Banco Central do Brasil How to Sustain Stability

Banco Central do Brasil How to Sustain Stability Ilan Goldfajn July 2002 1

Jan-02 Jan-01 Jan-00 Jan-99 Jan-98 Jan-97 Jan-96 Jan-95 50 Jan-94 % IPCA - Monthly Inflation 47. 43 45 40 35 30 25 20 15 10 5 0. 42 0 2

IPCA Inflation Average in the year Accum. in 12 months 1994 2, 075. 89 916. 46 Jun-94 4, 922. 60 1995 66. 01 22. 41 Jun-95 33. 03 1996 15. 76 9. 56 Jun-96 16. 26 1997 6. 93 5. 22 Jun-97 7. 02 1998 3. 20 1. 65 Jun-98 3. 41 1999 4. 86 8. 94 Jun-99 3. 32 2000 7. 04 5. 97 Jun-00 6. 51 2001 6. 84 7. 67 Jun-01 7. 35 2002 * 7. 72 7. 66 Jun-02 7. 66 * Jan-Jun 2002 3

Inflation Targeting Regime IPCA Actual Central Target Upper Limit Lower Limit 1999 8. 94 8. 00 10. 00 6. 00 2000 5. 97 6. 00 8. 00 4. 00 2001 7. 67 4. 00 6. 00 2002 5. 5 * 3. 50 5. 50 1. 50 2003 2. 6 * 4. 00 6. 50 1. 50 2004 - 3. 75 6. 25 1. 25 * Central Bank forecasts (constant current exchange and interest rates) 4

IPCA - Targets IPCA accumulated in 12 months 10 8. 9 9 8 8. 0 7. 7 (%) 7 6. 0 6 6. 0 5. 5 5 4. 0 4 3. 75 3. 5 3 2. 6 2 1 0 1999 2000 Target 2001 IPCA 2002 2003 Central Bank forecasts 2004 5

2. 5 * As of July 12 th 6. 0 2003 12 -Jul-02 02 -Jun-02 02 -May-02 4. 5 02 -Apr-02 5. 5 02 -Mar-02 02 -Feb-02 02 -Jan-02 02 -Dec-01 02 -Nov-01 02 -Oct-01 02 -Sep-01 02 -Aug-01 02 -Jul-01 02 -Jun-01 02 -May-01 02 -Apr-01 02 -Mar-01 02 -Feb-01 02 -Jan-01 IPCA - Market Expectations 5. 81 2002 5. 0 4. 20 4. 0 3. 5 3. 0 6

IPCA - Market Expectations IPCA - Median of Market Expectations Aggregate Top 5 - Short 2002 2003 2004 Jan 2002 4. 80 4. 00 3. 63 4. 85 3. 75 3. 00 Feb 2002 4. 87 4. 00 3. 50 4. 84 3. 75 3. 25 Mar 2002 5. 04 4. 00 3. 50 5. 15 4. 21 3. 50 Apr 2002 5. 46 4. 00 3. 65 5. 46 4. 00 May 2002 5. 46 4. 00 3. 50 5. 57 3. 85 3. 00 Jun 2002 5. 53 4. 00 3. 50 5. 68 4. 50 3. 75 Jul 2002 * 5. 81 4. 20 3. 50 5. 81 4. 00 3. 75 Refer to the last business-day of each month. * July 12 th, 2002 7

Net Public Sector Debt 60 55 53, 3 56, 0 41, 8 43, 2 42, 5 49, 2 50 49, 4 45 41, 7 41, 1 41, 6 40 33, 3 35 30 41, 7 30, 0 30, 6 32, 3 30, 8 29, 6 39, 7 34, 3 33, 0 40, 8 40, 1 35, 8 31, 4 25 20 1994 1995 1996 No skeletons 1997 1998 1999 2000 Constant exchange rate 2001 2002 Actual 8

Net Public Sector Debt 60 49, 2 50 53, 3 30, 0 33, 3 30, 6 29, 9 26, 8 26, 2 20 43, 3 34, 3 31, 5 25, 3 56, 0 48, 8 41, 7 40 30 49, 4 46, 4 43, 1 36, 4 31, 2 20, 6 23, 9 18, 4 17, 4 1997 1998 25, 8 24, 1 26, 0 27, 8 23, 0 22, 2 20, 3 1999 2000* 21, 8 10 0 1994 1995 1996 Actual Hyp I: Selic-5% (95 -98) 2001* 2002 Hyp II: 3. 5% Primary (95 -98) Hyp III=Hyp I and Hyp II 9

Net Public Sector Debt 60 53. 3 % of GDP 55 49. 2 50 45 41. 7 40 33. 3 35 30 30. 6 29. 6 34. 3 32. 3 30. 8 33. 0 1996 1997 39. 7 41. 7 56. 0 49. 4 41. 1 40. 8 40. 1 1999 2000 41. 8 43. 2 41. 6 42. 5 2001 2002 35. 8 31. 4 25 20 1994 1995 No skeletons 1998 Constant exchange rate Actual 10

Net Public Sector Debt 60 49. 2 % of GDP 50 30. 6 33. 3 29. 9 26. 8 31. 5 25. 3 23. 9 46. 4 43. 3 43. 1 25. 8 24. 1 36. 4 31. 2 20. 6 26. 2 20 34. 3 56. 0 48. 8 41. 7 40 30 49. 4 53. 3 18. 4 20. 6 22. 2 17. 4 26. 0 20. 3 21. 8 2000 2001 27. 8 23. 0 10 0 1994 1995 1996 1997 1998 1999 Actual Hyp II: 3. 5% Primary (95 -98) Hyp I: Selic-5% (95 -98) Hyp III=Hyp I and Hyp II 2002 11

