 17
  • Ministry of FinanceNew record for the Brazilian harvest in 2011 Economic ActivityThe agricultural production in Brazil reached a record of 163 million tons of grains in 2011, an increase of 9.2%when compared to the previous year. The result consolidates Brazil as one of the world’s leading food producers.Brazilian Grain Crop - Cereal grains, vegetables and oilseeds (millions of tons) 200 163.0 150 149.3 144.1 135.1 Special Edition | Year 2011 131.8 123.2 119.1 122.5 114.7 100 96.8 Data: millions of tons 50 Source: CONAB/MAPA 2 3 4 5 7 8 9 0 1 6 /0 /0 /0 /0 /0 /0 /0 /1 /1 /0 Elaboration: Ministry of Finance 01 02 03 04 06 07 08 09 10 05 20 20 20 20 20 20 20 20 20 20 18
  • Ministry of FinanceHarvest Plan fosters agricultural dynamism Economic ActivityThe 2011/2012 Agriculture and Livestock Plan reached a total of R$ 123.2 billion, an increase of 6.2%compared to the previous crop. From this total, R$ 107.2 billion is directed to business agriculture and R$ 16billion to family farming. The resources will be used to operation funding, investment, trading, insurancepremium subsidy to rural areas and support to sustainable agronomic practices.Rural Financing Program (R$ billion)150 123.2 116.0120 108.0 16.0 16.0 15.0 90 78.0 70.0 Special Edition | Year 2011 63.0 13.0 Total 56.9 12.0 60 46.5 Family Agriculture 9.0 10.0 16.0 32.6 7.0 Commercial Agriculture 24.7 30 5.4 Data: R$ billion 4.2 * Including other credits 20.5 27.2 39.5 44.4 50.0 58.0 65.0 93.0 100.0 107.2 0 Source: CONAB/MAPA 03 04 05 * * 8 9 0 1 2 06 07 /0 /0 /1 /1 /1 Elaboration: Ministry of Finance 2/ / / 03 04 07 08 09 10 11 5/ / 06 0 0 20 20 20 20 20 20 20 20 20 20 19
  • Ministry of FinanceInvestments growing larger than GDP Economic ActivitySince 2004, investment growth rates have been higher than GDP growth, with the exception of 2009. Theresult is a higher production capacity able to meet an increasing domestic demand. For the following years,the growth model adopted by the Federal Government will give even greater emphasis on investment inall sectors of the economy.GDP and Investment – GFCF (% YoY) 25 20 15 Investment (GFCF) 10 GDP Special Edition | Year 2011 Data: % annual 4.0 3.6 5 3.2 3.2 13.9 13.6 21.3 10.8 * Ministry of Finance estimate 1.1 9.1 5.7 9.8 6.1 5.2 7.5 5.3 4.5 0 Source: IBGE -4.6 -6.7 -0.3 -5 Elaboration: Ministry of Finance-10 ** 03 04 05 06 08 09 0 * 07 11 12 1 20 20 20 20 20 20 20 20 20 20 20
  • Ministry of FinanceParticipation of investments in GDP on an upward trend Economic ActivityThe opportunities in the Brazilian economy and the measures taken to encourage long-term investmentwill enlarge the contribution of investment to economic growth, which is expected to reach 20.8% of GDPin 2012.Investment – GFCF (% of GDP)25 20 15 Special Edition | Year 2011 10 5 Data: % of GDP 16.4 15.3 16.1 15.9 16.4 17.4 19.1 18.1 19.5 19.6 20.8 * Ministry of Finance estimate 0 Source: IBGE 02 3 4 5 6 07 08 9 0 * * 11 12 Elaboration: Ministry of Finance 0 0 0 0 0 1 20 20 20 20 20 20 20 20 20 20 20 21
  • Ministry of FinanceInvestments of PAC on a rise Economic ActivityThe second stage of the Growth Acceleration Program (PAC 2) aims to provide infrastructure throughinvestments near R$ 1 trillion within 2011-2014. Nearly 50% of the total will be directed to investments inenergy and 30% in “Minha Casa, Minha Vida” housing program. Investments in energy and transportationsectors have already been established from 2014 on.PAC 2 (R$ billion) PAC 2 Axes 2011-2014 After 2014 Total PAC Better city 57.1 57.1 PAC Citizenship Community 23.0 23.0 Special Edition | Year 2011 PAC My House My Life 278.2 278.2 PAC Water and Light for All 30.6 30.6 PAC Transportation 104.5 4.5 109.0 PAC Energy 461.6 626.9 1,088.5 Data: R$ billion Total 955.0 631.4 1,586.4 Source: MPOG Elaboration: Ministry of Finance 22
  • Ministry of FinancePAC commitment will grow 20% in 2012 Economic ActivityThe amounts committed to PAC increased significantly, reaching R$ 35.4 billion in 2011. It represents agrowth of almost 20%, when compared to 2010, and a 121.3% expansion between 2007 and 2011. In linewith the economic growth model based upon investments, a 20.3% expansion has been estimated for2012, reaching R$ 42.6 billion.PAC: Committed nominal values (R$ billion)504030 Special Edition | Year 20112010 Data: R$ billion 16.0 17.0 27.1 29.7 35.4 42.6 * LOA 2012 0 Source: STN/Ministry of Finance 07 08 09 10 11 * 12 Elaboration: Ministry of Finance 20 20 20 20 20 20 23
  • Ministry of Finance“Minha Casa, Minha Vida”housing program: growth with social inclusion Economic ActivitySince 2009, disbursements for the MCMV housing program have grown by 431% reaching R$ 37.2 billion in2011, which is equivalent to 480,000 new homes in 2011 alone. In the period 2011-2014, two million newunits are expected to be built, with investments predicted to reach a total of R$ 142.3 billion.Disbursement of MCMV Program (R$ billion)50 Goal for the 2011 - 2014 period (MCMV 2): Minha Casa, Minha Vida 240 2 million homes Accomplished 2011: 480 thousand homes30 Special Edition | Year 201120 Data: R$ billion10 7.0 30.4 37.2 41.3 31.6 32.2 * Caixa Econômica Federal estimate 0 Source: Caixa Econômica Federal 09 10 11 * * * 12 13 14 Elaboration: Ministry of Finance 20 20 20 20 20 20 24
  • Ministry of FinanceInvestments for the World Soccer Cup Economic ActivityIn the coming years, the country will rely on investments in several sectors, including sports. A total of R$ 33billion will be allocated in the implementation of the infrastructure for the World Soccer Cup in 2014. Mostwill be directed to transportation projects, of which R$ 11.6 billion for urban mobility and R$ 5.5 billion forports and airports.Investments to the 2014 World Soccer Cup (R$ billion) Stadiums 5.7 Urban Mobility 11.6 Ports and Airports 5.5 Civil Infrastructure (Total) 22.8 Special Edition | Year 2011 Telecom and Energy 3.8 Security and Health 4.6 Hotels 1.9 Total Infrastructure 33.1 Data: R$ billion Source: Ministry of Finance Elaboration: Ministry of Finance 25
  • Ministry of FinanceBrazil stands out in port investments Economic ActivityBrazil has two of the largest projects of investment in ports in the world: the expansion of the Port of Santosand the construction of the Açu Port in Rio de Janeiro, the largest venture investment in port in Latin America.Nine Major Projects of Ports in the World* (US$ billion) China Yangshan Port 8.0 Panama Panama Canal expansion 6.5 Netherlands Port of Rotterdam expansion 4.0 China Yangtze River dredging 3.6 Brazil 2.9 Port of Santos expansion (SP) Special Edition | Year 2011United Kingdom London Gateway Port 2.5 Data: US$ billion Qatar 2.0 Ras Laffan Port expansion Brazil 1.8 Açu Superport (RJ) * In the final stages of preparation or in progress Oman 1.0 Port of Sohar expansion Source: CG-LA, Exame yearbook 2011-2012 Elaboration: Ministry of Finance 26
  • Ministry of FinanceInvestments in the Oil and Gas sectors Economic ActivityPetrobras investments in building platforms and ship-oil-platforms are also highlights in the Oil and Gassectors. Together, they total US$ 40 billion.Ten Major Projects in the Oil and Gas Sectors in the World* (US$ billion) Australia Gorgon gas field 44.0 Australia Pilbara gas field 35.0 Australia Wheatstone gas field 30.0 Australia Ichthys gas field 30.0 Brazil Petrobras oil platforms (RJ-ES-SP) 25.0 Special Edition | Year 2011 Canada Keystone XL oil pipeline 20.0 Nigeria Trans-Saharan gas pipeline 20.0 Brazil 15.0 Petrobras platform ships (ES-RJ-SP) Data: US$ billion Turkey 11.3 Nabucco gas pipeline * In the final stages of preparation or in progressIndonesia 10.0 Abadi gas field Source: CG-LA, Exame yearbook 2011-2012 Elaboration: Ministry of Finance 27
  • Ministry of FinanceBrazil has a wide investment program in transports Economic ActivityAmong the 16 largest investment projects related to transportation in the world, four of them are in Brazil:two related to the expansion of its railway network, one for subway system and another to build highwaysthroughout the country.Sixteen Major Transport Projects in the World* (US$ billion) China New Kunming Airport 23.1 USA O´Hare airport modernization program 15.0 China Harbin-Dalian railroad 14.0 China Hong Kong-Zhuhai-Macau bridge 10.7Malaysia Kuala Lumpur-Klang Valley railroad 10.3 USA 6.9 Railroad transportation (Colorado) Brazil 6.7 Norte-Sul railroad (GO-MA-MG-MS-PA-SP-TO)Vietnam 5.7 Nha Trang railroad Special Edition | Year 2011 USA 5.3 Detroit river international bridge China 5.0 Shangai-Hangzhou train Brazil 4.3 São Paulo subway expansion Data: US$ billionVietnam 4.0 Hau river underground railroad Brazil 3.8 São Paulo beltway, north section * In the final stages ofVietnam 3.7 Ho Chi Minh City beltway preparation or in progress Brazil 3.4 Transnordestina railroad (CE-PE-PI) Source: CG-LA, Exame yearbook 2011-2012 Elaboration: Ministry of Finance 28
  • Ministry of FinanceSignificant investments in the electricity sector Economic ActivityThe energy sector is also a priority for the Brazilian government. Among the fifteen largest sector projectsin the world, six are located in Brazil, with emphasis on the construction of the Belo Monte power plant.Fifteen Major Projects in the the Electricity Sector in the World*(US$ billion) China Jiuquan wind power base 18.2 Brazil Belo Monte (PA) hydroelectric power plant 16.0 Brazil São Luiz do Tapajós (PA) hydroelectric power plant 12.6 USA Green Power Express transmission 12.0 China Yangjiang nuclear plant 10.2 Brazil Santo Antônio (RO) hydroelectric power plant 10.0 Brazil Jirau (RO) hydroelectric power plant 8.2 Special Edition | Year 2011 China Xiluodu hydroelectric power plant 6.8 Canada Pace River hydroelectric power plant 6.6 Canada Romaine hydroelectric power plant 6.5 China 6.3 Xiangjiaba hydroelectric power plant Brazil Angra 3 nuclear plant 6.3 Data: US$ billion India 4.2 Mundra thermal power plant * In the final stages ofColombia 3.0 Pescadero hydroelectric power plant preparation or in progress Brazil 2.5 Teles Pires (MT-PA) hydroelectric power plant Source: CG-LA, Exame yearbook 2011-2012 Elaboration: Ministry of Finance 29
  • Ministry of FinanceInvestments: High Speed Rail Economic ActivityInvestments for the construction of high-speed train linking the cities of Rio de Janeiro, Sao Paulo andCampinas will total approximately R$ 35 billion. The model of transport will benefit the whole population.High-speed Train: Investment and its composition (R$ billion and % of total) High Speed 11.3% Expropriations Train (TAV) 9.8% Systems and Equipment Total: R$ 34.6 billion* Special Edition | Year 2011 7.9% Trains Data: R$ billion and % of total Phase 1 Phase 2 71% * Estimated amounts subjected 6.7 billion 27.9 billion to changes Civil Works * Estimate data from 2009, subject to changes. Source: STN/Ministry of Finance Elaboration: Ministry of Finance 30
  • Ministry of FinanceAirport concessions generate more investments in the sector Economic ActivityThe investments scheduled for the airport sector in Brazil are close to R$ 3 billion, if only the concessions ofthe airports in Brasilia, Guarulhos and Viracopos are considered. The licensing system will be important forthe private sector to take part in the growth process. The well-succeeded auction showed the great interestof the private sector and its potential for profit.Airport Concession: Planned Investments (R$ billion) Brasilia Guarulhos Viracopos Expansion of passengers New terminal building, Terminal building (first terminal, land transport new taxiway, departure phase) and departure networks, departures expansion. expansion. Special Edition | Year 2011 and boarding area. Planned Investments 2012 - 2014 2012 - 2014 2012 - 2014 Data: R$ billion R$ 627 million R$ 1.38 billion R$ 873 million Source: STN/Ministry of Finance Elaboration: Ministry of Finance 31
  • Brazilian EconomyOUTLOOK Employment and Income Ministry of Finance B R A Z I L I A N G O V E R N M E N T
  • Ministry of FinanceSocial inclusion and job creation are the highlights in 2011 Employment and IncomeThe unemployment rate reached 4.7% in December 2011, the lowest level registered by IBGE (the Brazilian Bureauof Statistics). Growth of formalization in the labor market is equally important. Since 2003, the economy has createdalmost 17.3 million formal jobs. The performance is even more significant when contrasted with the adverse scenarioof the labor market in the world’s largest economies.Economic growth with social and productive inclusion has oriented Government policies. In 2011, 325,000 newhouseholds have started to collect the benefits from the “Bolsa Familia” conditional cash transfer program, totaling13.3 million beneficiaries. Special Edition | Year 2011 34
  • Ministry of FinanceIncome inequality in a continuous decrease Employment and IncomeThe Gini index, used to measure income inequality, has been falling continuously in recent years. Theexplanation comes from the reduction of inequality in labor income and from the minimum wage increasepolicy, along with the income transfer programs and macro-economic stability.Gini Income Index* (12- month moving average)0.5650.5600.555 Special Edition | Year 2011 Data: 12-month moving average0.550 * People over 10 years of age. Based upon the per capita income, considering the monthly0.545 income of all types of work 0.541 effectively received 0.540 Source: IBGE 11 Au 09 09 De 09 Fe 09 Ap 10 Ju 10 Au 10 10 De 10 Fe 10 Ap 11 1 11 11 01 Elaboration: Ministry of Finance 20 20 20 20 0 20 0 20 20 20 0 20 20 20 c2 r2 c2 r2 g n g ct b n g ct b n v Au No Ju Ju O O 35
