Brazil and Latin America Economic Outloo

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Brazil and Latin America Economic Outlook
Minister Paulo Bernardo Washington, May 13th,
2009
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• Presentation
• Impacts of the Economic Crisis
• Brazilian Economic Situation
• Counter-Cyclical Public Policies
• Forecast for 2009

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From 2003 to 2008, the Brazilian economy has
grown 27.4, an average of 4.1 per year.
Real GDP Growth ( p.a.)
Source IBGE.
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World GDP Growth (Annual percent change)
Source IMF (WEO)
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BRAZIL Contraction in the 4thQ of 2008 and
Recovery in the 1stQ of 2009
Source IBGE.
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Real GDP Growth
Source JP Morgan GDW (April 9th)
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Favorable Macroeconomic Conditions

• Low inflation
• Sound fiscal policy
• Low external vulnerability
• Strong banking sector
• Large domestic market

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10 years of Inflation Targeting
/ Market Expectations (Focus 04/17/09). Sources
IBGE and Central Bank.
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Fiscal Policy Consistency
Primary Surplus
of GDP
Nominal Deficit
Source Central Bank .
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Commitment to a Sustainable Fiscal Policy has led
to Positive Results
Net Debt of the Public Sector ( of GDP)
Source Central Bank .
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Debts Profile has changed
Others
Pre-Fixed

Price Index
Exchange Rate
Selic
Months
Duration
Source Central Bank.
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Better Fiscal Performance (Deficit as GDP)
Source The Economist.
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International Reserves(US billion)
Source Central Bank.
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Trade Balance(US billion)
Estimate for 2009
Source Central Bank.
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BIS Capital Ratio (as of December 2007, )
Source The Bankers Magazine.
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Brazil Today is a Middle Class Country
Development of Social-Economic Classes (percentage
of population between 15 and 60 years old)
Source CPS/FGV (IBGE).
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Recovery of the Purchasing Power of the
Population(percentage of the minimum wage
necessary to acquire the basic food basket)
Source Dieese and MTE.
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Counter-CyclicalMacroeconomic Policy

• Monetary and Credit policies
• Reduction in reserve requirements, cuts in the
  basic interest rate and increase in credit supply
  from state-owned banks, deposit guarantees.
• Fiscal policy
• Tax cuts, social programs, public investment and
  temporary reduction in the primary surplus.
• Financial support to regional integration
• Increase in the CCR (Agreement on Reciprocal
  Credit Compensation System of Payments between
  Latin American Central Banks) limit, from US 120
  million to US 1.5 billion.

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Ex-ante Real Interest Rates ( p.a.)
Sources Central Bank and BMF.
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Federal Government Investment ( of GDP)
Sources MF and MP.
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Temporary Value Added Tax Cuts in

• Automobiles and Trucks (IPI)
• Construction Material (IPI)
• Motorcycles (COFINS)
• Household Appliances (IPI)

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World Crisis lower Impact on Brazilian Internal
Auto Market
Autovehicles Market Jan Feb (tsd units)
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Financial Assistance

• Working Capital for the Agribusiness sector
• Anticipation of cash transfers to Municipalities
• Special credit line for long-term investment by
  States

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Minha Casa, Minha Vida The Program Minha Casa,
Minha Vida (My House, My Life), launched in March
of this year, aims to finance the construction of
1 million homes, at a cost of about R 60
billion, for families with income of up to ten
minimum wages, in partnership with states ,
municipalities and private enterprise
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Brazil - Perspectives for 2009

• Economic Performance
• - Slowdown in the 1st semester
• - Acceleration in the 2nd semester
• Foreign accounts
• - Reduction in the current-account deficit
• - Lower but positive capital inflows
• - Stable international reserves
• Labor market and domestic demand
• - Positive job creation
• - Resumption of credit expansion

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Early improvements

• Stable commodities prices
• Rising private credit levels (though
  insufficient) and falling interest rates costs
  (though still high)
• Increase in economic activity compared to the
  4th quarter of 2008

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Source ONS
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The international crisis has affected in
different ways Latin America however not evenly.

• Impacts
• Slowdown of exports
• Price fall of primary goods
• Decrease of money remittance
• Less tourist inflow
• FDI reduction
• Cost increase of foreign credit
• Downfall of international lending availability

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Latin America Measures against the Crisis

• Monetary and Financing Policies
• - Reduction and flexibilization of reserves
  requirements
• - Provision of marketability in local currency
• Fiscal Policy
• - Tax cuts
• - Increase and/or anticipation of infrastructure
  expenditures
• Exchange Rate and Foreign Trade Policies
• - Provision of marketability in foreign currency
• - Export financing
• - Credit with financial institutions
• Focal Policies
• - Housing
• - Farming and Stockbreeding
• - Industry
• - Tourism

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Fiscal Stimulus Packages
Source IMF
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Looking Ahead

• Latin American will be less affected than other
  regions in the World
• Commodity prices recovery
• A stronger macroeconomic position than in
  previous crises
• Quick recovery needs
• Cooperation with Financial International
  Organization
• Effective counter-cyclical policies
• FDI attraction ability.
• Rising its importance in the World
• The most important energy source
• Macroeconomic stability
• Consolidated democracy.

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Thank you!