Brazil - Economic OutlookBrazil - Economic Outlook

OECD, Paris December 2008OECD, Paris December 2008

2

Brazil

Recent Performance

Brazil

Recent Performance

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Sustainable growth rates with inflation under controlSustainable growth rates with inflation under control

Source: IBGE.

5.55.4

3.22.8 2.5

5.7

3.8

0,01,02,03,04,05,06,0

Average1984-93

Average1994-03

2004 2005 2006 2007 2008*

Avrg 04-07: 4.5GDP: Annual Real Variation (%)GDP: Annual Real Variation (%)

* BNDES (forecast).

INCREASE IN FAMILY CONSUPMTION AND FCGF

6,7

16,2

10,2

14,1

-11,0-10,6

3,1

-15

-10

-5

0

5

10

15

20

I.98

III.9

8

I.99

III.9

9

I.00

III.0

0

I.01

III.0

1

I.02

III.0

2

I.03

III.0

3

I.04

III.0

4

I.05

III.0

5

I.06

III.0

6

I.07

III.0

7

I.08

Family Consumption

Fixed Capital Gross Formation

(Variation in % of quart. vis-à-vis the same quart. of the previous year)

Source: IBGE

INDUSTRIAL PRODUCTION AND CAPITAL GOODS Growth Rate

-2,0

6,6

1,62,7

0,0

8,3

3,1 2,8

6,0 6,7

-9,1

13,1 13,5

-5,8

2,2

19,7

3,65,7

19,5 19,5

-0,7-1,6

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*

general industry

capital goods

Source: IBGE* accum. in 12 months until Jun

6.5

3.0

4.04.5

3.5

5.0

3.0

4.0

3.0

4.0

2.53.0

3.54.0

3.03.5

6.0

3.0

0

2

4

6

8

10

12

14

Inflation accum. in 12 months*

Ceiling of Target

* Up to J une 2008. South Africa, Island, Israel, Norway, P oland, Czech Republic and Sweden up to May 2008

Source: O Globo and Macrodados

4

Proper management of the public debtProper management of the public debt

Declining net debt

A net foreign creditorNet External Debt – US$ billion

International Reserves: US$ 206.65 billion (26 Nov´08)

Source: Banco Central

190,3

162,7 165,0151,0

135,7

101,1

74,8

-11,9 -13,4

-50

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008*

Forecast. Up until Sept/ 2008

Public Sector Net Debt - GDP %

-11,4

8,44,5

15,5

11,07,6

-6,7

38,3

56,0

47,2

46,5 40,8

-20

-10

0

10

20

30

40

50

60

may/94

no

v/94

may/95

no

v/95

may/96

no

v/96

may/97

no

v/97

may/98

no

v/98

may/99

no

v/99

may/00

no

v/00

may/01

no

v/01

may/02

no

v/02

may/03

no

v/03

may/04

no

v/04

may/05

no

v/05

may/06

no

v/06

may/07

no

v/07

may/08

External TotalSource: Banco Central

5

Low leverage in banking credit

Total Credit (% of GDP) - Brazil

22,024,0 24,5

28,130,7

34,7

40,2

20

25

30

35

40

45

2002 2003 2004 2005 2006 2007 oct/08

Credit / GDP has been growing in recent years….

….but it is still far below developed countries.

Sources: Central Banks, IMF and World Bank.

249%

156%141%

125%

63%37%

65% 73%

20%46%

13% 2% 9%17%37%

2%0%

50%

100%

150%

200%

250%

300%

US

A

UK

So

uth

Afr

ica

Sp

ain

Ch

ile

Ind

ia

Bra

zil

Me

xico

Total Mortgage

Total Credit and Mortgage (% of GDP)

6

Major impacts of the international crisis in Brazil

Major impacts of the international crisis in Brazil

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International crisis impact and Government´s responseInternational crisis impact and Government´s response

Pressure on the interbank market

Liquidity constraint faced by small and medium-sized banks

Reserve requirements over local banking deposits have changed

Currency depreciation

Shortage of short-term export trade lines (ACCs)

Temporary liquidity swap facilities with FED (US$ 30 billion)

Currency swap auctions

Short term export trade finance

Increase in local credit costs

Decrease in industrial output

Expectations: reduced 2009 GDP prospects

Decrease in commodity prices

Short term / Long-term finance provided by public banks

Mantainance of long-term investments (PAC)

Liquidity in Foreign Currency Market Liquidity in local credit market

IMPACTS RESPONSES

Since Sep´08, as a consequence of the global crisis, local liquidity has fallen. Immediate measures have been taken.