  • Ministry of Finance“Bolsa Família” cash transfer program helps to fight inequality Employment and Income“Bolsa Família” is considered one of the most efficient programs to reduce poverty focused on the poorestof the population. The program has contributed significantly to the reduction of inequality, encompassing,with a relative low cost, 13.3 million households in December 2011.“Bolsa Família” Income Transfer Program (% of GDP, R$ billion and million of households) 20 0.5 17.0 0.4 15 13.3 0.3 Special Edition | Year 2011 10 Bolsa Família (% of GDP) 0.2 Bolsa Família (R$ billion) Number of Households 5 (million) 0.1 Data: % of GDP, R$ billion 0.20 0.27 0.32 0.34 0.35 0.38 0.38 0.41 and million households 0 0.0 2004 2005 2006 2007 2008 2009 2010 2011* Source: MDS Elaboration: Ministry of Finance 36
  • Ministry of FinanceReal minimum wage increased more than 66% in the past 10 years Employment and IncomeThe acceleration of economic growth in recent years has led to a relevant increase in the per capita income.As a result of the Government’s policy, the minimum wage had an even more significant rise of 66%between 2002 and 2012. In January 2012, it increased from R$ 545 to R$ 622, which will inject up to R$ 50billion in the domestic market.Real Minimum Wage Evolution (R$ - annual average in 2011 prices) 800 700 600 500 66% owth eal gr 1% Special Edition | Year 2011 R th 21 400 nal grow 300 Nomi 200 Data: R$ - Annual average 100 in 2011 prices 200 240 260 300 350 380 415 465 510 540 545 622 0 Source: IPEA 02 03 04 05 06 07 08 09 10 11 11 12 20 20 20 20 20 20 20 20 20 20 20 20 Produced by: Ministry of Finance r r ay ay r r ar b n n ar n Ap Ap Ap Ap Ja Ja Ja Fe M M M M 37
  • Ministry of FinanceA sharp decline in unemployment rate Employment and IncomeEven in a scenario of low economic growth, there has been a good performance in the labor market. Therewas a decline of unemployment, which reached 4.7% in December 2011. It shows the dynamism of theBrazilian economy in a scenario rather different from advanced economies.Unemployment Rate (% of economically active population) 14 13 12 11 10 Special Edition | Year 2011 9 8 7 6 Data: % of economically 5 active population 4 4.70 Source: IBGE 9 10 11 03 04 5 06 07 08 20 2 1 0 0 n 0 01 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20Ja c 20 c2 n n n n n n n nDe De Ja Ja JaJa Ja Ja Ja Ja 38
  • Ministry of FinanceAn overall drop in regional unemployment rates Employment and IncomeWith regards to a regional analysis, it is important to highlight the unemployment rates in the cities ofPorto Alegre (3.1%), Belo Horizonte (3.8%) in December 2011. It’s worth mentioning the 2.2 p.p. decreasein the unemployment rate in Recife, as a result of the new cycle of investments in Pernambuco state.Regional Unemployment (% of economically active population)201816 Recife14 Salvador12 Belo Horizonte Special Edition | Year 201110 Rio de Janeiro 8 7.7 São Paulo 6 4.9 Porto Alegre 4.7 4 4.7 3.8 Data: % of economically 2 3.1 active population 0 Source: IBGE 02 03 04 05 06 07 08 09 10 11 1 01 Elaboration: Ministry of Finance20 20 20 20 20 20 20 20 20 20 c2 De 39
  • Ministry of FinanceImproving the quality of labor force Employment and IncomeA qualitative improvement of employment in Brazil contrasts with the increase in degree of formalizationof the labor market. According to IBGE, the proportion of formally employed workers in relation to the totalemployed population rose to an annual average of 53.6% in 2011. Similarly, the proportion of contributorsto social security in relation to the employed population reached 71.9% on the same basis of comparison,which shows greater social protection for more workers.Formalization Rate (%) 80 70 60 50 Special Edition | Year 2011 40 Formally employed over the 30 occupied population 20 Contributors to social security over the occupied population 45.5 63.0 43.5 60.1 43.8 60.1 45.5 62.8 46.1 63.2 47.6 64.8 49.2 66.4 49.3 66.1 51.6 69.2 53.6 71.9 10 Data: % 0 Source: IBGE 02 03 04 05 06 07 08 09 10 11 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 20 40
  • Ministry of FinanceFormal employment records the third best performance of the series Employment and IncomeData from the Ministry of Labor and Employment reported the creation of 1.5 million formal jobs in 2011.It is one of the best performances in the time series. Adding the jobs generated in the public service, about17.3 million jobs were created in Brazil from 2003 to 2011.Job Creation CLT (thousands of jobs)*2,5002,0001,500 Special Edition | Year 20111,000 Data: Thousands of jobs covered by CLT (Consolidation of Labor Law) 500 * Not including information 645 1,523 1,254 1,229 1,617 1,452 995 2,137 1,566 declared out of time 0 Source: MTE 03 04 05 06 07 09 10 11 08 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 41
  • Ministry of FinanceBrazilian workers’ growing level of education Employment and IncomeThe increase in the educational level of the employed population provides an important explanation forthe increase in productivity, which reduces production costs, raises wages and business profitability. In2003, the occupied population with 11 or more years of schooling accounted for 46.7% of the total. Thepercentage jumped to 60.7% in 2011.Occupied Population by Educational Level (% of total)8070605040 Special Edition | Year 201130 200320 201110 3.0 1.6 6.3 3.4 24.7 17.3 19.1 17.0 46.7 60.7 Data: % of total 0 Source: IBGE ol ar r ol ars ol ars ol ars ol ars ho ye o sc n1 ng g g g g Elaboration: Ministry of Finance ho e ho e ho e ho e in in in in sc 3 y sc 7 y sc 0 y sc e y of ha oli g in of or of o 1 t o of to of to ss h m le o sc t 4 1 8 or ith N 11 42w
  • Ministry of FinanceA middle-class nation Employment and IncomeIn addition to strengthening the domestic market and enhancing growth of the poorest regions in thecountry, the new cycle of economic development fosters the expansion of the new middle class. Thegrowing middle class has been the result of a better income for the poorest since 2003.Composition of Brazilian Social Classes (millions of people) 7.2 A Class 9.6 7.3 B Class 10.4 67.5 C Class 95.0 Special Edition | Year 2011 46.1 D Class 44.5 46.6 E Class 28.9 Data: millions of people 2002 2009 Source: FGV Elaboration: Ministry of Finance Total: 175 million Total: 188 million 43
  • Ministry of FinanceEconomic growth and income distribution Employment and IncomeThe economic growth of recent years has allowed all levels of per capita household income to record substantialgrowth. It’s noteworthy the 7.2% growth rate of per capita household income from the 10% poorest.Average Growth Rate of the per capita Income - 2001 to 2009 10%8 poorest765 Brazilian Average Special Edition | Year 201143 10% Data: Average growth rate2 richest (2001-2009)1 * Estimates based on PNAD 7,2 6,3 5,9 5,4 4,9 4,6 4,0 3,3 2,5 1,4 (2001 to 2009)0 Source: IBGE h nd nt th Elaboration: Ministry of Finance om h h h ve co h ird nt gh t nt xt rs ft Ro Se Se Te Th Ni Si Ei Fi Fi 44
  • Brazilian EconomyOUTLOOK Inflation Ministry of Finance B R A Z I L I A N G O V E R N M E N T
  • Ministry of FinanceInflation target is met in 2011 InflationFor seven consecutive years, the Brazilian inflation, measured by CPI inflation (IPCA index), has met the targets setby the National Monetary Council. Inflationary pressures in 2011 were predominantly caused by external factors, dueto commodity price shocks in the first half of the year. As a result, many countries that adopt the inflation targetingregime recorded price rises above established limits.The Brazilian Government–aware of the pressure from high prices–acted promptly, through its interest rate policy,the adoption of macro-prudential measures and a decisive fiscal consolidation program. As a result, prices have beenfar more behaved since mid-2011. The expectation is that consumer inflation will follow a downward trend towardthe center of the target for 2012. Special Edition | Year 2011 46
  • Ministry of FinanceInflation within the target range InflationAfter a period of increases, price pressures observed in the first half of 2011 began to dissipate. There wasa 12-month rate decline from October on. According to Central Bank of Brazil estimates*, the CPI inflation(IPCA index) will be around 4.7% in 2012, indicating convergence to the central target (4.5%).Inflation: IPCA (% YoY)141210 8 CPI inflation (IPCA index) Special Edition | Year 2011 Inflation target 6 Upper and lower bounds 4 Data: % annual 2 * Central Bank of Brazil Inflation 8.9 6.0 7.7 12.5 9.3 7.6 5.7 3.1 4.5 5.9 4.3 5.9 6.5 4.7 Report (December 2011) 0 Source: IBGE and Central Bank of Brazil * 01 02 03 04 05 06 07 08 09 10 * 9 00 11 12 Elaboration: Ministry of Finance 9 20 20 20 20 20 20 20 20 20 20 19 20 20 20 47
  • Ministry of FinanceMarket and managed prices slowdown InflationIncreases in market prices began to fall in August, reaching 6.63% in 2011 and contributing to the declinein the overall CPI inflation (IPCA index) (6.50%). The downward trend observed in managed prices sinceOctober should continue in 2012, once adjustments to bus fares, concentrated in early 2011, should notrepeat this year. Inflation IPCA: Headline, Market Price and Managed Goods (% YoY) 10 8 6.63 6.50 6 6.20 Special Edition | Year 2011 4 Managed Goods Market Price Goods 2 CPI inflation (IPCA index) Data: % annual 0 Source: Central Bank of Brazil 07 07 08 08 08 09 9 09 10 10 0 11 1 1 00 01 01 01 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 20 l2 l2 l2 c2 l v ar l v v v ar ar arJu Ju Ju Ju Ju De No No No No M M M M 48
  • Ministry of FinanceMonthly consumer inflation decreasing since October InflationCPI inflation (IPCA index) has been decelerating significantly since May 2011, when compared to the figuresobserved at the beginning of the year. The increase in the consumer price monthly index in the second halfof 2011 did not go as high as the levels observed in 2010.Inflation: IPCA (% MoM)0.90.80.70.6 0.630.5 0.50 Special Edition | Year 20110.4 0.37 20110.3 20100.2 20090.1 Data: % monthly0.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: IBGE Elaboration: Ministry of Finance 49
  • Ministry of FinanceInflation rates decline InflationConsumer prices showed an unusual increase in the first months of 2011, driven by high commodity prices.Such pressure faded away throughout the year and, in the second half of 2011, mainly CPI inflation (IPCAindex) started to ease down significantly.Inflation: IPCA (% MoM)1.0 Monthly Average: 0.77% 0.83 0.83 0.800.8 0.79 0.77 0.75 0.63 Monthly Average: 0.39%0.6 0.53 0.52 0.50 Special Edition | Year 2011 0.47 0.430.4 0.37 CPI inflation (IPCA index) 0.2 Average 0.15 0.16 Data: % monthly 0.0 Source: FGV 10 10 10 11 11 11 11 11 11 Au 11 11 11 11 11 1 01 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 0 20 20 20 20 l2 c2 ct v c n b ar r ay n g p ct v Ju Ap De De No No Ja Ju Fe Se O O M M 50
  • Ministry of FinanceCPI inflation (IPCA index): Main sources of pressure in 2011 InflationThe “Food and Beverage” group was the main source of pressure on the CPI inflation (IPCA index) in 2011,especially “Away-from-home” food. Also, fuel and transportation costs played an important role due tothe increase of public transportation fares, especially bus fares and airline tickets. Personal expenses wereimportant as well due to increases in costs related to household maids, recreation and housing (especially,rental costs). The ten items which most contributed to the CPI inflation (IPCA index) totaled 4.28 percentagepoints of the 6.5% recorded in 2011.IPCA: Major Contributions in 2011 (p.p.) Food and beverage 1.68 Transportation 1.14 Personal expenses 0.89 Housing 0.89 Special Edition | Year 2011Health and personal care 0.68 Education 0.58 Clothing 0.56 Communication 0.08 Household articles Data: percentage points Source: IBGE Elaboration: Ministry of Finance 51
  • Ministry of FinanceFood inflation InflationFood and beverage prices increased 7.19% in 2011. The last quarter of the year registered pressures fromaway-from-home eating and also from meat prices. Even so, towards the end of the year, monthly inflationwas much lower when compared to 2010, which contributed decisively to the convergence of the CPIinflation (IPCA index) to the target set by the Monetary Policy Committee.Inflation IPCA: Food Prices (% MoM) 2.5 2.0 1.32 1.5 Special Edition | Year 2011 1.0 1.23 0.5 0.24 0.0 2009 2010-0.5 2011-1.0 Data: % monthly-1.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: IBGE Elaboration: Ministry of Finance 52
  • Ministry of FinanceGeneral Price Index (IGP-DI) decelerates InflationThe General Price Index (IGP-DI) took a downward trend throughout 2011 and ended the year with inflationat 5.00%. Such dynamics was mainly related to the behavior of PPI inflation (IPA index), which increased4.12% due to the behavior of the exchange rate and commodity prices. Moreover, construction costs (INCC-DI) reflected the dynamism of the sector and rose 7.49% in 2011, affecting especially labor costs.Inflation: IGP-DI and Components (% YoY, 12-month basis) 15 12 9 IGP-DI 7.49 6 6.36 IPA-DI Special Edition | Year 2011 5.00 INCC-DI 3 4.12 IPC-Br 0 Data: % annual in a 12-month basis -3 * As of December 2011 -6 Source: FGV Ju 201 0 Ju 201 1Not 20 09Not 20 10 20 1Ap 20 0Ap 20 1 Se 20 9Ja 20 9M b 20 0Ju 20 0Ja 20 0M b 20 1M r 20 0Au l 20 0 Se 20 0M r 20 1Ju 20 1Au l 20 1 Se 20 1 c 2 11O p2 9O p2 0O p2 1 n 09 n 10 1De 20 9De 20 0De 20 1 Elaboration: Ministry of Finance n 1 n 1 ct 01 ar 1 ar 1 g 0 c 0 1 ay 1 c 1 1 1 g 1 1 ay 1 g 1 0 1 1 01 v 0 v 1 v 1 c 0 c 0Au l 20Fe 20Fe 20 JuNo 53
