Download Structural Reforms in Brazil

Brazil: Policies and Prospects
August 2002
1
Background: Main Structural Changes
1. Inflation Stabilization
2. Financial Stability
3. Fiscal Responsibility
4. Moving to a Floating Foreign Exchange Rate
5. Productivity and Others
2
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
Jul-99
Jan-99
Jul-98
Jan-98
Jul-97
Jan-97
Jul-96
Jan-96
Jul-95
10
Jan-95
Jul-94
50
Jan-94
%
IPCA Monthly Inflation
47.43
45
40
35
30
25
20
15
Real Plan
5
0
-5
3
1.0
Jul-89
Jan-90
Jul-90
Jan-91
Jul-91
Jan-92
Jul-92
Jan-93
Jul-93
Jan-94
Jul-94
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
IPC-FIPE – Real Exchange Rate
3.6
Average: Jan/88 to Jul/02
2.0
Average: IPC-FIPE
Prices as of July 2002 (R$/US$)
3.43
3.4
3.2
3.0
2.8
2.6
2.4
2.2
1.95
1.8
1.6
1.4
1.2
4
Fiscal Adjustment
7%
6%
Consolidated Primary Surplus
12-month
% of GDP
5%
4%
3%
2%
1%
0%
-1%
-2%
Jul 94 Mar 95 Nov 95 Jul 96 Mar 97 Nov 97 Aug 98 Mar 99 Nov 99 Jul 00 Mar 01 Nov 01
5
Public Sector Borrowing Requirements
Accumulated in 12 months
5.0
4.2
4.0
3.6
3.8
4.0
4.2
4.0
3.5
3.7
3.1
3.0
3.0
2.8
Dec-02
Oct-02
Aug-02
Jun-02
Apr-02
Feb-02
Dec-01
Oct-01
2.0
Aug-01
2.5
Jun-01
% of GDP
4.5
6
Net Foreign Direct Investment
US$ billion
32.8
28.9
28.6
6.7
6.1
8.8
22.5
Net FDI - privatizations
19.0
Privatizations
1.1
5.2
26.1
10.8
22.7
19.8
2.3
13.7
4.4
1.0
1.1
2.1
1.3
2.1
1990 1991 1992 1993 1994 1995
21.4
8.4
1996 1997 1998 1999 2000 2001
7
Industrial Productivity and ULC
180
Industrial Productivity
/1
160
140
120
100
ULC in US$ /2
80
/1 1992=100/Seasonally adjusted series
/2 June 1994=100/Nominal ULC/12-month moving average
Jun-02
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
40
Jan-92
60
8
Illiteracy Rate
Above 15 years old (%)
21.9
18.3
16.9
16.2
15.6
14.7
13.8
Source: IPEA, based on PNAD, IBGE
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
13.3
9
Children in School
7-14 year-old
(%)
97.0
94.8
95.7
93.0
90.2
91.3
88.7
87.0
Source: IPEA, based on PNAD, IBGE
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
80.5
10
II. 2001 and 2002 Period
11
Exchange Rate
3.80
3.60
3.40
3.20
3.00
2.80
2.60
2.40
2.20
2.00
1.80
1.60
1.40
1.20
1.00
September 11th
Election
Concerns
3.09
Inflation Targeting
World Economic Slowdown
Change in the
Exchange Rate
Regime
Energy Crisis
Technology Stocks Crisis
Jan-98
Mar-98
May-98
Jul-98
Sep-98
Nov-98
Jan-99
Mar-99
May-99
Jul-99
Sep-99
Nov-99
Jan-00
Mar-00
May-00
Jul-00
Sep-00
Nov-00
Jan-01
Mar-01
May-01
Jul-01
Sep-01
Nov-01
Jan-02
Mar-02
May-02
Jul-02
R$/US$
Evolution of the Nominal Exchange Rate
Daily figures updated up to August 20th. 2002
12
III. Balance of Payments
13
IMF Agreement

New Stand-By Arrangement - US$ 30 billion
 2002: US$ 6 billion
 NIR floor: US$ 5 billion
 Primary surplus: 3.75% of GDP for 2003 and no less
than that level for 2004 and 2005
 WB + IDB = US$ 7 billion
14
Trade Balance - US$ billion
10
9.0
7.0
8
6
4
2.6
2
0
-2
-1.3
-0.7
-4
-6
-8
-6.6
1998
* BC forecasts
1999
2000
2001
2002*
2003*
15
Current Account Deficit
US$ billion
40
33.4
35
25.3
30
24.2
23.2
25
17.0
15.4
2002*
2003*
20
15
10
5
0
1998
1999
2000
2001
* BC forecasts
16
Foreign Direct Investment
US$ billion
32.8
35
28.9
28.6
30
22.5
25
20
16.5
17.0
2002*
2003*
15
10
5
0
1998
1999
2000
2001
* BC forecasts
17
External Financing Requirements
US$ billion
6
4.6
4
0.8
2
0.5
0
-1.6
-2
-4
-3.2
-6
-8
-8.6
-10
1998
1999
2000
2001
2002*
2003*
* BC forecasts
External financing requirements = current account deficit - net foreign direct investments (includes intercompany loans).
