Country risk analysis_brazil

Presenter’s Name – Partha Tripathi, Subodh Pandey, Bipin Chandra, Avik Sinha, Shantanu, Bibhu Mohapatra

March 2012

Country Risk Analysis
Brazil

Country Risk Analysis Report- Brazil

Table of contents

Country History
General Domestic Scenario
Fiscal policy
Monetary policy
Foreign Trade
Strength
Weakness
Risk Level and exposure limits

Country Risk Analysis Report-Brazil-History

Country History

Background
Following more than three centuries under Portuguese rule, Brazil gained its independence
in 1822, maintaining a monarchical system of government until the abolition of slavery in
1888 and the subsequent proclamation of a republic by the military in 1889. Brazilian coffee
exporters politically dominated the country until populist leader Getulio VARGAS rose to
power in 1930. By far the largest and most populous country in South America, Brazil
underwent more than half a century of populist and military government until 1985, when the
military regime peacefully ceded power to civilian rulers. Brazil continues to pursue industrial
and agricultural growth and development of its interior. Exploiting vast natural resources and
a large labor pool, it is today South America's leading economic power and a regional
leader, one of the first in the area to begin an economic recovery. Highly unequal income
distribution and crime remain pressing problems.

Source: CIA report


Country History

Overview
 Location: Eastern side of South America Bordering Atlantic Ocean
 Area: 8,511,965 Sq Km
 Boundary: Total land Border 14691 KM, bordering Argentina, Bolivia, Colombia, French
Guiana, Guyana, Paraguay, Peru, Surinam, Uruguay, Venezuela.
 States 26 and one federal district
 Time Zone : UTC-3 hrs, Day light Saving applicable
 Population Growth Rate: 1.17%
 Language: Portuguese (official)
 Literacy : 90.3%
 Natural Resource: Bauxite, Iron ore, Gold, Manganese, Nickel, Phosphates, Platinum, tin,
Petroleum, Hydro power, Timber
 Land Use: Arable land: 6.96%, Permanent Corps: 0.9%, Others 92.15%
 Natural Hazard: recurring drought in Northeast, floods and occasional frost in south

Source: US government States Department


Country History

Government Structure
 Official name: Federative Republic of Brazil
 Government Type: Federal
 Constitution :5 October 1988
 Legal System: Based on Roman Codes has not accepted compulsory ICJ Jurisdiction but
accepts ICCt jurisdiction
 Executive System
– Head of government : President
– Other Executive: Vice president, Cabinet appointed by President
– Election: President and Vice President are elected on four year term by popular Votes
 Legislative System: Bicameral
– National Congress: 81 seats
– Chamber of Deputies : 513 seats
 Judicial System:
– Supreme Federal Tribunal
– Higher Tribunal of Justice
– Regional federal Tribunal
Source: Brazilian Government


Country History

Political Structure
 Present president Dilma Rousseff is from Workers party and Vice president Micel Temer is
from Brazillian Democratic Movement party
 Major Party and Ideology leaning
Name of Party Abbreviation Leaning
Workers' Party PT Center –Left
Democrats DEM Center-Right
Brazilian Democratic Movement Party PMDB Center
Brazilian Social Democratic Party PSDB Center
Green Party PV Center-Left
Socialism and Freedom Party PSOL Left
Brazilian Labor Party PTB Center Right
Brazilian Socialist Party PSB Center-Left
Democratic Labor Party PDT Center-Left
Communist Party of Brazil PCdoB Left
Progressive Party PP Center-Right

Source: US Government Department of States


Country History

Social Structure and Key Indicators
 Major ethnic groups: white 53.7%, Brown 38.5%, Black 6.2% (2000 census)
 Religion: Roman Catholic 73.6%, Protestant 15.4% (2000 census)
 Age Structure: less than 14 year 26.2%, 15-64 year 67%, 65 year and above 6.7% (2011)
 Median age: Total 29.3 years, male 28.5 years and female 30.1 years (2011 est)
 Urbanization: urban population 87% (2010), urbanization rate 1.1% (2010-15 est)
 Sex Ratio: 0.98 males per female (2012)
 Maternal Mortality rate: 58 deaths per 100,000 live birth (2008 data)
 Infant Mortality: 20.5 per 1000 live birth (2012 est)
 Health Expenditure : 9% of GDP
 Unemployment: 17.8% (2009), 5.9% (2010)
 HDI : 0.718, category High (84th Rank ) (source UNDP 2011)
 Gini coefficient (53.9) 2009 (source world bank)
Source: CIA report except HDI and Gini coeffecient

Country Risk Analysis Report-Brazil-Domestic Scenario

General Domestic Scenario

 GDP ( Price 2000 in USD): 916,131,427,896 USD (2010)
 GDP Growth rate : 7.5% however it had a negative growth in 2009 however 5 year average
is 4.7%
 GDP per capita ( Price 2000 in USD) : 4699.4 USD average 5 year growth rate 3.6%
 Gini Index : 56.4 (2005)
 Unemployment rate : 6.7% (2010)
 Internal Savings/GDP ratio : 17% (2010)
 Investment to GDP ratio : 19% (2010)
 Gross Domestic Savings/Gross Domestic Fixed Investment : 94% (2010)

Source: World bank data

Country Risk Analysis Report-Brazil-Fiscal Policy

Fiscal Policy

 Budget Deficit/GDP ratio : (2.9%) (2010)
 Internal Debt/GDP ratio : 61% (2010)
 Fiscal Surplus/GDP ratio: 2.1% (2010)