  • Ministry of FinanceConsumer inflation is expected to ease InflationFollowing the downward trend started in October 2011, inflation expectations are showing a significantdecrease in consumer prices during the first half of 2012. Such forecast was conducted by the Central Bankof Brazil in its market survey called Focus.IPCA Inflation: Market Expectations (% YoY, 12-month basis) 8.0 7.5 7.0 6.5 Special Edition | Year 2011 6.0 Data: % annual in a 5.34 12-month basis 5.5 * Data achieved by December 5.0 2011. After that, forecast from 4.5 the FOCUS research of Central Bank of Brazil - Jan/20/2012. 4.0 Source: Central Bank of Brazil 12 09 10 11 ay 12 09 10 11 8 9 0 1 00 00 01 01 20 Elaboration: Ministry of Finance 20 20 20 M 20 20 20 20 c2 c2 c2 c2 r r r r g g g Ap Ap Ap ApDe De De De Au Au Au 54
  • Ministry of FinanceServices weight on the new CPI inflation weighting structure InflationCPI inflation (IPCA index)´s new weighting structure has given more consideration to service costs. Themain reason was related to the new rules followed by the Central Bank of Brazil, according to internationalstandards recommended by the UN. For instance, away-from-home food was previously classified as anon-durable good, and it is now under the heading “services” and with 7.97 percentage points in the newweighting structure. Mobile phone and airline tickets, previously classified as managed prices, now weight1.52 p.p. and 0.57 p.p. respectively.IPCA Inflation: Weighting and Classifications Structure (p.p.)35302520 Special Edition | Year 20111510 Previous Classification 5 Actual Classification Data: percentage points 0 28.9 24.5 24.8 33.7 7.9 10.5 9.2 8.7 29.2 22.6 Managed Services Durable Semi-durable Non-durable Source: IBGE and Central Bank of Brazil Elaboration: Ministry of Finance 55
  • Ministry of FinanceInflation would have been lower with new structure InflationSimulations considering CPI inflation (IPCA index)´s new weighting structure (POF 2008/09), applied toprice variations collected from 2006 to 2011, show much lower results than the ones officially released andbased on the IBGE’s Household Budget Survey (POF 2002/03).Inflation IPCA: Official versus Reweighted Results (% YoY)8765 Special Edition | Year 2011432 Official results Reweighted results 3.14 2.64 4.46 3.92 5.90 5.48 4.31 3.82 5.91 5.42 6.50 6.151 Data: % annual0 2006 2007 2008 2009 2010 2011 Source: IBGE and Ministry of Finance Elaboration: Ministry of Finance 56
  • Brazilian EconomyOUTLOOK Interest Rates and Credit Ministry of Finance B R A Z I L I A N G O V E R N M E N T
  • Ministry of FinanceCredit growth consistent with the country’s degree of development Interest Rates and CreditThe recent credit expansion has significantly contributed to boost domestic economic activity. It was as a result ofeconomic stability, evolution of labor market and inclusion of a larger share of the Brazilian population into thebanking system. The mass consumption market includes more people without compromising the solvency of Brazilianfinancial institutions. In 2011, credit to GDP ratio reached 49.1%, an increase of 3.9 pp compared to 2010.The total percentage is consistent with an environment of moderate expansion in economic activity. The corporatesegment increased by 17.4% when compared to 2010. Part of the expansion could be attributed to external fundingaccess. The segment of individuals, on its turn, had a 20.8% increase, if compared to 2010. It’s important to underlinethat the cycle of monetary easing and credit measures carried out in the 2nd half of 2011, as the reduction of capitalrequirements for loans up to 60 months, should boost credit growth during 2012. Special Edition | Year 2011 58
  • Ministry of FinanceReal and nominal interest rates Interest Rates and CreditAfter an upward interest rate cycle, Central Bank of Brazil reduced the benchmark interest rate (Selic) in 2.0p.p, to 10.5%, by means of a 50bp pace reduction in August, October and November 2011, along with anadditional one in January 2012.The decision took into consideration the macroeconomic fundamentals andthe deterioration of the external outlook. The real interest rate reached 4.35% in January 2012. In its lastreport, the Central Bank of Brazil stated that Selic rate can drop below 10%.Nominal Interest Rate (Selic Target) and Real Ex-Ante Interest Rate* (% YoY) 30 25 20 Selic Interest Rate (Target) Special Edition | Year 2011 15 Real Ex-Ante Interest Rate 10 10.50 Data: % annual * Real rate deflated by the 5 12-month ahead inflation 4.35 expectations 0 Source: Central Bank of Brazil 2 3 04 05 06 07 08 09 10 v 1 n 1 12 Elaboration: Ministry of Finance 0 0 No 201 Ja 01 20 20 20 20 20 20 20 20 20 20 2 n n n n n n n n n nJa Ja Ja Ja Ja Ja Ja Ja Ja Ja 59
  • Ministry of FinanceThe recent behavior of the term structure of interest rates Interest Rates and CreditIn the second half of 2011, there was an overall drop in one-day interbank deposit rates, after the CentralBank of Brazil’s decision to start an interest rate reduction cycle.Term Structure of Interest Rates (% YoY) 13.512.711.9 Special Edition | Year 2011 11.1 Jan 201311.1 10.8 Jan 201410.3 10.4 Jan 2016 Data: % annual 9.5 Source: Central Bank of Brazil Ju 010 n 1 O 010 ar 0 M 011 Fe 010 Ja 011 Ap 10 M 010 Ju 10 Au 010 De 10 Ap 11 M 11 11 1 12 Se 10 11 Fe 10 No 10 11 1 M 01 01 20 20 20 20 20 0 20 20 20 20 0 20 20 Elaboration: Ministry of Finance 2 2 2 2 2 r2 l2 r2 l2 2 c2 ay ay p b b n n v v ar n g g ct ct Ju No Au Ja Ju O 60
  • Ministry of FinanceThe BNDES share in total credit remains at historical levels Interest Rates and CreditIn 2011, BNDES share in total credit reached 20.8%, a similar level as of 2010 (21.0%). The disbursementsremain in line with the 20.6% historical average between 2000 and 2011.Brazilian Financial System: BNDES share of total credit (% of total)252015 Special Edition | Year 201110 5 18.9 21.0 24.3 24.0 22.1 20.4 19.0 17.1 17.1 20.0 21.0 21.0 Data: % of total 0 Source: Central Bank of Brazil 07 08 09 10 11 00 01 02 03 04 05 06 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 20 20 20 61
  • Ministry of FinanceBanking credit to businesses Interest Rates and CreditBanking credit for businesses grew 17.4% in 2011, compared to 19.2% in 2010. The moderate performancehas been consistent with the reduction in the growth rate in the last 12 months.Credit for Businesses (% accumulated in the period) Balance growth rate (% yoy) Change in balance over the year (% of total)40 35 Average 2008 - 201135 30 Accumulated surplus30 25 23.57 in the period 20 19.42 200825 Average 21.2 Special Edition | Year 2011 15 200920 10 201015 7.16 5 6.40 201110 0 Data: % accumulated in 12.0 36.1 19.2 17.4 5 -5 the period 0 -10 Source: Central Bank of Brazil ay p 08 09 10 11 n v r v ar n l g c ct Ju Se Ap De No Fe Au Ja Ju Elaboration: Ministry of Finance M M O 20 20 20 20 62
  • Ministry of FinanceBanking credit to individuals Interest Rates and CreditDaily average credit disbursements to individuals have increased 20.8% in 2011 compared to 22.4% in2010. The performance is consistent with an environment of moderate expansion in economic activity. Realestate financing, though, had a remarkable rise of 44.5% in the same period.Credit for Individuals (% accumulated in the period) Balance growth rate (% yoy) Change in balance over the yer (% of total)30 15 Average 2008 - 201125 12.23 Accumulated surplus Average 21.9 12 in the period20 2008 9 Special Edition | Year 2011 8.3315 2009 6 6.19 201010 5.37 2011 5 3 Data: % accumulated 20.8 25.1 19.5 22.4 in the period 0 0 Source: Central Bank of Brazil ay p 8 9 0 1 b ar n r v n l g c ct Ju Se Ap 0 0 1 1 De No Fe Au Ja Ju M M O 20 20 20 20 Elaboration: Ministry of Finance 63
  • Ministry of FinanceDaily average credit disbursements to businesses Interest Rates and CreditDaily average credit disbursements to businesses, at constant prices, reached R$ 5.76 billion at the endof 2011, an amount close to R$ 5.44 billion in 2010. The slight increase was consistent with the economicmoderation in the last 12 months.Daily Average Credit Disbursements to Businesses* (R$ billion, constant prices, December 2011)6.56.0 5.76 20095.5 5.44 5.41 2010 Special Edition | Year 2011 20115.0 Data: R$ billion, constant prices of December 2011 (IPCA)4.5 * According to the Central Bank of Brazil Regulation n. 3445 (2009)4.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Central Bank of Brazil Elaboration: Ministry of Finance 64
  • Ministry of FinanceDaily average credit disbursements to individuals Interest Rates and CreditDaily average credit disbursements to individuals have shown relative stability in 2011. The monetaryeasing and credit measures taken in the second half of the year should have a greater impact on the totalamount of credit during 2012.Daily Average Credit Disbursements to Individuals* (R$ billion, constant prices, December 2011 (IPCA))4.54.0 2009 3.6 2010 Special Edition | Year 20113.5 2011 3.3 Data: R$ billion, constant prices 3.1 of December 2011 (IPCA)3.0 * According to the Central Bank of Brazil Regulation n. 3445 (2009)2.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Central Bank of Brazil Elaboration: Ministry of Finance 65
  • Ministry of FinanceEarmarked credit at the forefront of credit expansion Interest Rates and CreditNon-earmarked total credit amounted to R$ 1.3 trillion in December, with a 16.7% annual increase.Earmarked total credit had an even more robust expansion, totaling R$ 727 billion, an annual increase of23.2%. In the last quarter, the retake has been driven mainly by public banks.Credit Transactions with Earmarked and Non-Earmarked Resources (R$ billion and % of GDP) 2,500 49.1% 45.2% 2,000 726.6 43.7% 40.5% 589.8 1,500 Total (% of GDP) Special Edition | Year 2011 459.8 35.2% 356.1 Earmarked Resources 1,000 30.9% 28.3% 275.2 (R$ billion) 25.7% Non-Earmarked Resources 26.0% 24.6% 234.3 500 203.3 (R$ billion) 180.8 144.2 162.6 Data: R$ billion and % of GDP 240.2 255.6 317.9 403.7 498.3 660.8 871.2 954.5 1,116.1 1,303.1 0 Source: Central Bank of Brazil 2 3 4 5 6 7 8 9 0 1 00 00 00 00 00 00 00 00 01 01 Elaboration: Ministry of Finance c2 c2 c2 c2 c2 c2 c2 c2 c2 c2 De De De De De De De De De De 66
  • Ministry of FinanceBanking spread to individuals Interest Rates and CreditBanking spread to individuals, although still high in comparison with other economies, remains athistorically lows. Over the past six years, it fell 9 p.p. to 34 p.p in December 2011. For 2012, due to the cycleof falling interest rates and some easing in macro-prudential measures announced in November 2011, acontinuity of the spread reduction to individuals is expected.Banking spread to individuals (% YoY) 100 80 60 Special Edition | Year 2011 43.75 40 Spread Spread Funding Interest Rate 34 p.p 20 Lending Interest Rate 10.07 Data: % annual 0 Source: Central Bank of Brazil 10 0 01 02 3 4 5 6 7 8 9 1 Elaboration: Ministry of Finance 0 0 0 0 0 0 0 0 1 20 20 20 20 20 20 20 20 20 20 20 20 67
  • Ministry of FinanceBanking spread to businesses Interest Rates and CreditThe banking spread for businesses is still at a historically high level. Over the past two years it had a slightdecline, i.e., a 0.2 pp in 2010 and 0.4 pp in 2011. The spread encourages Brazilian companies to accessexternal funding via international markets.Banking Spread to Corporations (% YoY) 40 35 30 28.23 25 Special Edition | Year 2011 Spread 20 18 p.p Funding Interest Rate 15 Lending Interest Rate 10 10.28 Data: % annual 5 Source: Central Bank of Brazil 10 00 01 02 03 04 05 06 07 08 09 11 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 20 20 20 68
  • Ministry of FinanceCredit average term for individuals Interest Rates and CreditIn 2011, the average term of credit operations for individuals increased 41 days, from 559 to 600 days. In thelast 6 years, it expanded 311 days, as a result of the favorable evolution in the labor market. Nevertheless,the average term in the business segment have remained somewhat stable in 2011.Average Term of Credit Operations (Days) 600 600 500 400 403 Special Edition | Year 2011 300 Individuals 200 Corporations Data: days 100 Source: Central Bank of Brazil 10 Elaboration: Ministry of Finance 00 01 02 03 04 05 06 07 08 09 1 1 20 20 20 20 20 20 20 20 20 20 20 20 69
  • Ministry of FinanceDefault rates within historical levels Interest Rates and CreditDespite its recent rise, credit for individuals default rates have remained at historical average. As for thebusiness segment, it has also remained stable, at around 4% since mid-2009.Default Rates (% of total) 10 8 7.26 6 Special Edition | Year 2011 4 3.88 Individuals 2 Corporations Data: % of total 0 Source: Central Bank of Brazil 10 00 01 02 03 04 05 06 07 08 09 11 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 20 20 20 70
  • Ministry of FinanceRoom to prudent credit growth Interest Rates and CreditDespite its recent expansion and potential growth, domestic credit to the private sector in Brazil remainslow, as opposed to other economies. In China and South Africa, for instance, it goes beyond 120% of GDP.So, there is room for expansion in the coming years, which will happen in a prudent way and withoutincrease in risk taking.Credit to the Private Sector in 2010* (% of GDP) 250 Data: % of GDP 200 * Financial resources provided to the private sector, such as 150 loans, equity purchase (except stocks), commercial credit and Special Edition | Year 2011 other receivables. Data released 100 by the World Bank include financial sector asset categories 57 not considered as credit to the 50 private sector by the Central Bank 2,09 5,88 1,54 48,46 105,743 7,76 of Brazil. 202 169 162 145 136 134 130 108 49 45 44 44 25 15 0 Source: World Bank and Central es n D a a e na y a ia ey o a il be ica an i n di in ric az ic pa EC As ss at rk zo i an ex bank of Brazil Ch nt In rib er Br rm Af Ru Ja O St Tu st ro M ge Ca Am h Ge Ea d Eu Elaboration: Ministry of Finance ut Ar ite an atin SoUn L d 71