18
Changes in International Reserves
US$ million
I - Reserve position (end of the previous period:
1. Net Purchases (+)/sales (-) of Banco Central
2. Banco Central's foreign operations
Disbursements
Bonds
IMF
Multilateral (IBRD/IDB)
Amortizations
Bonds, MYDFA and Paris Club
IMF
Interest
Expenditure
Reserve interest earnings
Other
II - Total Banco Central operations (1+2)
III - Reserve position (end of the month)
(-) Loans from IMF
(-) Sovereign Buy Back (exceeding value)
(-) Difference of parity
IV - Net reserves position (IMF concept)
2001
2002
Dec
Jan-Jul
Aug-Dec
Year
Year
37 234
-950
-417
0
0
35 866
-2 605
5 798
14 762
3 940
9 972
850
-6 778
-2 393
-4 384
-2 211
-3 090
879
24
3 193
39 060
14 453
1 457
-404
23 553
39 060
-5 134
3 816
6 600
0
6 000
600
-1 092
-915
-177
-1 691
-2 358
667
0
-1 318
37 742
20 276
2 385
-404
15 485
35 866
-7 739
9 615
21 362
3 940
15 972
1 450
-7 870
-3 309
-4 561
-3 902
-5 448
1 546
24
1 875
37 742
20 276
2 385
-404
15 485
37 742
0
-13 984
6 650
4 000
0
2 650
-16 074
-4 582
-11 492
-4 560
-5 960
1 400
0
-13 984
23 758
8 784
1 957
-269
13 286
-156
-156
100
-50
150
-361
-1 367
35 866
8 313
0
-284
27 837
2003
19
BoP: Assumptions
Trade Balance
Exports
% variation
Imports
% variation
Net foreign direct investment
Equity capital
FDI conversions
Intercompany loans
Medium and Long Term Loans (rollover rate)
Securities
Loans
Short-term and others
Short-term instruments, liabilities (net)
Short-term loans (net)
Short-term credit lines (net)
Of which: Banco Central do Brasil
Other 1/
Brazilian investments abroad
Net direct investment abroad
Portfolio investments (net)
Other investments (net) 2/
Of which: bank deposits
2002
Jan-Jul
3,804
31,275
-7.7%
27,471
-18.9%
10,546
5,640
5,665
-759
Aug-Dec
3,196
23,325
-4.1%
20,129
-7.3%
5,954
2,415
3,539
0
Year
7,000
54,600
-6.2%
47,600
-14.4%
16,500
8,055
9,204
-759
43%
60%
861
-718
140
3,968
0
-2,529
-1,746
-1,686
-196
136
2,645
57%
66%
1,452
94
-500
2,253
2,000
-395
-2,098
-452
-204
-1,442
1,500
44%
62%
2,313
-625
-360
6,221
2,000
-2,924
-3,844
-2,138
-400
-1,306
4,145
1/ Includes derivatives (liabilities operations), other short-term liabilities and errors and omissions.
2/ Includes derivatives (assets operations).
