Banco Central do Brasil The Future Economic Outlook

Banco Central do Brasil The Future Economic Outlook for the Mercosur Region Miami - May, 2001 1

The Future Economic Outlook for the Mercosur Region I. Mercosur - General View II. Main Macroeconomic Indicators - Mercosur III. Macroeconomic Outlook - Brazil IV. Intra-Regional Trade and FDI V. Statistics Harmonization 2

The Future Economic Outlook for the Mercosur Region I - Mercosur - General View 3

The Future Economic Outlook for the Mercosur Region F Integration of Member-Countries - Objectives – Eliminate barriers to trade and facilitate the cross-border movement of goods and services; – Promote conditions of fair competition in the free trade area; – Increase substantially investment opportunities; – Create effective procedures for the implementation of Mercosur, for its joint administration and for the resolution of disputes; – Establish a harmonized legislation and a framework for further multilateral cooperation. 4

The Future Economic Outlook for the Mercosur Region F Governments’ approaches – Strengthen the convergence and macroeconomic coordination for the development of the integration process; – Adopt policies that assure fiscal responsibility and guarantee price stability; – Reduce distortions to trade and ensure a predictable framework for business planning and investment; – Promote sustainable economic and social development. 5

The Future Economic Outlook for the Mercosur Region II - Main Macroeconomic Indicators Mercosur 6

Brazil - Macroeconomic Indicators US$ million 1994 1995 1996 1997 1998 1999 10, 467 -3, 351 -5, 599 -6, 748 -6, 604 -1, 261 -698 Exports (FOB) 43, 545 46, 506 47, 747 52, 994 51, 140 48, 011 55, 086 Imports (FOB) 33, 079 49, 858 53, 346 59, 742 57, 744 49, 272 55, 783 -1, 688 -17, 942 -23, 142 -30, 811 -33, 625 -25, 062 -24, 595 58, 509 50, 969 42, 805 34, 948 33, 011 2000 ** External Trade Balance Current Account International Reserves 37, 260 49, 946 Domestic GDP Constant value * 483, 970 614, 524 662, 929 677, 698 654, 114 433, 231 595, 881 GDP Growth 5. 8 4. 2 2. 7 3. 6 -0. 1 0. 8 4. 5 Inflation % CPI 2, 075. 9 66. 0 15. 8 6. 9 3. 2 8. 9 5. 9 Source: BID - Basic Socio-Economic Data - Statistics and Quantitative Analysis - www. iadb. org IMF - International Financial Statistics - November, 2000 and 2000 Year Book * 1994 -1999 - Constant value in 1990 dollar / 2000 - Current prices /** Preliminary 7

Argentina - Macroeconomic Indicators 1994 1997 US$ million 1999 1995 1996 1998 -4, 139. 0 2, 357. 0 1, 760. 0 -2, 123. 0 -3, 117. 0 -782. 0 Exports (FOB) 16, 023. 0 21, 161. 0 24, 043. 0 26, 431. 0 26, 441. 0 23, 333. 0 Imports (FOB) 20, 162. 0 18, 804. 0 22, 283. 0 28, 554. 0 29, 558. 0 24, 115. 0 Current Account -10, 992. 0 -4, 985. 0 -6, 521. 0 -11, 954. 0 -14, 376. 0 -12, 290. 0 International Reserves 14, 550. 0 14, 516. 0 18, 324. 0 22, 337. 0 24, 770. 0 26, 268. 0 External Trade Balance Domestic GDP Constant value * 208, 668. 0 202, 486. 0 213, 738. 0 231, 056. 0 241, 774. 0 234, 448. 0 GDP Growth 8. 0 -4. 0 4. 8 8. 6 4. 2 -3. 0 Inflation % CPI 4. 2 3. 4 0. 2 0. 5 0. 9 -1. 2 Source: BID - Basic Socio-Economic Data - Statistics and Quantitative Analysis - www. iadb. org IMF - International Financial Statistics - November, 2000 and 2000 Year Book /* Constant value in 1990 dollar (n. a. ) Not available data 8