  • Ministry of FinanceHousing credit stands out Interest Rates and CreditHousing credit has presented an outstanding performance in recent years by encouraging investment,growth and employment in the construction sector and other segments of the economy. Only in 2011, totalamount allocated for housing finance grew by R$ 58 billion, far above other modalities.Credit Transactions for Individuals (R$ billion)250225200 200.6 200.5175 158.6150 Special Edition | Year 2011125100 Automotive 75 Housing 50 Payroll 25 Data: R$ billion 0 Source: Central Bank of Brazil 8 09 0 1 1 0 1 1 01 Elaboration: Ministry of Finance 20 20 20 20 c2 De 72
  • Ministry of FinanceFunding to real estate Interest Rates and CreditThe expansion of new housing supply has benefited millions of Brazilian population over the past fewyears. The Guarantee Fund for Long Working Service (FGTS) - with disbursements amounting to R$ 33.4billion in 2011, as compared to R$ 24.4 billion in 2010 - and savings, with an increase of around R$ 5 billionbetween 2010 and 2011, were the main funding sources.Real Estate Financing: Main Funding Sources (R$ billion)80 8070 7060 6050 50 Disbursements 2010 Special Edition | Year 201140 40 Disbursements 2011 Data: R$ billion30 30 * SBPE: Brazilian System of20 20 Saving and Lending FAR: Residential Leasing Fund 6.0 6.610 10 24.4 25.5 55.8 33.4 30.3 70.2 OGU: Union General Budget 0 0 FAR FGTS ** SBPE Total FAR FGTS ** SBPE Total Source: Caixa Econômica Federal Elaboration: Ministry of Finance 73
  • Ministry of FinanceMicrocredit program benefits 600,000 people Interest Rates and CreditThe “Crescer” program, a productive-oriented microcredit initiative, focus on stimulating job creation andincome among the micro entrepreneurs. In just four months, more than 600,000 transactions have beenmade, with a per capita average amount around R$ 1,200, totaling R$ 745 million.“Crescer” Microcredit Program: General Numbers and Regions (R$ million) Acomplished in 2011 Number of Transactions Total Amount Total Average Amount Special Edition | Year 2011 606.638 R$ 745.5 million R$ 1.229 Percentage of Total amount Per Region Data: R$ million Northeast Southeast South Mid-West North 79% 12% 6% 2% 1% Source: STN/Ministry of Finance Elaboration: Ministry of Finance 74
  • Brazilian EconomyOUTLOOK Fiscal Policy Ministry of Finance B R A Z I L I A N G O V E R N M E N T
  • Ministry of FinanceFiscal policy soundness stands out internationally Fiscal PolicyFiscal policy in Brazil was plenty of success in 2011. At the beginning of the year, the removal of fiscal stimuli givenduring the financial crisis was accomplished without jeopardizing the performance of the many sectors in theeconomy. It was also a fiscal policy role to smooth economic growth pace and enhance the primary result, in orderto differentiate Brazil within a context of international fiscal fragility. All these measures were implemented withoutcompromising social gains achieved in recent years.Throughout 2011, along with good performance in revenues and reduction of social security deficit, it was possible toretain expenditures at the beginning of the year. It was also possible to raise the central government primary surplustarget by R$ 10 billion, in a clear demonstration of commitment to fiscal soundness.Fiscal results could be noticed not only by the improvement in fiscal sustainability, but also by market recognitionrelated to economic policy management. Brazil has paid the lowest yield on the country’s sovereign bond everissued in the international capital markets and has also been upgraded by all major rating agencies, whereas somedeveloped countries have been downgraded. Special Edition | Year 2011 76
  • Ministry of FinancePrimary surplus larger than predicted Fiscal PolicyThe main challenge for fiscal policy during last year was the strengthening of the primary result in terms ofthe economic growth smoothing. The Central Government exceeded the primary surplus target, which hadbeen increased from R$ 10 billion in August, by R$ 1.27 billion. In 2012, the goal is to meet the full targetagain (R$ 139.7 billion).Central Government Primary Fiscal Balance (R$ billion and % of target)*100 150 80 125.9 125.9 130 119.4 119.4 114.3 114.3 60 112.1 112.1 110 Primary surplus 106.0 106.0 Special Edition | Year 2011 99.1 99.1 101.3 101.3 Primary surplus / Year target 95.695.6 40 90 Data: R$ billion and % share 42.4 * Not including state-owned, 20 70 companies and authorized, 63.8 reductions in the Budget Law 63.8 38.7 52.4 55.7 51.4 59.4 71.3 78.7 93.0 0 50 Source: STN/Ministry of Finance 08 09 10 11 03 04 05 06 07 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 77
  • Ministry of FinanceEconomic growth with fiscal consolidation Fiscal PolicyOne of the Brazilian economic policy guidelines is to pursue the fiscal target in line with fiscal responsibilityprinciples. On that sense, the public sector primary result has increased by over 0.4 percentage point in 2011compared to 2010. The 3.1% of GDP primary surplus will remain the target for 2012.Public Sector Fiscal Balance (% of GDP) Primário Total 4 3.8 3.3 3.7 3.3 3.4 3.2 3.2 3.1 3 2.7 Public Sector Primary Result 2.70 2.70 2.60 2.60 2 2.0 2.35 2.35 2.28 2.28 2.25 2.25 2.23 2.23 2.17 2.17 2.16 2.16 0.99 2.092.09 0.90 0.83 Central Government Primary 0.81 0.80 0.72 0.65 0.55 1 0.34 0.18 0.12 0.20 0.20 1.31 Result 0.06 0.04 0.06 0.07 1.31 1.12 1.01 Special Edition | Year 2011 0 -0.05 Subnational Entities-1 Primary Result (States and 3.3 Municipalities)-2 -2.0 -2.5 -2.6 State-owned Companies-3 -2.9 -2.8 -3.3 Primary Result -3.6 -3.6-4 Public Sector Nominal Result -4.4-5 -5.2 Data: % of GDP-6 10 Source: Central Bank of Brazil 11 02 03 04 05 06 07 08 09 20 20 20 20 20 20 20 20 20 20 Elaboration: Ministry of Finance 78
  • Ministry of FinanceFiscal consolidation Fiscal PolicyAfter the fiscal consolidation review in February, the Government has significantly diminished its spending,with a special focus on business trips and per diem. Despite the well-known difficulties of reducingthose expenses, there was a real reduction of 2% in total Government intermediate consumption andconsumption transfers in 2011.2011 Fiscal Contraction: Spending Components (R$ million) R$ Million - Constant Prices (IPCA) 2010 2011 Var. % Intermediate Consumption* 47,104 46,293 -1.70% Supplies 11,369 11,338 -0.30% Material for free distribution 1,478 1,934 30.90% Cultural, scientific and other awards 124 79 -36.40% Tickets, transportation and commuting expenditure 1,062 653 -38.50% Data: R$ million, Per diem 1,377 836 -39.30% constant prices (IPCA) Special Edition | Year 2011 Short-term labour contract 1,216 515 -57.60% * Not including expenses Labour lease and Outsourced contract 4,163 4,750 14.10% with judicial verdicts, judicial deposits, redundance payments, Outsourcing services - individual 1,827 1,649 -9.70% reimbursements and other Outsourcing services - commpany 24,259 24,273 0.10% charges Consulting services 228 265 16.30% ** Transfers to States, Consumption Transfers** 58,488 57,144 -2.30% Municipalities and private-owned companies Contributions 55,530 53,459 -3.70% Previous years expenditures 2,957 3,685 24.60% Source: SIAFI/STN Total 105,591 103,437 -2.00% Elaboration: Ministry of Finance 79
  • Ministry of FinanceImprovement on public spending profile Fiscal PolicyThe Central Government balance has been going through considerable changes since 2002, due to theformalization of the economy and the focus on reducing inequalities. As occurred in 2011, the increased netrevenues should be allocated into income transfers to households and public investment in 2012.Central Government Fiscal Balance – Above the Line (% of GDP) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 % of GDP Gross revenue 21.7 21.0 21.6 22.7 22.9 23.3 23.6 22.8 22.4 24.0 Data: % of GDP Transfers to states and municipalties 3.8 3.5 3.5 3.9 3.9 4.0 4.4 3.9 3.7 4.2 Net revenue 17.9 17.4 18.1 18.8 19.0 19.3 19.2 18.9 18.7 19.8 * Including social security Primary expenditure 15.7 15.1 15.6 16.4 17.0 17.1 16.4 17.7 17.4 17.5 benefits, allowance and Payroll 4.8 4.5 4.3 4.3 4.5 4.4 4.3 4.7 4.4 4.3 unemployment insurance, Income transfers to households** 6.8 7.2 7.6 8.1 8.4 8.5 8.1 8.7 8.5 8.6 assistential benefits (LOAS and Special Edition | Year 2011 Investments 0.8 0.3 0.5 0.5 0.6 0.7 0.9 1.0 1.2 1.0 RMV) and Bolsa Família Program. Health and education 1.7 1.6 1.7 1.8 1.7 1.8 1.7 1.9 2.0 2.0 * Including the Sovereign Wealth Other expenses 1.6 1.6 1.5 1.8 1.8 1.8 1.4 1.4 1.4 1.5 Fund constitution (2008) and Primary result without sovereign wealth 2.1 2.3 2.5 2.5 2.1 2.2 2.8 1.2 1.2 2.3 the capitalization operation of fund and onerous assignment PETROBRAS (2010) Impact of sovereign wealth fund and 0.0 0.0 0.0 0.0 0.0 0.0 -0.5 0.0 0.8 0.0 onerous assignment** Source: STN/Ministry of Finance; Final primary result (above the line) 2.1 2.3 2.5 2.5 2.1 2.2 2.4 1.2 2.1 2.3 Siga-Brasil/Federal Senate Net revenue minus income transfers 11.1 10.3 10.5 10.8 10.6 10.8 11.1 10.2 10.2 11.1 Elaboration: Ministry of Finance 80
  • Ministry of FinanceFiscal consolidation program Fiscal PolicyIn the last years, there has been efforts to enhance the workforce of the civil servants. In 2011, payroll costshave reached 4.3% of GDP, below the average for the past 10 years. The constraint was important to the fiscalconsolidation dynamics last year.Public expenditures (% of GDP)10 1.4 9 1.2 1.2 1.2 8.7 8.7 8.6 8.4 8.4 8.5 8.5 8.5 8.5 8.6 8.1 8 8.1 8.1 8.1 1.0 1.0 1.0 1.0 1.0 7.6 7.6 0.9 0.9 Special Edition | Year 2011 7.2 7 0.8 0.8 7.2 6.8 6.8 0.7 Investments 0.7 6 0.6 0.6 0.6 0.5 Transfers to households 0.5 0.5 0.5 5 0.4 Payroll 4.8 0.3 4.7 4.8 Data: % of GDP 4.7 4.5 0.3 4.5 4.5 4.5 4.4 4.4 4.3 4.3 4.3 4.3 4.4 4.4 0.2 4.3 4.3 4.3 4.3 4 Source: STN/Ministry of Finance; 2 3 4 5 6 7 08 9 0 1 0 0 0 0 0 0 0 1 1 20 20 20 20 20 20 20 20 20 20 Siga-Brasil/Federal Senate Elaboration: Ministry of Finance 81
  • Ministry of FinanceJob creation helps social security balance Fiscal PolicyThe social security deficit declined to 0.86% of GDP, the lowest level in the last ten years, contributingcritically to the primary balance in 2011. In part, such performance derives from more rigid rules for benefitsconcessions. Growth on Social Security revenues and the formalization process within the labor market arethe most important factors. For instance, the number of Social Security contributors registered a record of71% of the occupied population in December 2011.Social Security (% of GDP)7.5 2.0 707.0 666.5 Revenue 1.5 62 Benefits Special Edition | Year 20116.0 Deficit5.5 58 1.0 Contributors/5.0 occupied population 0.86 54 Data: % of GDP and % 62.2 63.0 64.2 65.8 66.8 68.4 71.0 5.6 7.5 8.14.5 of occupied population 5.1 5.2 5.3 5.4 5.6 5.6 5.9 6.8 7.0 7.0 6.6 6.9 6.8 6.8 0.5 504.0 Source: STN/Ministry of Finance 5 6 7 8 9 0 1 05 06 07 08 09 10 * 00 00 00 00 00 01 01 11 Elaboration: Ministry of Finance 20 20 20 20 20 20 c2 c2 c2 c2 c2 c2 c2 20 De De De De De De De 82
  • Ministry of FinanceFiscal consolidation with income transfers Fiscal PolicyFrom 2002 to 2011, primary spending rose from 15.7% of GDP to 17.5% of GDP. The increase is mainlyexplained by income transfers, which increased 1.8 pp in the period, and should be raised more in 2012 dueto the minimum wage raises. Investment and education spending also grew respectively by 0.2 pp and 0.3pp of GDP since 2002. On the other hand, payroll costs and other expenses have been reduced.Composition of Central Government Spending (% of GDP) 2002 2011* Change Contribution % of GDP (% of GDP) (% of GDP) 2011 -2002 to growth (p.p. of GDP) (% of Total) Primary expenditures 15.7 17.5 1.8 - Payroll 4.8 4.3 -0.5 -26.4 Income transfers 6.8 8.6 1.8 102.0 Special Edition | Year 2011 Social security benefits 6.0 6.8 0.9 47.3 Allowance and Unemployment insurance 0.5 0.8 0.3 18.9 Social assistance benefits (LOAS and RMV)** 0.2 0.6 0.4 20.6 “Bolsa Família” program 0.1 0.4 0.3 15.2 Investments 0.8 1.0 0.2 10.2 Data: % of GDP Consumption 3.3 3.5 0.3 14.2 * LOAS/RMV Health 1.4 1.4 0.0 0.9 Source: STN/Ministry of Finance; Education 0.3 0.6 0.3 16.0 Siga-Brasil/Federal Senate Others 1.6 1.5 0.1 -2.7 Elaboration: Ministry of Finance 83
  • Ministry of FinancePublic debt drops to pre-crisis levels Fiscal PolicyIn 2011, fiscal policy in Brazil resulted in a strong decline of public debt (% of GDP), a trend of the post-crisis period. For instance, Gross General Government Debt went from 63.1% in October 2009 to 54.3% inDecember 2011, whereas Net Public Sector Debt went from 42.9% to 36.5% in the same period, the lowestvalue of the series initiated in 2001.Gross General Government Debt and Net Public Sector Debt (% of GDP) 80 70 63.1 57.1 60 54.3 50 46.7 42.9 Gross General Government Debt* Special Edition | Year 2011 36.5 40 Net Public Sector Debt** 30 Data: % of GDP 20 * Methodology since 2008 10 ** Excluding assets and liabilities of Petrobras and Eletrobras 0 Source: Central Bank of Brazil Ap 007 Ju 07 O 007 Ap 008 Ju 08 O 008 Ap 009 Ju 09 O 009 Ap 010 Ju 10 O 010 Ap 011 Ju 11 O 011 1 Ja 07 Ja 08 Ja 009 Ja 10 c 2 11 01 0 0 0 0 0 Elaboration: Ministry of Finance 20 20 20 De 20 2 r2 l2 2 r2 l2 2 r2 l2 2 r2 l2 2 r2 l2 2 n n n n n ct ct ct ct ctJa 84