US$ million
2003
Year
9,000
59,000
8.1%
50,000
5.0%
17,000
13,500
3,500
0
80%
100%
100
0
0
0
0
100
-5,855
-1,400
600
-5,055
-1,355
20
External Debt - Amortizations and Interest Maturities 1/
US$ million
2002
Interest
Non-financial public sector
Central government (affects reserves)
Private sector 2/
Amortizations
Non-financial public sector
Central government (affects reserves)
Private sector 2/
Total
Non-financial public sector
Central government (affects reserves)
Private sector
2/
2003
Jan-Jul
Aug-Dec
Year
Year
8 877
8 183
17 059
17 050
4 260
3 208
3 219
2 358
7 469
5 577
8 001
5 960
4 616
4 975
9 591
9 049
17 536
11 704
29 240
28 004
4 024
2 507
2 394
915
6 531
3 309
8 869
4 582
13 512
9 197
22 709
19 135
26 413
19 887
46 299
45 054
8 285
5 715
14 000
16 870
5 613
3 273
8 886
10 541
18 128
14 172
32 299
28 184
1/ Forecast based on debt position in March, 2002.
2/ Includes financial public sector.
21
Total External Debt
240
223.79
220
225.61
216.92
209.90
191.62
200
179.94
US$ billion
180
160
140
120
145.73
148.30
135.95
159.26
123.44
123.91
100
80
60
40
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Does not include intercompany loans
22
IV. Credit Lines
23
Credit Lines – Bank to Bank
US$ billion
Jan 2001
Jul 2001
Jan 2002
Jul 2002
Aug 2002*
Trade
14.1
15.7
13.7
12.2
11.8
Other
7.7
6.2
5.6
5.2
5.0
Total
21.8
21.9
19.3
17.4
16.8
* Until 16th.
Bank to Bank data informed by 40 Brazilian banks.
24
16
Aug-02
Jul-02
Jun-02
May-02
Apr-02
Mar-02
Feb-02
Jan-02
Dec-01
Nov-01
US$ billion
Oct-01
Sep-01
Aug-01
Jul-01
Jun-01
May-01
Apr-01
Mar-01
Feb-01
Jan-01
Credit Lines – Bank to Bank
Total
23
22
21
20
19
18
17
25
*Until the 21st.
Total Exports
Exp. Financ./Total Exports
6
60
5
50
4
40
3
30
2
20
1
10
0
0
Export Financing / Total Exports (%)
Aug –02*
Jul-02
Jun-02
May-02
Apr-02
Mar-02
Feb-02
Jan-02
Dec-01
Nov-01
Oct-01
Sep-01
Aug-01
Jul-01
Jun-01
Total Exports and Exports Financing (US$ billion)
Exports: Total and Export Financing
Export Financing
26
V. Fiscal Sustainability
27
Net Public Sector Debt
Baseline Scenario
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Inflation GDP deflator (average)
7.59
4.94
3.87
3.63
3.50
3.50
3.50
3.50
3.50
3.50
Inflation GDP deflator (Dec-Dec)
5.89
4.00
3.75
3.50
3.50
3.50
3.50
3.50
3.50
3.50
GDP real growth
1.30
3.50
3.50
3.50
3.50
3.50
3.50
3.50
3.50
3.50
Interest rate 1/
17.59 13.36 13.09 12.82 12.82 12.82 12.82 12.82 12.82 12.82
Real interest rate
11.05
9.00
9.00
9.00
9.00
9.00
9.00
9.00
9.00
9.00
Nominal currency depreciation
22.87
2.46
2.22
1.97
1.97
1.97
1.97
1.97
1.97
1.97
Primary (% of GDP)
-3.75
-3.75
-3.75
-3.75
-3.75
-3.75
-3.75
-3.75
-3.75
-3.75
1.61
0.65
0.75
0.75
0.75
0.75
0.00
0.00
0.00
0.00
"Skeletons" 2/
Net debt (% of GDP)
58.88 58.27 57.54 56.77 55.94 55.07 53.42 51.69 49.86 47.95
1/ Implicit internal net debt interest rate.
2/ Net of the privatization proceeds (% of GDP).
28
Net Public Sector Debt - % of GDP
Baseline Scenario
60
58.9
58.3
57.5
58
56.8
55.9
56
55.1
54
53.4
52
51.7
50
49.9
48
46
47.9
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
29