External Debt Indebtedness indicators 1995 -2001 US$ million 1996 1997 1998 1999 Medium and Long term debt (A) Short term debt (B) Total debt (C)=(A+B) 2/ 122, 541 30, 524 153, 065 135, 521 37, 787 173, 308 154, 906 36, 715 191, 621 197, 494 26, 298 223, 792 199, 000 26, 609 225, 609 189, 501 182, 276 27, 420 27, 627 216, 921 209, 903 GDP 705, 449 775, 475 807, 814 787, 889 531, 057 594, 247 527, 544 21. 70 22. 35 23. 72 28. 40 42. 48 Total debt/GDP (%) 2000 20011/ 1995 36. 50 39. 79 1/ Excludes principal, amortization and service related to intercompany loans. Includes revision of medium and long term debt position of the private sector. 2/ Excludes intercompany loans. 12

Total External Debt/GDP 50 % of GDP 42. 48 40 36. 50 39. 79 28. 40 30 21. 70 22. 35 1996 23. 72 20 10 0 1997 1998 1999 2000 2001 13

Imports Evolution Jan-Jun 2002 Jan-Jun 2001 US$ million Share Evolution 2, 852 12. 7% 3, 734 12. 9% -23. 62% Durable 1, 189 5. 3% 1, 919 6. 6% -38. 05% Non-durable 1, 663 7. 4% 1, 815 6. 3% -8. 35% 11, 165 49. 7% 14, 538 50. 1% -23. 20% Fuel and lubricants 2, 716 12. 1% 3, 019 10. 4% -10. 03% Capital goods 5, 711 25. 5% 7, 713 26. 6% -25. 95% 22, 445 100. 0% 29, 005 100. 0% -22. 62% Consumer goods Raw-materials Total Source: MDIC/Secex 14

Trade Balance - US$ billion 6. 0 Jun 2002 - US$ million monthly acc. year acc. 12 -month 675 2, 608 5, 327 0. 8 0. 6 4. 0 0. 4 2. 0 monthly 0. 2 0 0 - 0. 2 -2. 0 - 0. 4 - 0. 6 -4. 0 - 0. 8 -6. 0 -1. 2 -8. 0 Source: MDIC/Secex monthly 12 months may/02 jan/02 sep/01 may/01 jan/01 sep/00 may/00 jan/00 sep/99 may/99 jan/99 sep/98 may/98 jan/98 -1. 4 -1. 6 accumulated in 12 months 1. 0 -10. 0 15

Current Account X FDI Current Account Deficit versus Net FDI Accumulated in 12 months 40 35 30 25 20 15 10 5 0 Net FDI Current Account Financing Necessity may/02 jan/02 sep/01 may/01 jan/01 sep/00 may/00 jan/00 sep/99 may/99 jan/99 sep/98 may/98 jan/98 sep/97 -15 may/97 -10 jan/97 -5 16

Amortizations Total Registered External Debt – Principal Amortization Schedule - Including intercompany loans and regularization operations as of March 30, 2002 36, 6 29, 0 30 25 20 15 22, 7 21, 9 21, 1 16, 3 14, 7 8, 3 10 5 6, 9 4, 4 2, 2 2, 0 2, 3 Beyond 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 0 2002 US$ billion 40 35 17

Brazilian Capital Abroad US$ million Itemization Total 69, 657 Loans Direct Investment Abroad Equity Intercompany Loans Portfolio Investment Stocks Fixed Income Bonds and Notes Short-Term Securities BDRs Other Portfolio Investment Other Investment Derivatives Leasing Financing Deposits Abroad 411 50, 746 43, 641 7, 104 5, 163 2, 517 837 577 260 483 1, 326 3, 412 42 1 439 9, 442 18

Foreign Capital Census – Basis 2000 Consolidation by Economic Sector Assets Sector Net Worth Stock Capital R$ billion % Agriculture Industry Services 15. 7 265. 8 632. 6 1. 7% 29. 1% 69. 2% 7. 3 97. 1 149. 6 2. 9% 38. 2% 58. 9% 8. 8 113. 6 229. 3 2. 5% 32. 3% 65. 2% Total 914. 1 100. 0% 254. 1 100. 0% 351. 7 100. 0% Consolidation by Region Capital of Non-Residents Region 1995 R$ 1, 000 % 2000 R$ 1, 000 % Northeast Mid-West Southeast South Abroad 817, 594 1, 573, 972 211, 957 35, 674, 074 2, 221, 041 50, 356 2. 0% 3. 9% 0. 5% 88. 0% 5. 5% 0. 1% 3, 072, 838 6, 231, 947 2, 549, 229 174, 659, 480 14, 721, 337 199, 740 1. 5% 3. 1% 1. 3% 86. 7% 7. 3% 0. 1% Total 40, 548, 994 100. 0% 201, 434, 571 100. 0% 19

Structural Reforms – Monetary Responsibility Law: aims to facilitate the task of introducing appropriate regulations – Payments System: aims at reducing the systemic risk – Prudential Regulations: Central Bank’s initiatives aim at providing a more transparent structure to the financial system – Corporate Law: protection to the minority shareholders – Bankruptcy Law: acts at the recuperation and the judicial liquidation of the commercial and economic civil corporations – Corporate Governance (New Market): new rules in order to guarantee greater transparency and security to the investors – Banking Spread: measures that aim at the reduction of the banking spread in Brazil – Transparency: improves the communication of the Central Bank with the market participants 20

jun/02 jan/02 jul/01 jan/01 jul/00 jan/00 jul/99 jan/99 jul/98 jan/98 jul/97 jan/97 % p. a. Real Interest Rate Average Swap 360 Deflator: 12 -month IPC-A 45 40 35 30 25 20 15 10 5 21