  • Ministry of FinanceFederal Public Debt profile improving Fiscal PolicyThe profile of the Federal Public Debt has shown an increase in the share of fixed rate bonds (from 33.1% inJan/2011 to 37.2% in Dec/2011) and a decline in the floating-rate ones (from 33.5% to 30.1% in the sameperiod). Refinancing and market risks have also been prevented by the lengthening of the debt’s averagematurity and the reduction of its percentage maturing in 12 months.Federal Public Debt Profile (% of total debt) 50 40 37.2 28.2 30 30.1 20 Fixed Rate Inflation Linked 10 Special Edition | Year 2011 4.3 Floating Rate* 0 Exchange Rate 04 05 06 07 08 09 10 11 1 Data: % of total debt 01 20 20 20 20 20 20 20 20 z2 De * Including SELIC, TR and others Indicators** Indicadores 2004 2004 2006 2006 2009 2009 2010 2010 2011 2011 ** Including domestic and Stock of FDP heldEstoque da DPF** by the public em Mercado (R$ bilhões) 1,013.9 1.013.9 1,237.0 1.497.4 1.237.0 1,497.4 1.694.0 1,694.0 1.866.4 1,866.4 external debts managed by the National Treasury. FDP: Average Maturity (years) (anos) DPF: Prazo Médio 2.9 2.9 3.0 3.0 3.5 3.5 3.5 3.5 3.6 3.6 DPF: Vincendo em 12 meses 39.3% 32.4% 23.6% 23.9% 21.9% Source: STN/Ministry of Finance FDP: Percentage Maturing in 12 months 39.3% 32.4% 23.6% 23.9% 21.9% Elaboration: Ministry of Finance 85
  • Ministry of FinanceA diversified investor base helps mitigate risks Fiscal PolicyA diversified investor base, with respect to investment terms, risks preferences and reasons for tradingassets, is essential for stimulating transactions, increasing the liquidity of public bonds and obtaininggovernment financing under various economic scenarios. The data below show that non-resident investorsdemand much more fixed rate bonds, while pension funds, for instance, prefer inflation-linked bonds.Federal Public Debt Holders* (% of total)120100 1.5 17.9 14.8 17.2 54.4 80 24.7 Fixed Rate 4.2 Floating Rate Special Edition | Year 2011 60 27.3 Inflation Linked Other 40 70.3 Data: % of total 51.6 10.9 63.0 24.8 20 * Including funds administered by the Federal Government 53.3 23.7 18.7 80.9 19.9 20.8 0 Banks Funds Social Non- Government Insurance Source: STN/Ministry of Finance Security Resident Elaboration: Ministry of Finance 86
  • Ministry of FinanceNon-resident investors in Brazilian public debt Fiscal PolicyIn 2011, Brazilian domestic public bonds remained attractive to foreigners. Typical non-resident investorshave distinct characteristics from domestic ones: they demand more fixed rate bonds and have moreappetite for longer maturities, which contributes to the improvement of the DPMFi profile. The 6% IOFtaxation enhanced the longer term profile of Brazilian bonds by foreign investors.Non-resident Share in Federal Public Debt (% of total domestic debt) 12 11.80 11.35 IOF 1.5% on 10 Foreign Investment IOF: 6.0% Inflow Tax Foreign Investment Inflow Tax 8 Special Edition | Year 2011 6 IOF 2.0% on Foreign Investment 4 Inflow Tax 2 Data: % of domestic debt 0 Source: STN/Ministry of Finance 07 07 07 08 08 09 9 09 0 0 11 1 1 8 0 c2 1 00 01 01 01 01 00 01 De 201 20 20 20 20 20 20 20 20 Elaboration: Ministry of Finance l2 2 l2 l2 2 2 ar l v v ar l ar ar ar ct ct ct Ju Ju Ju Ju Ju No NoM M M M M O O O 87
  • Ministry of FinanceBrazil pays the lowest yield on 10-year bond Fiscal PolicyThe Brazilian National Treasury carried out, on last January 3rd, the reopening of its 10-year benchmark bond,the Global Bond 2021, in the amount of US$ 825 million. The bond was priced at 110.997 per cent of its facevalue, resulting in a 3.449 per cent per year yield, the lowest rate for a Brazilian Global bond issuance.Yield at the issuance of 10-year Brazilian bonds (% YoY) 18 Global 2009 15 Global 2012 Global Global 12 2013 2014 Global Global Global Special Edition | Year 2011 2014 2015 2015 Global 9 2015 Global Global Global Global 2017 2017 Global 2019N 2019N 2017 Global Global Global 6 2019N 2021 2021 Global Issuance Date 2021 Global 2021 Yield 3 14.6 12.6 10.6 10.8 8.2 7.9 7.7 7.8 6.2 5.9 5.3 6.1 5.8 4.8 5.0 4.6 4.2 3.5 Data: % annual 0 Source: STN/Ministry of Finance th 9 th 2 th 3Fe 8th 4Ju th 4 21 005 5 5 M rd 6 , 7 007 M th 8De 7th 9Ap 5th 9 09 10 0 3r 11 12 11 99 17 00 14 00 c, 200 28 00 v, 200 v, 200 00 n, 200 0 0 01 Elaboration: Ministry of Finance 20 20 20 20 0 20 1 2 2 2 2 Ap th 2 2 Ju h 2 Ja th 2Ja 5th No st No th th Ju th d t 9 7 6 15 27 7 3 ,2 1 , l, r, n, ay ay n, n, n, l, b, c, r, l, De ct Ja 88 JuJuO
  • Ministry of FinanceContinuous improvement in risk assessment by rating agencies Fiscal PolicyThe degree of investment in Brazil is the result of solid macroeconomic fundamentals, which includeimprovements in federal debt profile, maintenance of a responsible fiscal policy and monetary policycredibility. The policy, kept in a context of high volatility, has ensured upgrades from all the major creditrating agencies.Rating on Sovereign Risk of Brazil Fitch Ratings Standard & Poor’s Moody’s Significance in scale AAA AAA Aaa Investment grade AA+ AA+ Aa1 High quality and AA AA Aa2 Aa3 low risk AA- AA- A+ A+ A1 A A A2 A- A- A3 BBB+ BBB+ Baa1 Investment grade Special Edition | Year 2011 BBB 2011 BBB 2011 Baa2 2011 BBB- BBB- Baa3 Average quality BB+ BB+ Ba1 Speculative BB BB Ba2 grade and low BB- BB- Ba3 quality B+ B+ B1 B B B2 B- B- B3 CCC CCC Caa1 High risk of Data: Rating CC CC Caa2 default and C C Caa3 low demand D D Ca Source: Risk agencies C Elaboration: Ministry of Finance 89
  • Brazilian EconomyOUTLOOK External Sector Ministry of Finance B R A Z I L I A N G O V E R N M E N T
  • Ministry of FinanceTrade balance and foreign investment with a positive performance External SectorThe results of the Brazilian external sector in 2011 have shown the perception of foreign investors regarding thecountry’s macroeconomic fundamentals and its ability to manage and absorb external shocks.Trade surplus ended 2011 at US$ 29.8 billion, almost US$ 10 billion more than the balance of 2010. The robust resultoutweighed the increase in net spending on services and remittances of profits, and generated a fall in currentaccount deficit in 2011 to 2.12% of GDP, compared to 2.21% of GDP in 2010.Under a positive perspective on a dynamic and sustainable domestic market, there was a record amount of investmentsin the country in 2011. Foreign direct investment reached US$ 66.7 billion, which is more than enough to finance thecurrent account deficit (US$ 52.6 billion). Special Edition | Year 2011 92
  • Ministry of FinanceSuccessive records in foreign trade External SectorExports reached US$ 256 billion in 2011, the highest amount ever exported by Brazil in yearly terms, a26.8% annual rise. The increase in exports is associated with the continued diversification of markets andrising commodity prices. Imports, on its turn, totaled US$ 226 billion and the total value of trade reachedUS$ 482 billion. As regards to trade balance, the country accomplished a US$ 29,8 billion surplus, a 46.9%annual rise.Trade Balance (US$ billion, accumulated in the year) 300 50 240 29.8 38 Special Edition | Year 2011 180 26 Exports 120 14 Imports Trade Balance 60 2 Data: US$ billion, 48 53 53 60 accumulated in the year 118 138 161 198 153 202 256 121 173 128 182 226 44 46 51 48 55 58 60 73 97 33 50 58 49 56 56 47 48 63 74 91 0 -10 Source: MDIC 94 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 95 96 Elaboration: Ministry of Finance 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 19 19 93
  • Ministry of FinanceMore diversified exports External SectorMarket diversification has played a pivotal role to growth in exports from Brazil. The exports share toChina and Mercosur markets has grown up importance in recent years. Over the last twenty years, Chineseparticipation rose from 1.2% to 17.3% of the total, while Mercosur increased from 4.2% to 10.9%.Percentage Share of Major Trading Partners (% of total exported)35302520 Special Edition | Year 201115 1990 199810 5.63 2004 4.20 17.31 24.17 19.06 20.79 10.08 33.73 29.83 25.52 20.68 17.36 10.88 2011 1.22 1.77 5 9.24 Data: % of total exported 0 China United States EU Mercosur Source: MDIC Elaboration: Ministry of Finance 94
  • Ministry of FinanceServices pushed current account deficit External SectorNet imports of services amounted to US$ 38 billion in 2011, the major result of the series. It is consistentwith the growth path followed by the country in recent years. Equipment rentals and international travelexpenses pressured the net expenses due to the increase in investment and income in the country.Trade Balance of Service (US$ billion, annual) 0 -5 -10 -15 -14.5 -16.7 Services Special Edition | Year 2011 -20 -25 Equipment rental International travels -30 Data: US$ billion, -35 in an annual basis -37.9 -40 Source: Central Bank of Brazil 00 01 02 03 04 05 06 07 08 09 10 11 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 20 20 20 20 20 95
  • Ministry of FinanceRecord flows of foreign direct investments External SectorThe increase in foreign direct investment in 2011 was mainly due to the large increase in equity markets. Itshows that the Government’s measures were effective in improving the profile of foreign capital in the country,widening the FDI and also lengthening the period of funding for loans and securities in foreign markets.FDI Composition (US$ billion) 80 70 66.7 60 11.9 48.4 45.1 50 8.3 34.6 15.0 Special Edition | Year 2011 40 18.8 8.5 25.9 30 11.2 Foreign Direct Investment 18.1 3.5 6.0 Equity participation 15.1 20 18.6 Intercompany lending 10 15.0 15.0 15.4 26.1 30.1 19.9 40.1 54.8 Data: US$ billion 0 -0.4 0.0 Source: Central Bank of Brazil -10 Elaboration: Ministry of Finance 2004 2005 2006 2007 2008 2009 2010 2011 96
  • Ministry of FinanceExternal crisis and currency dynamics damage manufacturing External SectorAnticompetitive conduct and monetary policies - which depreciated currencies to increase earnings fromexports - influenced the deterioration of trade balance of manufactured goods. From 2005 to 2011, Brazilhas gone from a US$ 8.5 billion balance surplus in the manufacturing sector to a US$ 92 billion deficit. Inorder to change this perspective, the Brazilian Government has taken some measures, such as the “BrasilMaior” industry enhancing program, aimed at slowing these effects and promoting employment, localproduction and technological innovation.Manufactured Trade Balance (US$ billion)150100 91.8 50 Special Edition | Year 2011 0 -50 Manufactured exports -92.1 Manufactured imports-100 Manufactured trade balance-150 -183.9 Data: US$ billion-200 Source: Funcex 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Elaboration: Ministry of Finance 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 97
  • Ministry of FinanceA stable current account deficit to GDP ratio External SectorIn 2011, the current account deficit as remained at the same level as in 2010 in terms of GDP. The foreigntrade performance has partially offset the deficits of services and income accounts. It’s worth noting theexpansion of income transfers, especially for remittances of profits and dividends, reflecting Foreign DirectInvestment (FDI) growth and predominant participation among the options of foreign investments.Current Account Balance (US$ billion and % of GDP) 20 1.8 2 1.6 1.3 10 0.8 1 1.6 4.2 11.7 14.0 13.6 0 0.1 -23.5 -30.5 -33.4 -25.3 -24.2 -23.2 -7.6 -28.2 -24.3 -47.3 -52.6 0 -10 -1 Special Edition | Year 2011 -20 -1.5 -1.5 -1.7 -2.2 -2.1 -2 -30 Current Account Balance -2.8 -3 Current Account/GDP -40 -3.5 in 12 months (%) -3.8 -4.0 -4 -50 -4.3 -4.2 Data: US$ billion and % of GDP -60 -5 Source: Central Bank of Brazil 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Elaboration: Ministry of Finance 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 98
  • Ministry of FinanceBrazil as one of the main foreign direct investment destinations External SectorAccording to Unctad survey, Brazil is among the economies which received major amounts of FDI in 2011. Itwas ranked at the fourth position, only behind the United Sates, China and United Kingdom.FDI in 2011 – Selected Countries (US$ billion)* 250 200 150 Special Edition | Year 2011 100 Data: US$ billion * Global Investments Trend 34.0 33.1 32.3 50 27.2 Monitor, January 2012 25.0 22.0 210.7 202.4 77.1 65.5 53.0 50.8 41.1 41.0 40.0 ** Including Hong Kong 0 Source: Unctad g Sw n en Ch es ng * m Ire l nd Be ia Si ium e ce a Ge ly y i Elaboration: Ministry of Finance d na * xe an or di az ur ai I ta ss do at an ed la Sp In ap Br bo Lu rm Ru lg St Fr i ng m d Ki iteUn ite Un 99
  • Ministry of FinanceAnd it must continue attracting higher FDI flows External SectorUnctad survey shows that, for the first time, the four major emerging economies are among the five mostcited as attractive destinations for FDI by major transnational corporations in the period 2010-2012. Brazilranks third, only behind China and India.Main Destinations of FDI: 2010-2012 (number of citations)*120100 80 60 Special Edition | Year 2011 40 Data: number of citations 24.0 23.0 20.0 19.0 18.0 17.0 16.0 16.0 15.0 15.0 14.0 13.0 11.0 * World Investment Prospects 110.0 26.0 20 70.0 67.0 66.0 35.0 30.0 28.0 Survey, 2010-2012 0 Source: Unctad Elaboration: Ministry of Finance a Br a il A ite M ssia ng o Vi om do m rm ia ai y Po nd st d Fr lia al e Ja ia Ca n da h ile Sp a n ru Th an M c in di ric az Ki ic pa ai Au lan US G e es s In tna Pe an ra ut Ch na la ay d ex Ch In d Af Ru n e So Un 100
  • Ministry of FinanceDifferent dynamics for direct and portfolio investments External SectorIn 2011, foreign investment profile changed in Brazil. Portfolio investments decreased substantially, reaching0.7% of GDP at the end of 2011 and FDI grew, reaching 3.2% of GDP in October, and 2.7% at year end. Foreign Investments (FDI and Portfolio) and Current Account Balance (% of GDP) 4 3 2.7 2 1 Foreign Direct Investments Special Edition | Year 2011 0.7 0 Foreign Portfolio Investments Current Account -1 Data: % of GDP -2 -2.1 * As of December 2011 -3 Source: Central Bank of Brazil 08 08 09 09 10 0 11 1 01 01 Elaboration: Ministry of Finance 20 20 20 20 20 20 c2 c2 n g ar ct ay p De De AuJa Se O M M 101