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Some highlights on immediate responses...Some highlights on immediate responses...

Short term / Long-term finance provided by public banks– New BNDES lines for working capital (R$ 6 billions)– Agribusiness: Treasury announced renegotiation (BB is the main agent) and

increased the amount directed to agriculture.– Housing and construction: additional support mainly from Caixa

ACTIONS TAKEN OVER LIQUIDITY ISSUES

NO SYSTEMIC SOLVENCY ISSUES IN BRAZIL

Short term export trade finance– Central Bank is investing a small part of its international reserves in credit lines to

local banks (onlending to exports)– BNDES announced a credit line of R$ 5 billions to trade finance

Reserve requirements over local banking deposits– Decreased– Loan portfolios and interbank deposits bought from smaller banks can be used

instead of local Treasuries

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Despite the severity of international crisis, Brazil have the tools to overcome this critical stage and keep economic growth:

Some comments on permanent actionsSome comments on permanent actions

Brazilian public sector significantly deleveraged in foreign currency terms

Room to reduce reserve requirements over local banking deposits

Room to reduce interest rate

PAC (Growth Acceleration Program)

Strategic role of public banks

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PAC: assuring investment on infra-structure

PAC Investments in Infrastructure: 2007 - 2010

US billion % of Share.ENERGY: 141.0 54.5

Oil and Natural Gas 91.9 35.5 Electric Power Generation 33.8 13.1  Renewable Fuels 8.9 3.5  Electric Power Transmission 6.4 2.5

SOCIAL & URBAN: 87.7 33.9  Housing 54.6 21.1   Sanitation 20.5 7.9   Water Resources 6.5 2.5“Light for Everyone” Programm 4.5 1.7  Subways 1.6 0.6

LOGISTIC: 29.9 11.6

TOTAL 258.6 100.0*R$/US$ = 1.94

BNDES in PAC: 198 projectsAssociated investments – US$ 73 billion

BNDES financing - US$ 36 billion

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Public Banks: important source of domestic creditPublic Banks: important source of domestic credit

Source: Central Bank

Total Credit (R$ 1,067 billion)

Top 3 Public 38%

Others 20%

Top 3 Foreign

14%Top 3

Private 28%

Data of June 2008.

Top 3 Public = BB, BNDES & Caixa

Top 3 Private = Bradesco, Itaú & Unibanco

Top 3 Foreign = ABN Amro, HSBC &

Santander

OBS: There are two ongoing merger processes: ABN Amro / Santander and Itaú / Unibanco.

Relevant sources of BNDES and CAIXA´s funding come from GOVERNMENT-ESTABLISHED FUNDS:

BNDES: FAT (sources must be driven to create jobs)

Caixa: FGTS (sources must be driven to sanitation & building construction)

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Final RemarksFinal Remarks

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Future prospectsFuture prospects

Infrastructure investment will lead growth of GDP

Key drivers:

- Solid public sector

- A healthy and capitalized banking system

- Relevant role of public banks

- Large number of high return/low risk projects in infrastructure (PAC)

- A resilient and lean corporate sector

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Maria Isabel AboimMaria Isabel AboimDeputy CFODeputy CFO

Brazilian Development Bank - BNDESBrazilian Development Bank - BNDES

BRAZIL: BRAZIL:

ECONOMIC OUTLOOKECONOMIC OUTLOOK

BRAZIL: BRAZIL:

ECONOMIC OUTLOOKECONOMIC OUTLOOK

OECD, PARISDecember 2008