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The BNDES and the perspectives for the Brazilian Economy Luciano Coutinho President of the Brazilian Development Bank (BNDES) March 3rd, 2010 Brazil aced the crisis test The Brazilian economy can grow much faster than the average in developed countries; The domestic market will make the expansion in demand feasible: basic household consumption, housing and durable goods; Investments will be driven by four main sectors: oil & gas, electric power, logistics and residential construction; Opportunities for intensive strategies in innovation and social and environmental sustainability; Main challenges: increase aggregate investment/GDP rate, and boost competitive progress in the manufacturing industry. 2 Global Growth USA Euro Zone Germany France UK Japan Mexico Brazil China India Russia GDP Growth Rate (%) IMF Forecasts IIF Forecasts 2010 2011 2010 2011 2.7 2.4 3.0 2.6 1.0 1.6 1.7 1.6 1.5 1.9 1.4 1.7 1.3 2.7 1.7 2.2 2.1 1.2 4.0 4.7 4.4 3.5 4.7 3.7 5.8 4.0 10.0 9.7 10.0 10.0 7.7 7.8 8.5 9.0 3.6 3.4 3.7 2.8 Source: IMF and IIF. 3 Countries’ share of Brazilian exports Developing countries have increased their share of Brazilian exports. These countries were less affected by the crisis and they are expected to show higher growth levels in the years to come. 2002 2008 Developing Countries Developing Countries 38% 52% Developed Countries 62% Source: Ministry of Development, Industry and Trade. Elaborated by: MF/SPE Developed Countries 48% 4 GDP may grow 5% p.a. in the 20102014 period GPD: Annual Real Variation (%) 6.0 5.0 4.0 3.0 2.0 1.0 0.0 6.1 5.7 5.1 5.0 4.0 2.8 3.2 2.5 0.1 Average Average 1984-93 1994-03 2004 2005 2006 2007 2008 2009 * Average 2010-14 * 2009 and Avg 2010-14: BNDES' Forecasts. Sources: IBGE and BNDES. Source: IBGE. 5 Brazilian industrial downturn was mainly due to weak external demand ... Industrial Production, Retail Sales and Exports (index: September 2008=100) 110 105 100 95 Retail Sales 100 104.4 96.8 Industrial Production 92.4 90 82.5 85 80 75 70 69.6 Exports of Manufactured goods Ja nF e 08 b M -08 ar Ap -08 M r-08 ay Ju -08 nJu 08 Au l-08 g Se -08 pOc 08 t No -08 v De -08 c-0 Ja 8 nF e 09 b M -09 ar Ap -09 M r-09 ay Ju -09 nJu 09 Au l-09 g Se -09 p09 65 80.6 Source: IBGE, Secex e Funcex. 6 Household consumption resumed growth Growth Rate Quarter by Quarter (%) 4.0 3.5 3.0 2.4 2.1 2.0 1.1 1.0 1.4 1.4 1.4 1.4 1.7 0.9 0.9 0.5 2.0 1.6 1.0 1.2 2.4 1.4 1.3 1.0 0.9 0.5 0.5 0.4 0.1 0.0 3Q 2009 2Q 2009 1Q 2009 3Q 2008 -1.2 2Q 2008 1Q 2008 4Q 2007 3Q 2007 1Q 2007 4Q 2006 3Q 2006 2Q 2006 1Q 2006 4Q 2005 3Q 2005 2Q 2005 1Q 2005 4Q 2004 3Q 2004 2Q 2004 1Q 2004 4Q 2003 3Q 2003 2Q 2003 1Q 2003 -2.0 2Q 2007 Source: IBGE -1.2 4Q 2008 -1.0 7 Unemployment rate fell... Unemployment rate down from 10.2% in Jan/05 to 7.2% in Jan/10 Average unemployment rate (%) - IBGE 10.9 10.2 2005 9.3 2006 2007 9.3 2009 8.2 2008 8.0 2010 7.2 6.8 Jan Source: IBGE Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 8 …and wages increased REAL WAGES - Average for the last 12 months R$ Billion 29.56 30 29 29.36 28.66 28 26.68 27 26 25 25.13 24 23 23.61 21.93 22 Source: IBGE ec -0 9 D ug -0 9 A pr -0 9 A ec -0 8 D ug -0 8 A pr -0 8 A ec -0 7 D ug -0 7 A pr -0 7 A ec -0 6 D ug -0 6 A pr -0 6 A ec -0 5 D ug -0 5 A pr -0 5 A ec -0 4 D A ug -0 4 21 Up to December 09 Source: IBGE 9 Investment has been recovering since the second quarter of 2009 Gross fixed investment Percentage Change From Preceding Quarter (%) 10.9 7.1 3.7 3.5 1.0 3.4 0.7 -0.1 1.8 0.4 -0.9 6.5 5.8 5.4 3.2 4.1 2.2 4.3 3.0 2.0 -1.0 -9.9 -11.0 * 04 004 004 005 005 005 005 006 006 006 006 007 007 007 007 008 008 008 008 009 009 009 09 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 20 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Source: IBGE and BNDES/APE *forecasting 10 Credit/GDP ratio grew even after the crisis worsened in Sept/08 Evolution of Credit/GPD ratio (%) 50 S ourc e : Bra zilia n Ce ntra l Ba nk 45.0 44.6 2009 2010* 45 41.3 40 34.2 35 30.2 30 28.1 24.0 25 24.5 22.0 20 2002 2003 *Up to January 2004 2005 2006 2007 2008 11 State-owned banks sustained credit after the crisis Credit Growth (Index September 2008 = 100) Contribution to Credit Growth (Sept/08-Jan/10) 150.1 150 Public Banks Private Banks 140 141.2 144.6 132.9 130 118.3 138.8 121.2 109.0 106.9 102.4 100 100 102.6 102.9 109.5 103.2 105.6 103.3 Ja n10 9 ov -0 N 09 Se p- Ju l-0 9 ay -0 9 M 09 ar M Ja n09 8 ov -0 N 08 90 Se p- Private Banks 27% 113.9 120 110 Other Stateowned Banks 36% BNDES 37% The BNDES alone was responsible for 37% of the increase in credit from Sept/08 to Jan/10 Source: Bacen. 