  • Ministry of FinanceBrazil at the forefront positions with regards to private capital flows External SectorAccording to the Institute of International Finance (IIF) forecast, private capital flows to emerging economiesare expected to fall from US$ 910 billion in 2011 to US$ 746 billion in 2012. However, the private capitalvolume estimated for Brazil should rise from US$ 137 billion in 2011 to US$ 142 billion in 2012, maintainingthe upward trend since 2009.Private Capital Flow to Emerging Countries (US$ billion)*500400 Emerging Asia Emerging Europe300 Brazil Special Edition | Year 2011 Latin America200 Africa/Middle East Data: US$ billion100 *IFF Research Note as of January 24, 2012 0 Source: IIF 03 04 05 06 07 08 09 10 11 * * 12 13 20 20 20 20 20 20 20 20 20 Elaboration: Ministry of Finance 20 20 102
  • Ministry of FinanceInternational reserves on rise External SectorThe accumulation of international reserves has been a pillar of Brazilian economic policy to reduce externalvulnerability. In December, reserves totaled US$ 352 billion (about 14.2 of GDP). International reservescontinued to outperform total external debt, keeping the country as net external creditor.International Reserves (US$ billion) 400 350 300 250 Special Edition | Year 2011 200 150 60.1 100 51.8 52.9 53.8 52.2 49.3 44.6 38.8 180.3 193.8 238.5 288.6 352.0 37.8 36.3 33.0 35.9 85.8 Data: US$ billion, international 50 liquidity concept 0 Source: Central Bank of Brazil 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Elaboration: Ministry of Finance 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 103
  • Ministry of FinanceExternal debt profile External SectorTotal external debt to reserves ratio dropped from 89% in 2010 to 84.5% in 2011, and the net debt to GDP ratio,from -2.4% to -3.2%. Following the decline, there was an increasing participation of long-term debt relativeto total debt—from 77.7% to 86.9%, respectively. The rise in international reserves helped to maintain goodlevels of solvency of the economy. Furthermore, external debt is predominantly private, around two thirds ofthe total. Though not immune, the profile states the country much less vulnerable to external shocks.External Debt and International Reserves (US$ billion) External Debt and International Reserves US$ billion 2010 2011* Reserves 288.6 352.0 Total Debt 256.8 297.3 Long Term 77.7% 86.9% Special Edition | Year 2011 Short Term 22.3% 13.1% Public 36.9% 34.5% Private 63.1% 65.5% Debt Indexes (%) Data: US$ billion Total Debt/Reserves 89.0% 84.5% * Estimated position Long term debt/Reserves 69.1% 73.4% to December 2011 Short Term/Reserves 19.9% 11.1% Source: Central Bank of Brazil Net External Debt/GDP -2.4% -3.2% Elaboration: Ministry of Finance 104
  • Ministry of FinanceExternal debt mostly comprised of FDI External SectorOn the composition of foreign investments, FDI and stocks prevail in the country’s external liability,exceeding the amount related to debt. The profile states there is more flexibility to transfers of incomeabroad and strengthens the pro-cyclical nature of the current account.Composition of External Liabilities (%)100 26.4 26.4 30.6 26.5 22.4 14.2 13.4 11.0 16.8 10.9 11.0 13.9 80 15.8 17.2 15.0 21.5 18.0 16.1 19.9 26.4 30.4 26.4 30.9 30.6 26.5 27.8 22.4 24.1 14.2 13.4 11.0 16.8 10.9 11.0 13.9 60 32.1 39.6 29.1 15.8 34.9 17.2 15.0 23.9 30.7 18.0 Special Edition | Year 2011 21.5 25.1 19.9 21.6 16.1 24.1 17.3 Other liabilities 40 30.4 11.6 30.9 9.9 27.8 39.6 34.9 29.1 Fixed income 32.1 7.9 13.1 30.7 23.9 25.1 21.6 Stocks 20 17.3 Direct Investment 11.6 9.9 13.1 44.9 46.0 31.6 32.8 29.4 32.7 36.1 39.2 39.2 37.9 33.6 41.6 41.6 37.1 44.9 46.0 Data: % 0 7.9 36.1 37.9 37.1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Central Bank of Brazil Elaboration: Ministry of Finance 105
  • Ministry of FinanceExternal vulnerability indicators point to a drop External SectorLow external vulnerability conditions prevailed in 2011. Total amount of international reserves far exceededthe external debt. And yet, the current account deficit has remained stable at a safely financed level, i.e.,long-maturing investments. The scenario is quite different from that observed in previous periods, whenthe external weakness prevailed in the Brazilian economy.External Vulnerability Indicator (% of GDP) 50 40 30 Total external debt 20 International reserves Special Edition | Year 2011 10 Current account 18.1 4.8 31.5 1.5 42.9 2.6 26.5 5.3 12.0 11.7 12.0 14.2 Data: % of GDP 0 -6.8 -6.0 -0.5 -1.7 -2.1 Source: Central Bank of Brazil -4.0 Elaboration: Ministry of Finance-10 Before Floating International Current First Oil Shock Debt Crisis External Debt Exchange Financial Crisis Impact Default Rate Regime Situation (subprime) 1974 1982 1987 1998 2008 2011 106
  • Ministry of FinanceU.S. and Spain at the forefront of direct investments in Brazil External SectorForeign capital survey in Brazil has shown that the United States and Spain are the main investors in thefinal investor criteria, with inventories of US$ 104.7 billion (18% of total) and US$ 85.3 billion (15% oftotal), respectively. There is a relative diversification, if types of industry are considered, particularly forinvestments in financial services, beverages, telecommunications, extraction of oil and natural gas.FDI by Country* (% of total) United States Others 18% 28% Special Edition | Year 2011 15% SpainNetherlands 2% 3% Data: % of total Mexico 3% 9% * Survey of foreign capital in Italy 5% Belgium Brazil 2011, base year 2010 5% 7% Japan 5% United Kingdom Source: Central Bank of Brazil Germany France Elaboration: Ministry of Finance 107
  • Ministry of FinanceExchange rate dynamics in Brazil External SectorIn 2011, after a period of continued exchange rate appreciation of the Brazilian real, the dollar returnedback to the R$ 1,80 range and R$ 1.87 at year-end. Macroprudential measures, along with the accumulationof foreign reserves, contributed to the reduction of exchange volatility, in spite of some confidence crisiscaused by international financial instability in Europe. Under the floating regime, the Government hasacted to ensure a competitive exchange rate for the country.Nominal Exchange Rate (R$/US$) 2.55 2.50 IOF Tax Increase IOF Tax Increase2.32 Compulsory Requirements on Exchange IOF over Foreign2.09 Loans Derivatives Special Edition | Year 2011 IOF Tax Taxation Increase1.86 1.70 1.761.63 Selic Tax Reduction 1.53 Data: R$/US$1.40 Source: Central Bank of Brazil 9t r 2 11 08 ay 8 Ju 8 8 08 8 09 09 Ju 9 9 9 v 2009 n 9 M 10 10 Ju 0 O S 010 9t 2 0 Noh 2010 Ja Ja 2010 n, n 2 0 2 1 Ju Ap 011 Au h 2 1 11 24 c 2 1 20 1 12 1 ar M 2 1 0 0 00 00 0 00 9t 00 00 1 , 1 th 01 h 01 1 n, De 201 th 01 v 01 ,2 a 0 M 7th 01 01 20 20 20 20 20 20 20 20 20 20 26 r 20 20 Elaboration: Ministry of Finance l2 v2 l2 ,1 2 l2 ct 5 2 Noh 2 n ar p n ar ay ct p ar ay O ct, ep t st Oc NoJa Ja Ja Se O Se M M M M M 31 t g, 108 l, Ja
  • Brazilian EconomyOUTLOOK International Overview Ministry of Finance B R A Z I L I A N G O V E R N M E N T
  • Ministry of FinanceA solution to the crisis is expected in advanced economies International OverviewThe poor performance of the advanced economies and the slow recovery estimated to last for a few more years –giventhe complexity of financial and fiscal imbalances in Europe – were the economic facts that marked the world scenein 2011. The IMF reduced its world economic growth forecast to 3.3% in 2012, a drop of 0.7% in the last estimate forthe same year. GDP contraction in the Eurozone (-0.5% in 2012) and low growth in the U.S. (1.8%) are some of thereasons for an increase of only 1.2% in advanced economies, as opposed to the 5.4 % in emerging economies.In the short term, it is worth pointing the high concentration of debt maturity in key European economies in the firsthalf of 2012. It could raise some attention on the subject. In the medium term, global economic growth perspectiveis about to be driven by the dynamism of some emerging markets like Brazil. Special Edition | Year 2011 110
  • Ministry of FinanceGrowth forecasts for G20 countries International Overview Germany 1.7 0.6 0.3 3.3 2.3 0.2 United 0.9 4.1 Kingdom 3.0 Russia Canada 1.8 1.6 -2.2 2.2 1.7 1.8 0.4 France 6.6 -0.9 8.2 United States 3.6 9.2 Japan Italy Turkey 7.0 6.5 China 3.9 3.5 4.1 7.4 South 4.4 Saudi Kortea Mexico India Arabia 4.5 6.4 6.3 3.2 Indonesia* GDP (% YoY) Brazil** 2.5 4.6 3.1 1.8 3.3 2011 8.0 Special Edition | Year 2011 2012 South Africa Australia* Argentina* * WEO/IMF September 2011 ** 2011: IBGE data accumulated in the first three quarters over the same period in 2010 and for 2012: Ministry of Finance estimates Source: IMF Elaboration: Ministry of Finance 111
  • Ministry of FinanceFiscal results forecasts for G20 countries International Overview Germany -1.9 -4.7 -0.9 -1.8 -3.0 -2.8 United -6.3 -0.3 Kingdom -1.4 Russia Canada -5.0 -3.8 -1.1 -1.5 -7.6 -6.4 -2.6 France -2.1 -8.1 -0.9 United States 3.6 -1.8 Japan Italy Turkey -8.0 6.5 China 2.1 3.6 3.8 -8.3 South 2.4 Saudi Korea Mexico India Arabia -2.7 -1.7 -1.3 -2.9 Indonesia Fiscal Result Brazil -3.4 (% of GDP) -2.5 -3.7 -3.7 -1.8 2011 -2.9 Special Edition | Year 2011 2012 South Africa Australia Argentina Data: % of GDP Source: IMF Elaboration: Ministry of Finance 112
  • Ministry of FinanceCurrent account balance forecasts for G20 countries International Overview Germany -3.8 -2.3 4.9 3.5 -3.3 -2.5 United -2.7 5.5 Kingdom 5.0 Russia Canada -2.1 -2.7 -3.0 -7.4 2.8 -3.5 -3.1 France -10.3 2.5 5.6 United States 14.2 5.2 Japan Italy Turkey -2.2 20.6 China 1.5 -0.9 -1.0 -2.2 South 1.4 Saudi Korea Mexico India Arabia -2.5 0.2 -0.4 -2.1 Indonesia Current account Brazil -3.7 (% of GDP) -0.9 -2.8 -2.2 -4.7 Special Edition | Year 2011 2011 -0.3 2012 South Africa Australia Argentina Data: % of GDP Source: IMF Elaboration: Ministry of Finance 113
  • Ministry of FinanceInflation forecasts for G20 countries International Overview Germany 2.1 2.4 1.4 1.3 7.3 2.3 United 4.2 6.1 Kingdom 2.1 Russia Canada 1.2 -2.5 1.6 6.9 -0.5 3.0 3.3 France 10.5 -0.5** 3.3 United States 5.3 4.1 Japan Italy Turkey 8.6 5.3 China 4.2 3.1 3.8 9.1** South 3.5 Saudi Korea Mexico India Arabia 4.7 3.8 6.5 6.5 Inflation Indonesia (% YoY) 5.0 Brazil 2011 11.8 6.1 3.5* 3.3 Special Edition | Year 2011 2012 9.5 South Africa Australia Argentina 2011: realized inflation 2012: inflation expectation * As of September 2011 ** As of November 2011 Source: IMF and Central Banks Elaboration: Ministry of Finance 114
  • Ministry of FinanceRising inflation as a global phenomenon in 2011 International OverviewIn 2011, the contagion of global inflation in commodity prices contributed to the breach of inflation targetsby the majority of inflation targeters. Turkey and Peru had faced major impacts. In Brazil, the Governmentacted promptly, taming the acceleration of prices and its distribution, while keeping the CPI inflation (IPCAindex) within the ranges of the target.Difference between the Inflation Target and the Observed Inflation in 2011 (p.p.) Target Percentage points above Center the central inflation target Australia 2.5 0.6 Colombia 3.0 0.7 Mexico 3.0 0.8 Thailand 1.8 0.9 Special Edition | Year 2011 Hungary 3.0 1.1 South Korea 3.0 1.2 Chile 3.0 1.4 South Africa 4.5 1.6 Brazil 4.5 2.0 Poland 2.5 2.1United Kingdom 2.0 2.2 Peru 2.0 2.2 Data: Percentage Points Iceland 2.5 2.8 Turkey 5.5 5.0 Source: Bloomberg Elaboration: Ministry of Finance 115
  • Ministry of FinanceBrazil amongst the world major economies International OverviewProminent emerging economies (Brazil, China, India, Russia) are among the most dynamic economies inthe world. Recently Brazil is ranked at the 6th place among the major economies of the globe.GDP 2011* and 2012** (US$ trillion and % YoY) GDP of 2011*, in US$ trilllion GDP growth in 2012**, in % p.a. United States 15.1 1.8 China 7.0 8.2 Japan 5.9 1.7 Germany 3.6 0.3 Data: 2011: US$ trillion and Special Edition | Year 2011 France 2.8 0.2 2012: % YoY Brazil 2.6 4.5 * 2011 GDP: IMFUnited Kingdom 2.5 0.6 ** GDP growth in 2012: WEO/ Italy 2.2 -2.2 IMF updated in January 2012. Russia 1.9 3.3 For Brazil, Ministry of Finance estimates India 1.8 7.0 Source: IMF and The Economist Elaboration: Ministry of Finance 116
  • Ministry of FinanceBrazilian unemployment rate among the lowest in the world International OverviewThe 4.7% unemployment rate as of December 2011, is among the lowest in the world. Advanced countriessuch as France, USA, UK and Canada, are facing higher unemployment rates than Brazil.Unemployment Rate: Selected Countries – December 2011 (%) 25 20 15 Special Edition | Year 2011 10 4.1 3.3 3.1 5 22.9 9.9 9.4 9.3 8.9 8.5 8.4 7.5 6.1 5.5 5.2 5.0 4.9 4.7 4.6 Data: % 0 Source: Bloomberg Elaboration: Ministry of Finance Fr n ce Tu ia ey ly Ki U A Ru a G e ia Au any M ia er co s Ja l n a d a md i nd d in re az ai pa an do ite US Ca * Ita d ss l an xi rk ra naSp Sw Ch In Ko Br la rm So erl ng n Ne e st h itz th ut 117
  • Ministry of FinanceGlobal activity stabilizes International OverviewPMI (Purchasing Managers Index) and ISM (Institute of Supply Management) indicators are important tomeasure the economic conditions of countries and regions. In early 2011, rates have declined in the U.S. andChina, and so has the overall index. Some global activity stabilization is expected. ISM and PMI Indicators (points) 65 60 55 50.80 50.30 50 50.00 Special Edition | Year 2011 45 China PMI Global PMI 40 ISM Index 35 Data: points 30 11 Source: Bloomberg 09 10 08 08 08 09 0 0 1 c2 1 Elaboration: Ministry of Finance 01 01 01 De 201 20 20 20 20 20 20 20 l2 c2 ay p b v n n r ct Ju Se Ap De No FeJa Ju M O 118