Paraguay - Macroeconomic Indicators 1994 1995 1996 1997 1998 US$ million 1999 External Trade Balance -244. 0 -270. 0 -586. 0 -312. 0 -218. 0 -332. 0 Exports (FOB) 3, 360. 0 4, 219. 0 3, 797. 0 3, 880. 0 3, 723. 0 2, 708. 0 Imports (FOB) 3, 604. 0 4, 489. 0 4, 383. 0 4, 192. 0 3, 941. 0 3, 040. 0 Current Account -274. 0 -231. 0 -499. 0 -247. 0 -131. 0 -235. 0 1, 018. 0 1, 029. 0 871. 0 711. 0 776. 0 990. 0 6, 983. 0 7, 298. 0 7, 367. 0 7, 545. 0 7, 503. 0 7, 539. 0 GDP Growth 3. 1 4. 7 1. 3 2. 6 -0. 4 0. 5 Inflation % CPI 20. 6 13. 4 9. 8 7. 0 11. 5 6. 8 International Reserves Domestic GDP Constant value * Source: BID - Basic Socio-Economic Data - Statistics and Quantitative Analysis - www. iadb. org IMF - International Financial Statistics - November, 2000 and 2000 Year Book /* Constant value in 1990 dollar 9

Uruguay - Macroeconomic Indicators US$ million 1994 1995 1996 1997 1998 1999 External Trade Balance -706. 0 -563. 0 -687. 0 -704. 0 -772. 0 -868. 0 Exports (FOB) 1, 918. 0 2, 148. 0 2, 449. 0 2, 793. 0 2, 829. 0 2, 305. 0 Imports (FOB) 2, 624. 0 2, 711. 0 3, 135. 0 3, 498. 0 3, 601. 0 3, 173. 0 Current Account -438. 0 -213. 0 -233. 0 -287. 0 -476. 0 -605. 0 1, 056. 0 1, 240. 0 1, 339. 0 1, 639. 0 2, 161. 0 2, 222. 0 11, 445. 0 11, 278. 0 11, 888. 0 12, 468. 0 13, 043. 0 12, 623. 0 GDP Growth 7. 3 -1. 5 5. 4 4. 9 4. 6 -3. 2 Inflation % CPI 44. 7 42. 2 28. 3 19. 8 10. 8 5. 7 International Reserves Domestic GDP Constant value * Source: BID - Basic Socio-Economic Data - Statistics and Quantitative Analysis - www. iadb. org IMF - International Financial Statistics - November, 2000 and 2000 Year Book /* Constant value in 1990 dollar 10

The Future Economic Outlook for the Mercosur Region III - Macroeconomic Outlook - Brazil 11

Recent Economic Developments – Continuous progress in the fiscal front – Inflation within target – Floating foreign exchange regime – Economic growth recovery 12

The Fiscal Adjustment Program Fiscal Targets 1999 -2002 % of GDP PRIMARY SURPLUS 1999 2000 2001 2002 3. 10% 3. 25% 3. 00% (Revised targets) 13

Fiscal Targets - Primary Surplus 40 Occurred R$ billion 35 30 25 20 15 Target 10 5 0 Mar 99 Jun Year cumulative data Sep Dec Mar 00 Jun Sep Dec 14

Net Public Sector Debt 60 % of GDP 55 49. 9 50 45 40 35 30 Jan 99 Mar May Jul Sep Nov GDP reviewed on October 2000 Jan 00 Mar May Jul Sep Nov Jan Feb 01 15

Economic Activity is Peaking Up % real variation F GDP growth of 4. 3% is expected in 2001 5. 0 4. 5 4. 0 3. 5 3. 0 2. 5 2. 0 1. 5 1. 0 0. 5 0. 0 4. 46 4. 30 2001* 0. 79 0. 22 1998 /* 2001 estimates 1999 16

Industry’s Performance INDUSTRY: PRODUCTION AND SALES Jan-Dec 2000 / Jan-Dec 1999 INDUSTRIAL PRODUCTION 6. 5% CAPITAL GOODS 12. 9% INTERMEDIATE GOODS 6. 8% DURABLE GOODS 20. 6% SEMI & NON-DURABLE GOODS -1. 2% REAL SALES - FIESP Source: IBGE and FIESP Observed data 13. 7% 17