World Bank Data

Country Risk Analysis Report-Brazil-Monetary Policy

Monetary Policy

 Inflation rate (consumer price): 5%
 GDP Deflator: 7.3%
 Broad Money Supply Growth (M3): 15.4%
 Real Rate of Interest rate : 30.4%
 Benchmark Interest Rate: 9.75% on Jan 2012 with historical high of 45% in March1999

Source: World Bank Data for the year 2010

Country Risk Analysis Report-Brazil-Foreign Trade

Foreign Trade

 Growth rate of Exports :16.83 Billion USD(2010), 21.34 Billion USD(2011), 26.8% Growth
 Growth rate of imports :15.15 Billion USD (2010), 18.85 Billion USD (2011), 24.4% Growth
 Current Account balance: -24.302 Billion USD (2009), -47.365 Billion (2010),
 Necessary imports: Oil, Power, machinery, electrical and transport equipment, chemical products
 Export/Import ratio : 1.11 (2010), 1.132 (2011)
 Trade/GDP: 34.9%
 Current account/GDP ratio : -2.21%
 International Reserves: 565.639 Million USD on 31st Dec 2011
 (International Reserves-Gold)/Imports : 3% (2011)
 External Debt/GDP ratio 44.75% (2011)
 Short term debt/Reserves (minus gold) 3.94%
 External Debt Services/Exports 2.68(2011)
 Capital Inflows: Total 65.279 Billion USD, FDI 48.437 Billion USD
 Exchange currency rate 1.602 USD/ BRL

Source: OECD database

Country Risk Analysis Report-Brazil-Strength

Strength

Strength Factors Possible Repercussions
 Abundant Natural resources  High Political Stability
 Fiscal and Monetary policy has been  Less Social demands
prudent
 Enough Supply of labour force
 Young Population
 Educated labour force
 High FDI
 Opportunity for Private profits
 Domestic market potential with low labour
cost
 reduction in Gini Index
 High HDI
 Healthcare and sanitation well reached
 Low Internal debt
 High Literacy level

Country Risk Analysis Report-Brazil-Weakness

Weakness

Weakness Factors Possible Repercussions
 Too high foreign currency inflow causing  Export reduction
currency appreciation
 Rise in spreads
 High Money supply growth rate
 Real interest rate is still very but reduced over
 Higher compliance cost for private
period of time business
 High Tax complexities  Higher inflation

Country Risk Analysis Report-Brazil-Risk Level and Exposure Limits

Risk Level and Exposure Limits

Political and Social stability

Economic growth Prospects

Domestic Financial stability

External competitiveness

Debt Servicing Capacity

BOP Sustainability



Political and Social stability

Brazil is Federal Republic comprising of 26 states and
Federal District. Executive, Legislative and Judiciary are the
three main bodies of functionary in the country. There is
demarcation of activities of these three bodies. There is also
checks and balances amongst each other. The Government
head is elected by people and now the trends are of coalition
politics where many parties come together to form government.
This has resulted in stable Democratic system.

Brazil society is mainly composed of two major ethnic
groups, Government spends about 9% of GDP in health care
and sanitation. Unemployment has reduced. This has resulted
in higher Human development Index and lower GINI Index.
Male female ratio is healthy.



Economic growth Prospects

Brazil economy is growing economy. GDP is growing at
a high rate of 7.5% over year 2009, however it had experienced
a dip in GDP growth in the year 2009. Long term average GDP
growth rate is 4.7%. Service sector has maximum share of
GDP followed by Manufacturing. GDP per capita has increased
by 3.5%. Gross Savings has increased to 17% of GDP and
Investment is 19% of GDP. Thus Investment in Economy is
mainly fueled by Internal savings. Inflation is moderate. FDI is
also very high causing currency appreciation. It has introduced
tax on FDI to restrict the inflow. Thus Brazil has high and stable
economic growth prospect.



Domestic Financial stability

Brazil has fiscal surplus of 2.19% of GDP. This is cause
of worry as Brazil is not able to fully realize Growth Prospects.
The total debt is 16.6% of GDP and has a reducing trend. Debt
servicing as percentage of exports is 19% which is relatively
lower.

There is negative risk assessment of higher interest
rate.

In the Overall assessment Domestic Financial condition
is quite stable. But has a downside risk lower expenditure as
compared to receipts.



External competitiveness

The Brazilian economy is export oriented. There is huge
inflow of FDI and portfolio investment due better investment
climate. This causing Brazilian Currency to appreciate against
US dollars from 0.63 BRL/USD to 0.550. Currency appreciation
will reduce Export competitiveness of Brazil.

Brazil has high FDI flow thus to restrict FDI flow Brazil
has introduced 2% tax on FDI. This will restrict FDI flow. This
may help restrict Brazilian currency appreciation.



Debt Servicing Capacity

External debt is 44.5% of GDP. External Debt servicing
requirement is low with obligation at 19% of Exports. Brazil has
High reserves. Due to currency getting appreciated and high
growth of exports Brazil has low risk of Debt not being serviced.



BOP Sustainability

Export is growing at the rate of 26.8% and import at the
rate of 24.4%. Currently export is more than imports with export
import ratio of 1.132. The Balance of Payment is sustainable
with export growing more than imports. There is less risk of
BOP not being sustainable.

Please contact at pt.partha.tripathi@gmail.com for
further for further information

Country risk analysis_brazil

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