  • Ministry of FinanceConfidence falls in Europe, but starts to recover in the U.S. International OverviewConfidence indicators in the U.S. and Europe show distinct signs. In Europe, consumer sentiment has beenin decline since early 2011. In the U.S., though, the North American consumer confidence showed signs ofrecovery in the last two months of 2011. Confidence Indexes - USA and Eurozone (points)120100 93.3 80 Special Edition | Year 2011 64.5 Consumer Confidence 60 Index – USA Economic Sentiment 40 Indicator - Eurozone Data: points 20 Source: Eurostat and Conference Board 11 08 8 09 9 10 0 1 11 00 00 01 01 Elaboration: Ministry of Finance 20 20 20 20 20 l2 l2 l2 l2 n n n n c Ju Ju Ju Ju De JaJa Ja Ja 119
  • Ministry of FinanceEconomic activity in the United States International OverviewEconomic activity in the United States shows signs of recovery. The Philadelphia Fed Manufacturing indexreached 6.8 points in December and 7.3 in January 2012. The Richmond Fed index reached 12 points inJanuary, a 9 points rise over the previous month. Chicago’s Fed National Activity Index reported 0.17 inDecember 2011.USA: Economic Activity (index) 40 1 30 0.17 0 20 12 10 7.3 0 Special Edition | Year 2011 -2-10 Chicago Fed-20 -3 Philadelphia Fed-30 Richmond Fed -4-40 Data: index-50 -5 1 Source: Bloomberg 9 0 08 08 08 9 0 12 0 1 1 0 1 00 01 01 01 20 20 20 Elaboration: Ministry of Finance 20 20 20 20 r2 l2 c2 c2 ay p b n n v n Ju Se Ap De No FeJa Ju Ja De M 120
  • Ministry of FinanceUnemployment rate is declining in the U.S. International OverviewThere has been a decrease in the American unemployment rate in recent months. But the unemploymentrate remains well above than in the past. Estimates of the Federal Reserve indicate that, at least until 2014,the unemployment rate will still be above the long-term trend. USA: Unemployment Rate (%) 10 8.50 8 6 Special Edition | Year 2011 4 Data: % 2 Source: Bloomberg 00 01 02 04 05 6 08 09 0 1 00 01 01 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 c2 c2 c2 n n ct ar g r g Ap De De DeJa Ju Au Au O M 121
  • Ministry of FinanceUnemployment rate in the euro zone International OverviewOne of the most perverse consequences of the economic crisis in Europe has been the steady increase inunemployment throughout the region, reaching 10.4% in the euro zone as a whole. In disaggregatedterms, figures in Spain (22.9%) and Greece (19.2%) stand out.Unemployment Rate: Euro Zone and Selected Countries (%) 10.5 Austria 4.1 10.0 10.4 Netherlands 4.9 Luxembourg 5.2 9.5 Germany 5.5 Belgium 7.2 9.0 Finland 7.6 Unemployment Special Edition | Year 2011 Italy 8.9 8.5 Eurozone France 9.9 Eurozone 10.4 8.0 Portugal 13.6 Ireland 14.5 Data: % 7.5 Greece* 19.2 * As of October 2011 7.0 Spain 22.9 Source: Eurostat Ju 005 Ja 005 Ju 006 Ja 006 Ju 007 Ja 007 Ju 008 Ja 008 Ju 009 Ja 009 Ju 010 Ja 010 Se 011 c 2 11 1 01 Elaboration: Ministry of Finance De 20 2 l2 2 l2 2 l2 2 l2 2 l2 2 l2 2 n n n n n n n pJa 122
  • Ministry of FinanceChina and the global economic activity International OverviewChina has an important role in global economic activity. Although the country has grown over 9% in 2011,a slowdown has been estimated for 2012 due to low growth forecasts for advanced economies which willaffect the Chinese exports performance. Likewise, the inflation forecast points to a slowdown, with a 4.1%estimated for the end of 2012.GDP Growth (% YoY) Consumer Inflation (% YoY) 15 8 7 12 6 GDP real growth 5 4.1 9 Inflation 4 Special Edition | Year 2011 Data: % annual 3 6 * WEO/IMF January 2012 forecast 2 * WEO/IMF September 2011 3 1 forecast 0 10.0 10.1 11.3 12.7 14.2 10.4 8.4 8.3 9.1 9.6 9.2 9.2 8.5 Source: IMF 0 -1 Elaboration: Ministry of Finance ** 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 20 11 * 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 11 12 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 1 20 20 123
  • Ministry of FinanceRisk of default of the G20 International OverviewA Credit Default Swap (CDS) contract is a protection against a possible default and, therefore, indicates thefinancial market’s perception over risks related to sovereign debt. Within 2008 and 2012 period, an increasingrisk perception can be seen on European nations while there was a downward one for emerging markets.Five-Year CDS Spreads: Selected G20 Countries (b.p.) Five-year CDS Spreads as of 12/31/2008 Five-year CDS Spreads as of 01/16/2008 Brazil 300.5 Brazil 164.3 Turkey 408.7 Turkey 323.1 China 201.2 China* 146.7 United States* 20.1 United States 48.9 Germany 46.8 Germany 103.9 Mexico 292.6 Mexico 155.3 France 55.7 France 217.8 Special Edition | Year 2011 South Korea 333.0 South Korea** 164.7 India 360.6 India*** 283.5 Italy 164.0 Italy 519.6 Russia 741.2 Russia 259.8 South Africa 393.6 South Africa 210.4 Japan 46.4 Japan 147.9 Indonesia 691.4 Indonesia 214.0 Data: basis pointsUnited Kingdom 106.0 United Kingdom 93.0 * As of Oct/25/2011 Australia 127.7 Australia 83.0 Source: Bloomberg Elaboration: Ministry of Finance 124
  • Ministry of FinanceDowngrade for advanced economies International OverviewThere has been an increase in the lack of confidence among the economic agents. It is reflected in the recentrisk rating changes of most countries of the Euro zone, and the United States. Greece, Portugal, Ireland andSpain suffered major downgrades, which has also somewhat hit France. In the opposite direction, Brazil hasachieved constant upgrades issued by the rating agencies.Risk Rating: Standard and Poor’s AAA France AA+ USA AA High quality and lower risk* AA- A+ A Spain A- Italy BBB+ Ireland Investment BBB Grade Brazil Special Edition | Year 2011 BBB- BB+ BB Portugal Speculative BB- Grade B+ B B- CCC High default CC Greece Data: risk rating risk C D Source: Bloomberg Dec 2003 Dec 2004 Dec 2009 Dec 2010 Mar 2011 Jul 2011 Aug to Jan 2012 Elaboration: Ministry of Finance 125 Nov 2011
  • Ministry of FinanceCommodity prices behavior International OverviewThe evolution of commodity prices has been characterized by the decoupling of metal commodities untilthe 2008 crisis, when metals had been strongly devalued. The world economic recovery led to a newdecoupling. Again, the recent crisis affects the prices of metal commodities.Commodity Research Bureau (CRB) Index (index number, 1951=100)1,2001,000 908.81 800 600 Special Edition | Year 2011 433.20 CRB Spot 400 CRB Foodstuff 312.85 CRB Metals 200 Data: index number, 1951=100 0 Source: Bloomberg c2 2 z2 9 r2 4 20 1 Se 004 Se 011 g 0 ct 1Fe 003 v 5Ju 005Ja 006 g 7 ct 8 Ju 09Fe 010 12 ar 0 ar 07 Ju 02M 001M 008De 200De 200Ap 00 n 01Au 00O 00No 00Au 00O 00M 00 0 20 0 Elaboration: Ministry of Finance 2Ja 2 2 2 2 2 l2 2 2 2 2 l2 2 2 2 ay ay p p b b n n nJaM 126
  • Ministry of FinanceStock exchange in the U.S. and risk in Europe International OverviewThe VIX index measures the expected volatility of 30 days in the stock market, based on the price volatilityof options on the S&P 500. Itraxx, on its turn, is an average risk index, covering regions such as Europe,Australia and Japan. The most recent levels denote the worsening of the market perception related to thefiscal crisis in the U.S. and in Europe. Since the end of 2011, though, there has been an improvement in suchindexes. VIX Index – USA and ITRAXX Index (points and basis points)100 250 80 200 151.1 60 Special Edition | Year 2011 150 40 ITRAXX 100 VIX 20 19.8 Data: points and basis points 0 50 Source: Bloomberg 07 08 09 10 11 1220 20 20 20 20 20 Elaboration: Ministry of Finance n Ja 127
  • Ministry of FinanceInternational oil prices overview International OverviewOil price moves are almost always linked to the dynamics of global economic activity, international liquidityavailability, and the existing political tensions in key producing countries located in the Middle East. Sincemid-2011, oil prices have remained at high levels due to the lack of investments caused by Middle Eastcrises and by the demand from some countries.Brent Oil Price (US$/barrel) Current Prices (US$) 150 140 130 120 107.8 110 100 107.8 Special Edition | Year 2011 90 80 70 Constant Prices 60 (US$ from December 2011) 50 40 Current Prices (US$) 30 Data: US$/barrel 20 10 Source: U.S Energy Information 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2099 2000 2001 2002 2003 2004 2005 2006 20 7 20 8 2009 2010 11 0 0 Administration and Bloomberg 19 Elaboration: Ministry of Finance 128
  • Ministry of FinanceStock market dynamics in the G20 International OverviewStock exchanges all over the world have also undergone through the impact of European financial crisis.Regarding the G20 countries, losses in 2011 were substantial, especially late in the year, when losses weremore concentrated. However, since November 2011, there has been some recovery of stock market indexes,especially in Germany, France and Brazil.G20 Countries: Change in Stock Market in 2011 (% accumulated in the period) Fluctuation from 01/03/2011 to 01/20/2012 Fluctuation from 11/08/2011 to 01/20/2012 USA - Dow Jones 9.0 Russia -5.3 Indonesia 6.9 India -4.7 South Africa 4.3 Turkey -2.3 USA - Nasdaq 3.5 Australia -1.2 USA - S&P500 3.4 Canada -0.7 United Kingdom -2.9 Italy -0.2 Mexico -3.2 Mexico 0.1 Saudi Arabia -3.4 Japan 1.3 Special Edition | Year 2011 South Korea -5.8 USA - Nasdaq 2.2 Canada -7.8 China (Hong Kong) 2.2 Germany -8.4 South Korea 2.5 Brazil -10.9 Argentina 2.7 Australia -11.2 United Kingdom 2.9China (Hong Kong) -14.2 USA - S&P500 3.1 Japan -14.3 South Africa 3.2 Euro Zone -14.5 Saudi Arabia 3.8 France -14.9 USA - Dow Jones 4.5 Data: % accumulated Russia -15.5 Indonesia 4.8 in the period India -18.6 Euro Zone 5.4 Turkey -18.8 Brazil 5.6 Argentina -21.0 France 5.7 Source: Bloomberg Italy -23.5 Germany 7.4 Elaboration: Ministry of Finance 129
  • Ministry of FinanceReal effective exchange rate International OverviewThe real effective exchange rate is a reference to the level of investment and trade between a country andits commercial partners. The U.S. dollar has shown a continuous decreasing trend, bringing upheavals tothe international economic outlook, both in terms of trade, and also in the financial standpoint.Real Effective Exchange Rate* (index number, 2005=100) 120 110 107.97 USA 98.5 Euro zone 100 97.53 China 97.56 Special Edition | Year 2011 90 Brazil Data: index number, 2005=100 80 * Deflator: Consumer Price Index from each country. A rise means 70 exchange appreciation and a fall means depreciation 60 Source: BIS Ju 05 Ju 10 Ja 05 Ju 06 Ja 06 Ju 07 Ja 07 Ju 08 Ja 08 Ju 09 Ja 09 Ja 10 Ju 11 c2 1 1 De 201 01 Elaboration: Ministry of Finance 20 20 0 20 0 20 0 20 0 20 0 0 20 l2 l2 l2 l2 l2 l2 n n n n n n n lJa 130
  • Ministry of FinanceExchange rate dynamics in the G20 International OverviewThe behavior of the exchange rate in the G20 countries has shown a more pronounced variation due to theworsening of the financial crisis in the eurozone. More recently—since mid-December 2011 up to mid-January 2012—the exchange rate trend reverted. Not only Brazil, but several other countries are goingthrough an appreciation of the exchange rate.G20 Countries: Exchange Rate Variation* (%) Fluctuation from Fluctuation from 12/15/2011 to 01/20/2012 01/20/2011 to 01/20/2012 Argentina 0.89 8.61 Euro 0.65 4.02United Kingdom -0.40 2.02 China -0.58 -3.79 Japan -1.09 -7.23 Special Edition | Year 2011 Indonesia -1.57 -1.27 Russia -1.64 4.39 Canada -2.12 1.59 Data: % South Korea -2.47 1.16 * Positive changes mean Mexico -5.27 9.39 currency depreciation and South Africa -5.55 12.29 negative changes mean currency Brazil -5.64 4.88 appreciation Australia -5.66 -6.21 Source: Reuters India -6.17 10.54 Elaboration: Ministry of Finance 131
  • Ministry of FinanceEuropean agreement aims to contain fiscal imbalances International OverviewIn January 2012, a new European agreement to curb fiscal imbalances was settled. It will be achieved bymaintaining the structural government deficit below 0.5% of nominal GDP. If a member state breaks therule, an automatic correction will be triggered. There is also a penalty for noncompliance.Maturing Debt of European Countries in Crises (€ million)80,00070,00060,00050,00040,000 Special Edition | Year 201130,00020,000 22,969 74,099 77,031 72,338 38,261 38,613 52,826 34,290 26,580 55,808 21,110 48,87410,000 Data: € million 0 Source: Bloomberg 12 12 12 2 12 12 2 12 12 12 12 2 Elaboration: Ministry of Finance 01 01 01 20 20 20 20 20 20 20 20 20 r2 l2 c2 n b ar ay n g p ct v Ju Ap De No Ja Ju Au Fe Se 132 O M M
  • Ministry of FinanceEuropean Central Bank’s balance International OverviewThe ECB’s balance sheet reached a € 2.7 trillion record at the end of last year due to the increase of loans tobanks in Europe. It has acted as a lender of last resort as it did during the 2008 turmoil.European Central Bank’s balance (€ billion)3,000 2,706.22,5002,000 Special Edition | Year 20111,5001,000 Data: billion of euros 500 Source: Bloomberg 04 5 06 6 07 7 08 8 09 9 10 0 11 c 2 11 n 11 12 00 00 00 00 00 01 Elaboration: Ministry of Finance 20 20 20 20 20 20 20 De 20 Ja 0 20 l2 l2 l2 l2 l2 l2 ct n n n n n n l Ju Ju Ju Ju Ju Ju Ju Ja Ja Ja Ja Ja Ja O 133
  • Brazilian EconomyOUTLOOK Special Section Ministry of Finance B R A Z I L I A N G O V E R N M E N T
