Presentation at the Australian Department of Foreign Affairs and Trade

1. BRAZIL'S REDUX:The Long-Awaited Emergence22 July 2010Department of Foreign Affairs and Trade Patrick Carvalho MA International Relations – University of Wollongong MSc Economics – Getulio Vargas Foundation PhD Candidate in Economics – ANU Brazilian Licensed Lawyer Former Head of Economic Studies Division at the Federation of Industries of Rio de Janeiro

2. Sections BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Basic Facts The Change of Paradigm The Grand Test: The Current World Crisis Back to the Future Political Scenario: The 2010 Presidential Election Appendix: Brazilian Macroeconomic Time-series

3. Sections BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Basic Facts The Change of Paradigm The Grand Test: The Current World Crisis Back to the Future Political Scenario: The 2010 Presidential Election Appendix: Brazilian Macroeconomic Time-series

4. Basic Facts BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Federative Republic of Brazil Extension Area: 8.5 Mil. km2 Urban Rate: 86.1% Bicameral Presidential System Federation of 26 States (5,564 Municipalities over 5 regions) Official Language: Portuguese Magna Carta: Constitution of 1988 Currency: REAL (R$) GDP: US$ 1.6 Tril. Population: 194 Mil. GDP per capita: US$ 8,108

6. Racial Composition: 48.4% White / 50.6 % Black&Mulatto / 0.9% Others

7. Age Demographics: 25.7% Children / 64.3% Adults / 10.0% Elderly (over 60 years)

8. Life Expectancy: 72.7 years

9. Population Growth Rate: 0.98% per year

10. Human Development Index: 0.813

12. BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Basic Facts Position of Selected Goods in World Production & Trade

13. BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Basic Facts Main Exports & Destinations in 2009(share over aggregate exports)

14. BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Basic Facts Energy Supply Matrix Source: Ministry of Energy of Brazil

15. Sections BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Basic Facts The Change of Paradigm The Grand Test: The Current World Crisis Back to the Future Political Scenario: The 2010 Presidential Election Appendix: Brazilian Macroeconomic Time-series

17. Flexible Exchange Rate (1999)

18. Fiscal Responsibility Act (2000)The China Effect

19. The Change of Paradigm BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho The China Effect Source: Economist Inteligence Unit

20. BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho The Change of Paradigm Old Dynamics: External Crisis -> Devaluation -> (Dollarized) Debt Explosion & Inflation -> Fiscal & Monetary Contraction -> RECESSION (The Hen's Flight Business Cycle) Current Dynamics: External Crisis -> Devaluation -> Net External Debt Creditor & Anchored Inflation Expectations -> Fiscal & Monetary Expansion -> Short Slowdown

21. The Change of Paradigm BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Business Cycles in Brazil

25. Current Account under control

26. Composition of Curr.Acc.: -Higher trade balances -Lower debt services -Higher profit & dividends remittances

28. Current FDI inflows rely on market stability and growthSource: The Economist, Nov 12, 2009

31. Nominal Fiscal Surplus expected from 2013 onwards

36. Irresponsible expansion of credit-Housing bubble-High leverage of financial and banking system

38. Although the rapid credit expansion over the previous years……the credit ratio is still modest for international standards

40. Brazil presents one of the lowest percentage shares of household income committed to mortgage and private debt

42. Healthy banking system with high relation between capital and risk weighted assets

44. Resulting in faster recovery of the market values of Brazilian banks

46. Brazil at the onset of the current World Crisis: better prepared than in the past……less turbulence in the present

48. Recovery of exports relies on the demand of foreign countries and on the international price of commoditiesExports & Imports12 Month-moving average (US$ Bil.) Exports Imports Source: FUNCEX

54. Unprecedented low level of Interest Rates

55. Rising Mass Consumption Class based on low unemployment rate and higher salaries

56. Better Terms of Trade

57. Strong and flexible currency

58. Positive fiscal budgets

59. Net External Creditor with robust International Reserves

60. Big recipient of FDI

61. Solvent and transparent financial and banking system

62. Investment Grade and lower country-risk premiumsYoung and large Population Stable and nonviolent Democracy Big Natural Reserves (including water basins) Pre-salt Oil & Gas Reserves Potential to consolidate as the main food supplier to the world (increasing productivity, large unexploited/cheap lands and Doha Round) 2014 World Cup and 2016 Olympics High housing deficit Increasing levels of investments at macro and micro level

64. Sections BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Basic Facts The Change of Paradigm The Grand Test: The Current World Crisis Back to the Future Political Scenario: The 2010 Presidential Election Appendix: Brazilian Macroeconomic Time-series

65. BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Political Scenario: The 2010 Presidential Election President is elected directly to a four-year term, with a limit of two terms. Lula is not eligible, since he was elected in 2002 and re-elected in 2006. Two Ballot Rounds: October 3rd & 31st Two Main Parties: PSDB (Jose Serra) vs PT (Dilma Roussef) All candidates are commited to maintain the macroeconomic stability tripod Source: IBOPE – July 3rd, 2010

66. BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Political Scenario: The 2010 Presidential Election Lula`s appointee (who plans to return in 2014…) PT (Labour Party) since 2001 63 years old Former Marxist / Economist Political Prisoner in 1970-1972 Minister of Energy, 2003-2005 Chief of Staff (highest-ranking member of the Executive Office of Brazil, senior aide to the President) 2005-2010

67. BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Political Scenario: The 2010 Presidential Election President of the National Student Union in1964 Exiled from 1964-1978 in Chile, Argentina and US Member of Parliament 1986–1994 Elected Senator for Sao Paulo in 1995–2002 Minister of Planning 1995–1996 Minister of Health 1998–2002 (pioneer of generic drugs policy) Mayor of Sao Paulo City 2005–2006 Governor of Sao Paulo State 2007–2010 FHC’s political heir Runner-up for Presidential election against Lula in 2002 67 years old PhD in Economics at Cornell University Founder of PSDB (Party of Social Democracy of Brazil) in 1988

68. Sections BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Basic Facts The Change of Paradigm The Grand Test: The Current World Crisis Back to the Future Political Scenario: The 2010 Presidential Election Appendix: Brazilian Macroeconomic Time-series

69. BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Appendix: Brazilian Macroeconomic Time-series Source: Moody’s Statistical Handbook, May/2010

70. BRAZIL'S REDUX: The Long-Awaited Emergence 22 July 2010, Department of Foreign Affairs and Trade Patrick Carvalho Appendix: Brazilian Macroeconomic Time-series Source: Moody’s Statistical Handbook, May/2010

71. BRAZIL’S REDUX: The Long-Awaited Emergence22 July 2010, Department of Foreign Affairs and Trade THANK YOU Patrick Carvalho MA International Relations – University of Wollongong MSc Economics – Getulio Vargas Foundation PhD Candidate in Economics – ANU Brazilian Licensed Lawyer Former Head of Economic Studies Division at the Federation of Industries of Rio de Janeiro