Accumulated inflation from January to December CONSUMER PRICES 23. 17 22. 41 IPC-FIPE 10. 04 IPCA 9. 56 8. 64 4. 83 8. 94 4. 38 1. 66 -1. 79 1995 1996 1997 21. 98 1999 2000 1995 1996 1997 1995 1996 IPC-BR 11. 34 8. 43 4. 34 1997 9. 12 7. 21 5. 27 2. 49 1998 1999 2000 25. 91 INPC 9. 12 5. 97 5. 22 6. 21 1. 66 1999 2000 1995 1996 1997 1998 1999 2000 18

Interest Rate F Following a peak of 45%, the short-term interest rate has steadily declined 50 Over-Selic Rate 44. 99% % p. y. 40 30 15. 85% 20 10 Jan 99 Apr Jul April 18 th updated Oct Jan 00 Apr Jul Oct Jan 01 Apr 19

Exchange Rate F The floating exchange rate has operated smoothly 2. 20 R$/US$ 2. 00 1. 80 1. 60 1. 40 1. 20 Jan Apr 99 April 24 th updated Jul Oct Jan 00 Apr Jul Oct Jan Apr 01 20

Trade Balance - monthly and cumulative in 12 months (US$ billion) 0. 6 1. 0 0. 4 0 0. 2 -1. 0 0 -2. 0 -0. 2 -3. 0 -0. 4 -4. 0 - 0. 6 -5. 0 - 0. 8 -6. 0 -1. 0 -7. 0 -1. 2 -8. 0 -1. 4 -9. 0 -1. 6 -10. 0 Jan Mar 01 Jan 98 May Sep Jan 99 Monthly - left scale May Sep Jan 00 May Sep Cumulative in 12 months - right scale 21

Foreign Direct Investment NET FOREIGN DIRECT INVESTMENT Accumulated in the year 35 US$ billion 25 16. 8 20 10 5 30. 3 8. 8 7. 1 25. 4 30 15 30. 0 9. 9 2. 6 7. 2 6. 1 24. 0 5. 2 19. 4 21. 1 23. 2 1998 1999 2000 20. 0 11. 6 0 1996 1997 FDI excluding Privatizations Source: Central Bank of Brazil 2001 * FDI in Privatizations * 2001 year projections 22

Inflation Expectations F The Central Bank Survey on market expectations for inflation indicates an IPCA of 4. 5% for 2001 and 3. 7% for 2002 4. 60 IPCA 4. 5 4. 40 % p. a. 2001 4. 20 4. 00 2002 3. 80 3. 60 3. 7 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 00 01 Market expectation/Banco Central do Brasil daily survey April 17 th updated 23

The Future Economic Outlook for the Mercosur Region IV - Intra-Regional Trade and FDI 24

Brazil - Trade Level with Mercosur Brazil - Trade Level (Exports plus Imports) with Mercosur US$ billion (FOB) Paraguay and Uruguay Argentina 2. 5 16 14 2. 0 12 10 1. 5 8 1. 0 6 4 0. 5 2 0 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 0. 0 Paraguay Source: MDIC/Secex Uruguay Argentina 25

The Future Economic Outlook for the Mercosur Region F Increase of trade level since the beginning of Mercosur Average growth of the trade level intra-Mercosur Period 1994 -2000 – Brazil: The average growth of exports to Mercosur was 4. 6% p. a. , with 7. 1% p. a. to Argentina, approximately. The imports average growth was 9. 3% p. a. , with 11. 0% p. a. from Argentina. – Argentina: The exports growth to Mercosur was approximately 4. 2% p. a. in average, while imports grew 1. 6% p. a. . – Paraguay: The exports to Mercosur average growth was approximately 6. 0% p. a. , with 50. 9% to Uruguay. The imports average growth was 3. 1% p. a. , with 16. 7% from Uruguay. – Uruguay: The average growth of the exports to Mercosur was -2. 7% p. a. , while the average growth of imports was 1. 7% p. a. 26