  • Ministry of FinanceBrazil: a decade of progress SpecialAfter two decades of low economic dynamism, the progress of the Brazilian economy has been considerable in recentyears. The economy entered a period of robust expansion, based on a development model focused on domestic marketstrengthening, with job creation and income distribution, promoting investment and expanding credit market, withinflation under control, and outstanding sound fiscal and financial systems. Thus, Brazil has reached high levels ofgrowth, combined—in an unprecedented manner—with justice and social development.Far different from the former financial and currency crises, Brazil has vigorously faced one of the most serious andprofound ongoing global crises. In the past, same magnitude crises have driven the economy into imbalances inthe balance of payments, public debt increases and higher country risk perception, inhibiting new investments anddamaging economic growth. Nowadays, the macroeconomic results are worthy to be recorded. From 2002 to 2012,average inflation has fallen from 15% to less than 5% per year, public debt to GDP ratio has declined by almost half,exports have risen by more than five times, poverty has shrunk by more than 50%, and the country grows twice asmuch as experienced in previous decades.For the period 2012-2014, the Federal Government is committed to stimulate the economy towards a 4.8% annual Special Edition | Year 2011growth rate, with investment rate reaching 24% of GDP, inflation under control and low level of insolvency risk.According to international organisms’ estimates, the country shall be the 5th largest world economy in 2016. By then,more than eight million workers will have gone through professional training, and another 16 million people willhave climbed the ladder out of extreme poverty. 136
  • Ministry of FinanceBrazil stands out in the international scene Special Gross Domestic Product (GDP) 2002 US$ 500 billion 2012* US$ 2.6 trillion Worlds 6th largest economy GDP per Capita Special Edition | Year 2011 2002 US$ 2,800 2012* US$ 13,300 * IMF forecast Source: IBGE Elaboration: Ministry of Finance 137
  • Ministry of FinanceAuto industry and agriculture are also growing internationally in importance Special Automobile production The Brazilian harvest “Plano Safra” (millions of tons of grains) Rural Financing Program 6th 1st World’s 3.4 million 163.0 million The worlds tons leader R$ 123.2 units billion sixth-largest in sugarcane Auto production producer Runner-up in 2011 in soybean production 96.8 million tons R$ 24,7 billion Special Edition | Year 2011 1.8 million units 2002 2011 2002 2011 2002/2003 2011/2012 Source: ANFAVEA (Yearbook of Source: MDA-MAPA, CONAB, FAO Source: MDA-MAPA the Brazilian Automotive Industry, 2011) Elaboration: Ministry of Finance 138
  • Ministry of FinanceInvestments are crucial for the country´s development and growth Special Investment Rate (in % of GDP) 2002 16.4% of GDP 2012* 20.8% of GDP Source: IBGE Foreign Direct Investment (in US$ billion) 2002 US$ 16.5 billion Special Edition | Year 2011 Fourth place in 2011 US$ 66.6 billion 4 th Foreign Direct Investment inflows Source: Central Bank of Brazil Source: UNCTAD * Ministry of Finance estimates Elaboration: Ministry of Finance 139
  • Ministry of FinanceWithin a decade, inflation rate has fallen considerably Special Inflation IPCA, % YoY Inflation IPCA-Managed, % YoY 2002 12.5% 2002 15.32% 2012* 4.7% 2012** 4.0%Source: IBGE Source: IBGE Inflation IGP-M, % YoY Special Edition | Year 2011 2002 25.3% * Central Bank of Brazil 2012** 5.0% Projections - Inflation Report Dec/2011 Source: FGV ** Focus Report Projections: Jan/27/2012 Elaboration: Ministry of Finance 140
  • Ministry of FinanceJob creation: millions of people in the formal labor market Special Unemployment Rate (%) Job creation over the years 12.9% 1.49 million jobs Mar 2002 2002 Dec 2011 4.7% 2011 1.94 million jobs Unemployment rate observed in Over 18 million jobs created between December 2011 is the lowest in history 2002 and 2011Source: IBGE/PME Source: CAGED/MTE Formalization Rate Special Edition | Year 2011 (% formally employed over the occupied population) 45.5% 2002 2011 53.2% Source: IBGE/PME Elaboration: Ministry of Finance 141
  • Ministry of FinanceHigher income has decreased poverty in Brazil Special Minimum Wage at current prices Gini Income Index 2002 R$ 200 2002 0.589 2012 R$ 622 2011 0.541Source: MTE Real Increase of 66% Source: IPEA Decrease of 8.9% Poverty rate * 2002 26.7% 2012 12.8% Special Edition | Year 2011 Source: FGV Decrease of 52% * Share of total population belonging to E class Elaboration: Ministry of Finance 142
  • MinistryIn the last decade, middle class jumped of Financefrom 37% to 50% of total population Special Middle Class 37% of total population 2002 Special Edition | Year 2011 Middle Class 50% of total population Elaboration: Ministry of Finance 2009 143
  • MinistryThe strong emphasis on expanding access to higher education (technical and of Financeuniversity level) has been a priority, without leaving aside basic education Special Qualification Number of registrations Number of seats offered by Percentage of labor force with 11 in professional education Federal Colleges and Universities years of formal education or more 924 thousand 248 thousand 60.5 % 44.7 % 124 thousand Special Edition | Year 2011 565 thousand 2002 2012 2002 2012 2002 2011 Source: MEC Source: MEC Source: IBGE Elaboration: Ministry of Finance 144
  • MinistryScholarship granting for postgraduate studies triples, leading to the of Financeincrease of Masters and Doctorate degrees Special Qualification Number of scholarships for Masters and Number of Doctorate Doctorate provided by Capes and CNPq Graduates 2002 35,000 scholarships 2002 6,894 2010 74,000 scholarships 2012* 13,304 Source: CAPES PNPG 2011-2020 2013* 105,000 scholarships Source: CNPQ, CAPES PNPG 2011-2020 Special Edition | Year 2011 Number of Master’s Degree Graduates 2002 23,445 2012* 41,396 Source: CAPES PNPG 2011-2020 * PNPG projections 2011-2020 Elaboration: Ministry of Finance 145
  • Ministry of FinanceBrazil has established itself as a safe and promising place for investments Special Rating Classification Trading Volume on (S&P) BM&F BOVESPA (in R$ billion) Jul 2002 B+ (Speculative Grade) 2002 R$ 136 bi Nov 2011 BBB (Investment Grade) 2011 R$ 1,605 biSource: S&P Source: BM&F Bovespa Country Risk Country Risk (EMBI+) (Credit Default Swap – CDS) 2002 (year average) 1,372 points 2002 (year average) 1,910 points Jan 2012 (average) 220 points Jan 2012 (average) 157 pointsSource: JP Morgan Source: Bloomberg Special Edition | Year 2011 Elaboration: Ministry of Finance 146
  • Ministry of FinanceIn the last decade, Brazil has become an international lender Special Total Net Foreign Debt 2002 US$ 165 bi Dec 2011 US$ -79,1 biSource: Central Bank of BrazilTotal Net Debt = Short-term debt + Long-term debt - - International Reserves - - Brazilian credits abroad - - Commercial banks Assets Special Edition | Year 2011 International Reserves Jan 2002 US$ 36 bi Jan 2012 US$ 353 biSource: Central Bank of Brazil Elaboration: Ministry of Finance 147
  • MinistryEven within a currency war scenario, of FinanceBrazilian exports have quadrupled in a decade Special Exports US$ 256 bi US$ 60 bi 2002 2011 Source: Central Bank of Brazil Trade balance Value of total trade * Special Edition | Year 2011 US$ 482 bi US$ 29.8 bi US$ 108 bi US$ 13.1 bi 2002 2011 2002 2011 * Exports plus Imports Source: Central Bank of Brazil Source: MDIC Elaboration: Ministry of Finance 148
  • MinistryDomestic real interest rates, as well as interest rates paid abroad, of Financehave reached minimum historical levels Special Nominal Interest (Selic) Rate 10-year Treasury Bond (Issuance Yield) (% YoY) (% YoY) Dec/31/2002 25.0% YoY Jan 2002 12.6% YoY Jan/31/2012 10.5% YoY Jan 2012 3.5% YoY Source: Central Bank of Brazil Source: STN/MF Real Interest (Selic) Rate (% YoY)* Jan 2002 10.99% YoY Dec 2011 4.14% YoY Special Edition | Year 2011 Source: Central Bank of Brazil *Ex-post interest rate: the ratio between the Selic rate and annualized IPCA Elaboration: Ministry of Finance 149
  • MinistryWithin a decade, credit to GDP ratio doubles in Brazil. of FinanceHousing credit has also reached record highs recently Special Financial System Credit Housing Credit Operations (% GDP) (Official Bank CAIXA) 26.0% GDP R$ 4.4 bi 2002 2002 2011 49.1% GDP 2012* R$ 84.3 bi Source: Central Bank of Brazil Source: CAIXA BNDES Disbursement Special Edition | Year 2011 R$ 37.4 bi 2002 2011 R$ 103.4 bi Source: Central Bank of Brazil * CAIXA estimates Elaboration: Ministry of Finance 150
  • MinistryFiscal solvency has been guaranteed by the continuing decline of the of Financepublic debt, as well as by the improvement of the debt profile Special Public Sector Federal Public Debt: Net Debt (% GDP) Percentage maturing in 12 months 2002 60.4% Dec 2006* 32.42% 2012 36.9% Dec 2011 21.89% Source: Central Bank of Brazil Source: STN Percentage of debt indexed Percentage of fixed rate debt + price indexes to the exchange rate Dec 2002 10.28% Dec 2002 45.83% Dec 2011 65.50% Dec 2011 4.37% Special Edition | Year 2011 Source: STN/MF Source: STN/MF Percentage of debt indexed to the interest rate, * Focus Report Projections: reference interest rate (TR) and others Jan/27/2012 ** 2006 data are used because the current methodology is not Dec 2002 43.89% retroactive to previous years Dec 2011 30.14% Elaboration: Ministry of Finance Source: STN/MF 151
  • MinistryA larger increase in expenses, in relation to revenues, is justified by of Financeincome transfers and spending related to health and education Special Total Net Revenue (% GDP) Primary expenditure (% GDP) Income transfers to households 17.9% of GDP 15.7% of GDP 6.8% of GDP2002 2002 20022011 19.8% of GDP 2012 17.5% of GDP 2011 8.6% of GDP Source: STN/Ministry of Finance and Source: STN/Ministry of Finance Source: STN/Ministry of Finance “Siga-Brasil”/Federal Senate and “Siga-Brasil”/Federal Senate and”Siga-Brasil”/Federal Senate Federal Government Spending Federal Government spending in Education in Healthcare in constant prices of January 2012 in constant prices of January 2012 R$ 18.7 billion R$ 36.0 billion Special Edition | Year 2011 2002 2002 2012* R$ 68.6 billion 2012* R$ 85.4 billion 222% growth in real terms 107% growth in real terms Source: STN and Budget Guidelines Law (LOA) 2012 Source: STN and Budget Guidelines Law (LOA) 2012 * LOA 2012 Elaboration: Ministry of Finance 152
  • Ministry of FinanceOn the other hand, payroll expenditures decreased Special Payroll expenditures (% GDP) 4.8% GDP 2002 2012* 4.4% GDP Source: STN/Ministry of Finance and “Siga-Brasil”/Federal Senate Special Edition | Year 2011 * Predicted Value - Budget Guidelines Law 2012 (12.595 – Jan/19/2012) Elaboration: Ministry of Finance 153
  • Ministry of FinanceGlossary - Institutions National Association of Automobile ANFAVEA IMF International Monetary Fund SEAE Secretariat for Economic Monitoring Manufacturers BC Central Bank of Brazil MDA Ministry of Agrarian Development SPE Economic Policy Secretariat Ministry of Development, Industry and BIS Bank for International Settlements MDIC STN National Treasury Secretariat Foreign Trade National Bank of Economic and Social Ministry of Social Development and Fight United Nations Conference on Trade and BNDES MDS UNCTAD Development against Hunger Development CG-LA Competitiveness Group Long-Term Assets MEC Ministry of Education Ministry of Planning, Budgeting  and CNI National Industry Confederation MPOG Management National Council for Scientific and CNPq MTE Ministry of Labor and Employment Technological Development National Association of Security Dealers FAO United Nations Food and Agriculture NASDAQ Automated Quotation Special Edition | Year 2011 FED Federal Reserve Bank RFB Federal Revenue Secretariat FGV Getulio Vargas Foundation S&P Standard & Poors Federation of Industries of the State of FIESP SAE/PR Secretariat for Strategic Affairs São Paulo IBGE Brazilian Institute of Geography and Statistics SAIN International Affairs Secretariat 154
  • Ministry of FinanceGlossary - Terms General Register of Employed and IGP-DI General Price Index – Internal Supply / FGV PME Monthly Employment Survey / IBGE CAGED Unemployed Coordination of Improvement of Higher PMI Purchasing Managers Index CAPES IGP-M General Price Index Market Education Personnel National Construction Cost Index – Internal PNAD National Household Sample Survey CDS Credit Default Swap INCC-DI Supply / FGV PNPG National Plan of Graduate Studies CLT Consolidation of Labor Laws IOF Financial Transaction Tax PRONATEC National Program for Access to Technical CRB Commodity Research Bureau Education and Employment IPA-DI Producer Price Index – Internal Supply / FGV RMV Lifetime Monthly Income DI Interbank Deposits IPC Consumer Price Index / FGV Selic Brazilian Benchmark Interest Rate DPMFi Domestic Federal Public Securities Debt IPCA Broad Consumer Price Index / IBGE SIAFI Integrated Financial Management System EMBI+ Emerging Markets Bond Index Plus ISM Institute of Supply Management TR Reference Rate FAT Worker Support Fund LDO Budgetary Guidelines Law Special Edition | Year 2011 WEO World Economic Outlook/IMF FBCF Gross Fixed Capital LOAS Organic Law of Social Assistance FGTS Severance Pay Indemnity Fund NUCI Installed Utilization Capacity Level FSB Sovereign Fund of Brazil PAC Growth Acceleration Program IBC-Br Economic Activity Index PIB Gross Domestic Product IED Foreign Direct Investment PMC Monthly Retail Survey / IBGE 155
  • Ministry of FinancePresident of the Republic: Dilma Vana RousseffMinister of Finance: Guido MantegaDeputy Minister of Finance: Nelson BarbosaSecretary of Economic Policy: Márcio HollandChief of Staff: Marcelo FicheProduction and ExecutionEconomic Policy SecretariatAdvisory to the Minister of Finance on Economic AffairsEditorial BoardAdriano SeabraCleomar GomesFabio GranerJosé Gilberto Scandiucci FilhoLígia OurivesTechnical Support Art Special Edition | Year 2011National Treasury Secretariat - STN Visual Project and Final Art: Viviane Barros Ministry of FinanceInternational Affairs Secretariat - SAIN Cover: André Nóbrega B R A Z I L I A N G O V E R N M E N TSecretariat for Economic Monitoring - SEAE Layout Development: Alline Luz and Viviane BarrosFederal Service of Data Processing - SERPRO Design Trainee: Letícia Lopes and Weslei Lopes Economics Trainee: Andrea Mottawww.fazenda.gov.br Finished in February 8th, 2012 154