12 Impact of anti-cyclical policies on debt 120.0 Forecast 117.0 Italy 115.0 Japan Public Sector Net Debt (%GDP) 110.0 101.3 100.0 90.0 80.0 80.4 76.2 Germany 75.1 UK 72.9 France 70.0 66.8 US 56.9 60.0 50.0 54.1 43.9 40.0 42.3 38.3 43.4 42.0 Brazil 38.8 30.0 2003 2004 2005 Source: IMF and Brazilian Central Bank. 2006 2007 2008 2009 2010 13 Investment has strong growth path Forecast of Investment Ratio 2009-2012 (% of GDP) 22.0 21.2 21.0 20.2 Forecast 20.0 19.0 19.0 17.6 18.0 17.0 18.6 16.9 16.4 16.0 15.0 2006 2007 2008 Source: BNDES. Elaborated by: APE/BNDES 2009 2010 2011 2012 14 BNDES was responsible for 37% of total credit increase since Sept/08 BNDES Approvals and Disbursements1 (US$ billion) 85.2 90 Disbursements 80 Approvals 66.3 70 60 68.8 88.2 71.5 50.6 50.5 50 40 34.1 33.1 30 20 19.3 10.9 13.1 22.3 23.5 13.6 12.9 10 0 2003 2004 2005 2006 2007 2008 2009 2010* *last 12 months up to January 2010 Source: BNDES. *considering the average exchange rate for each year 15 The government continues to stimulate the economy New measures to stimulate the economy in 2010 FINANCING LINES US$ 77 billion Federal government credit lines for the BNDES FISCAL INCENTIVES US$ 1.8 billion Extension of Tax Exemption on Industrialized Products (IPI) for Capital Goods Federal government extension of subsidies Temporary suspension of IPI, over the interest rate for financing granted PIS/Cofins and Import Taxes (II) related by the BNDES (Capital Goods, exports and to investments in refining and the innovation) petrochemical industry Loans of US$ 8 billion, using federal government funds, for the Merchant Navy Fund FINANCIAL INCENTIVES Permission for banks to issue a new bond, entitled the Financial Letter/Note, to raise long-time funding. Extension to 2014 of exemption of PIS/Cofins taxes on retail computers Exemption of PIS/Cofins, IPI and II on computer parts and components acquired for the "One Computer for Every Child Program". Source: Ministry of Finance US$/R$ = 1.80 16 My House, My Life 462,293 New credits (homes contracted) 275,528 186,765 74,554 88,452 93,844 98,259 2002 2003 2004 2005 New credits 141,110 143,649 130,289 2006 2007 2008 2009 My House, My Life Program 17 BNDES ProCopa Programs Arenas Up to US$ 2.7 billion to build and remodel stadiums and urbanization investments in surrounding areas. Tourism Up to US$ 556 million to build, remodel, expand and modernize hotels. US$/R$ = 1.80 18 Challenges for infrastructure Belo Monte Hydroelectric Plant and, afterwards, Tapajós; Railways, roads and ports; 2014 World Cup; PAC - Urban Transport; 2016 World Olympics; High-speed Train (TAV); Environmentally sustainable projects and concern for surrounding areas. 19 Investment outlook: positive prospects Sectors US$ billion 2005-8 2010-13 Growth (%) Infrastructure 111 152 6.5 Industry 191 271 7.2 Total 302 423 7.0 US$/R$ = 1.80 Source: BNDES Forecast 20 Investment in Industry: Domestic-led sectors have already recovered from the crisis Sectors US$ billion Growth 2005-2008 2010-2013 % year Oil and Gas 112 171 8.8 Mining 29 25 (3.1) Steel 15 20 5.7 Petrochemical 5 17 28.9 Vehicles 12 17 7.3 Electronics 8 12 6.7 Pulp & Paper 10 10 0.5 Industry 191 271 7.3 Source: BNDES 21 Investments in Infrastructure were not affected by the crisis Sectors US$ billion Growth 2005-2008 2010-2013 % year Electric Power 38 51 6.4 Telecom 37 37 0.2 Sanitation 12 22 11.7 Railroads 9 16 13.2 Roads 23 33 7.8 Ports 5 14 22.9 Infra 111 Source: BNDES 152 6.5 22 Brazil’s Long Term Challenges Resume and qualify long-term planning (energy, logistics, environment, IT infrastructure, ...); Promote and stimulate domestic savings in order to provide long-term funds for investment (banks and capital market) Develop capacity for innovation and competitiveness in the manufacturing industry, and promote global presence of Brazilian companies (vs. significant challenge due to exchange rate appreciation) Increase opportunities for social mobility (job expansion, development/improvement in education) and reduction of the inequality in income distribution; Promote innovation and development of renewable energy 23 sources. 24