Brazil - Exports to Mercosur F Brazil - Exports to Mercosur - Jan 1996 to Feb 2001 – The total Brazilian exports to Mercosur is US$ 40, 798 million accumulated in the period January 1996 -February 2001, with 76. 3% to Argentina. Most of the total exports are manufactured goods (90. 2%). Brazilian Exports to Mercosur Distribution by Country Uruguay 10% Paraguay 14% Brazilian Exports to Mercosur Distribution by Sector Semi-manufactured 3. 1% Argentina 76% Basic 6. 4% Special Operations 0. 3% Source: MDIC/Secex Manufactured 90. 2% 27

Brazil - Exports to Mercosur Jan 1996 - Feb 2001 Total Basic Goods Semi-manufactured Goods Manufactured Goods Special Operations US$ million Total Argentina Paraguay Uruguay 31, 117. 4 5, 673. 6 4, 006. 4 40, 797. 5 1, 972. 4 168. 6 451. 1 2, 592. 2 992. 2 38. 7 239. 9 1, 270. 9 28, 073. 4 5, 425. 8 3, 303. 7 36, 802. 9 79. 4 40. 4 11. 7 131. 5 Source: MDIC/Secex 28

Brazil - Imports from Mercosur F Brazil - Imports from Mercosur - Jan 1996 to Feb 2001 – The total Brazilian imports from Mercosur is US$ 42, 896 million accumulated in the period January 1996 -February 2001, with 85. 1% from Argentina. Most of the total imports are raw materials (48. 8%). Brazilian Imports from Mercosur Distribution by Country Uruguay 10% Paraguay 5% Brazilian Imports from Mercosur Distribution by Sector Argentina 85% Capital 9. 6% Fuel and Lubricants 10. 9% Source: MDIC/Secex Non-Durable 17. 4% Durable 13. 3% Raw materials 48. 8% 29

Brazil - Imports from Mercosur Jan 1996 - Feb 2001 US$ million Total Argentina Paraguay Uruguay Total 36, 517. 9 2, 074. 8 4, 302. 9 42, 895. 6 Capital Goods Consumer Goods 4, 037. 6 11, 137. 0 7. 4 129. 0 88. 6 1, 887. 8 4, 133. 6 13, 153. 8 Non-Durables 5, 774. 5 5, 362. 4 124. 0 5. 1 1, 551. 5 336. 3 7, 450. 0 5, 703. 8 16, 667. 9 4, 675. 4 1, 937. 6 0. 8 2, 307. 1 19. 4 20, 912. 6 4, 695. 6 Raw materials Fuel and Lubricants Source: MDIC/Secex 30

Brazil Paraguay % Uruguay % Exports % 1993 1994 1995 1996 1997 1998 1999 2000 4, 136 4, 041 5, 170 6, 748 5, 364 6, 233 -2. 3 27. 9 30. 9 -0. 3 -20. 5 16. 2 1, 054 1, 301 1, 325 1, 407 1, 249 744 832 23. 4 1. 8 6. 2 -11. 2 -40. 4 11. 8 732 811 870 881 670 669 10. 9 -0. 1 7. 3 1. 3 -24. 0 -0. 1 5, 921 6, 154 7, 305 9, 047 8, 878 6, 778 7, 733 3. 9 18. 7 23. 8 -1. 9 -23. 7 14. 1 Imports Argentina US$ million Total % 1993 1994 1995 1996 1997 1998 1999 2000 2, 717 3, 662 5, 591 6, 805 7, 941 8, 031 5, 814 6, 843 34. 8 52. 7 21. 7 16. 7 1. 1 -27. 6 17. 7 276 352 515 552 518 350 260 351 27. 5 46. 3 7. 2 -6. 2 -32. 4 -25. 7 35. 0 385 569 738 944 967 1, 042 647 602 47. 8 29. 7 27. 9 2. 4 7. 8 -37. 9 -7. 0 3, 378 4, 583 6, 844 8, 302 9, 425 9, 424 6, 721 7, 796 35. 7 49. 3 21. 3 13. 5 0. 0 -28. 7 16. 0 Source: MDIC - Secex 31

Argentina Brazil % Paraguay Exports 1993 1994 1995 1996 1997 1998 1999 2000* 2, 790. 7 3, 656. 3 5, 510. 9 6, 619. 9 8, 107. 3 7, 924. 4 5, 689. 3 5, 168. 3 31. 0 50. 7 20. 1 22. 5 -2. 3 -28. 2 -9. 2 357. 8 497. 7 631. 6 581. 4 621. 2 621. 9 563. 2 409. 4 39. 1 26. 9 -7. 9 6. 8 0. 1 -9. 4 -27. 3 512. 6 649. 6 654. 2 717. 1 835. 3 843. 3 818. 6 558. 1 26. 7 0. 7 9. 6 16. 5 1. 0 -2. 9 -31. 8 3, 661. 1 4, 803. 6 6, 796. 7 7, 918. 4 9, 563. 8 9, 389. 6 7, 071. 1 6, 135. 8 31. 2 41. 5 16. 5 20. 8 -1. 8 -24. 7 -13. 2 Imports 1993 1994 1995 1996 1997 1998 1999 2000* 4, 287. 5 4, 174. 4 5, 325. 2 6, 897. 5 7, 054. 7 5, 598. 9 4, 726. 2 -2. 6 27. 6 29. 5 2. 3 -20. 6 -15. 6 71. 6 139. 8 181. 3 319. 6 347. 6 304. 1 217. 5 95. 3 29. 7 76. 3 8. 8 -12. 5 -28. 5 424. 7 279. 3 293. 8 371. 0 528. 0 395. 8 328. 7 -34. 2 5. 2 26. 3 42. 3 -25. 0 -17. 0 4, 783. 8 4, 593. 5 5, 800. 3 7, 588. 1 7, 930. 3 6, 298. 8 5, 272. 4 -4. 0 26. 3 30. 8 4. 5 -20. 6 -16. 3 * Data for Jan-Sep 2000 only Source: www. mercosur. org. uy % Uruguay % US$ million Total % 32

Paraguay Imports Exports Argentina % Brazil % Uruguay % US$ million Total % 1993 1994 1995 1996 1997 1998 1999 2000 69. 2 83. 2 90. 0 101. 3 155. 7 53. 1 90. 9 20. 2 8. 2 12. 6 53. 7 -65. 9 71. 2 298. 9 410. 7 516. 7 460. 9 347. 6 235. 0 336. 0 37. 4 25. 8 -10. 8 -24. 6 -32. 4 43. 0 9. 2 34. 0 48. 7 22. 2 20. 8 19. 1 108. 8 269. 6 43. 2 -54. 4 -6. 3 -8. 2 469. 6 377. 3 527. 9 655. 4 584. 4 524. 1 307. 2 535. 7 39. 9 24. 2 -10. 8 -10. 3 -41. 4 74. 4 1993 1994 1995 1996 1997 1998 1999 2000 308. 0 491. 2 386. 6 641. 0 460. 5 312. 0 498. 2 59. 5 -21. 3 65. 8 -28. 2 -32. 2 59. 7 555. 0 644. 8 847. 7 961. 5 785. 6 493. 4 501. 7 16. 2 31. 5 13. 4 -18. 3 -37. 2 1. 7 28. 6 33. 9 52. 2 62. 6 77. 2 69. 8 72. 4 18. 5 54. 0 19. 9 23. 3 -9. 6 3. 7 891. 6 1, 169. 9 1, 286. 5 1, 665. 1 1, 323. 3 875. 2 1, 072. 3 31. 2 10. 0 29. 4 -20. 5 -33. 9 22. 5 Source: www. mercosur. org. uy 33

Uruguay Imports Exports Argentina % Brazil % Paraguay 1993 1994 1995 1996 1997 1998 1999 2000* 382. 3 267. 1 271. 7 354. 3 513. 2 368. 6 315. 5 -30. 1 1. 7 30. 4 44. 8 -28. 2 -14. 4 492. 5 700. 0 831. 0 940. 2 935. 2 557. 3 386. 9 42. 1 18. 7 13. 1 -0. 5 -40. 4 -30. 6 24. 1 24. 9 49. 4 60. 7 83. 8 81. 0 61. 1 1993 1994 1995 1996 1997 1998 1999 2000 652. 6 608. 5 690. 8 790. 8 839. 4 795. 6 836. 1 -6. 8 13. 5 14. 5 6. 1 -5. 2 5. 1 709. 7 698. 6 745. 5 802. 1 793. 4 651. 7 666. 6 -1. 6 6. 7 7. 6 -1. 1 -17. 9 2. 3 8. 6 13. 6 25. 3 23. 7 16. 6 14. 4 15. 3 * Jan-Sep 2000 Source: www. mercosur. org. uy % US$ million Total % 3. 3 98. 4 22. 9 38. 1 -3. 3 -24. 6 898. 9 992. 0 1, 152. 1 1, 355. 2 1, 532. 2 1, 006. 9 763. 5 10. 4 16. 1 17. 6 13. 1 -34. 3 -24. 2 58. 1 86. 0 -6. 3 -30. 0 -13. 3 6. 3 1, 370. 91, 320. 7 1, 461. 6 1, 616. 6 1, 649. 4 1, 461. 7 1, 518. 0 -3. 7 10. 6 2. 0 -11. 4 3. 9 34

The Future Economic Outlook for the Mercosur Region F Increase of foreign direct investment Brazil - Average growth of FDI Period 1996 -2000 – The total stock of FDI in Brazil in 1995 was US$ 42, 530 million. The average growth in the period 1996 -2000 was 40. 5 % p. a. – Argentina’s FDI in Brazil growth averaged 39. 1 % p. a. – The average growth of Uruguay’s FDI in Brazil in the same period was 25. 2 % p. a. – Increase of other countries’ FDI in Brazil in the period 1996 -2000. Italy: 151. 0 % p. a. Spain: 101. 1 % p. a. Portugal: 87. 7 % p. a. 35

The Future Economic Outlook for the Mercosur Region V - Statistics Harmonization 36

Statistics Harmonization • Harmonized Statistics: – Methodology and data compatible with international standards and principles, allowing data comparability – Harmonization of public policies so as to achieve common goals – Commitment to fiscal solvency and monetary stability – Requirement, at a first step, of common harmonized statistics on fiscal and public debt. 37

Statistics Harmonization Fiscal result accumulated in 12 months September 2000 Concept National Government Primary Result National Government Nominal Result Consolidated Public Sector Net Debt Includes International Reserves Excludes International Reserves National Government Net Debt Includes International Reserves Excludes International Reserves Fiscal Net Debt Change Source: https: //gmm. mecon. gov. ar Harmonized methodology Argentina Brazil Paraguay Uruguay % of GDP 0. 1 -2. 3 2. 5 -1. 3 -4. 0 -4. 5 -1. 9 -4. 2 30. 6 39. 8 45. 2 50. 4 17. 7 28. 0 28. 2 42. 3 35. 9 45. 2 3. 7 26. 1 31. 2 3. 8 17. 7 28. 0 3. 0 26. 2 40. 3 4. 6 38

Statistics Harmonization ARGENTINA Consumer Price Index Period Number index Base 99=100 March 2000 June 2000 September 2000 100. 2 99. 5 99. 6 Monthly -0. 5 -0. 2 % change Yearly 12 months 0. 3 -0. 4 -0. 3 -1. 1 -1. 2 -0. 7 BRAZIL Broad National Consumer Price Index Period March 2000 June 2000 September 2000 Source: https: //gmm. mecon. gov. ar Number index Base Dec/93=100 1, 604 1, 615 1, 666 Monthly 0. 2 % change Yearly 12 months 0. 9 1. 6 5. 0 6. 9 6. 5 7. 8 39

Statistics Harmonization PARAGUAY Consumer Price Index Period Number index Base Dec/92=100 % change Yearly 12 months Monthly March 2000 June 2000 247 249 2. 1 -0. 6 4. 8 5. 5 9. 6 10. 3 September 2000 255 1. 5 8. 0 9. 4 URUGUAY Consumer Price Index Period Number index Base Dec/96=100 Monthly % change Yearly 12 months March 2000 125. 8 0. 6 1. 3 4. 5 June 2000 127. 6 0. 5 2. 8 4. 8 September 2000 129. 2 0. 5 4. 1 5. 3 Source: https: //gmm. mecon. gov. ar 40