1 Brazil Towards a Sustainable Growth Path: Stabilization and Consolidation of Structural Reforms Brazil Towards a Sustainable Growth Path: Stabilization and Consolidation of Structural Reforms January 2001 Armínio Fraga

2 OverviewOverview 1. Recent Developments 2. Longview I: Macro Reforms 3. Longview II: Structural and Micro Reforms 4. Growth Prospects 1. Recent Developments 2. Longview I: Macro Reforms 3. Longview II: Structural and Micro Reforms 4. Growth Prospects

3 1. Recent Developments

4 Progress in the structural fiscal reform Inflation stabilization Inflation stabilization Floating foreign exchange regime Floating foreign exchange regime Balance of payments improvement Balance of payments improvement Economic growth recovery Economic growth recovery Progress in the structural fiscal reform Inflation stabilization Inflation stabilization Floating foreign exchange regime Floating foreign exchange regime Balance of payments improvement Balance of payments improvement Economic growth recovery Economic growth recovery Recent Developments

5 Fiscal Performance Flows in 12 months, based on the GDP reviewed on October 2000 Public Sector (+) deficit (-) surplus % GDP JulJanJulJanJulJanJulJanJulJanNov NominalDeficit PrimarySurplus

6 IPCA 12-month variation (%) Consumer Prices JanJulJanJulJanJulJanJulJanJulNov

7 Exchange Rate R$/US$ Jan 99 MarMayJulSepNovJan 00 MarMayJulSepDec

8 US$ billion /* (+) deficit Current Account and FDI Current account deficit * FDI 12-month variation data Jan Jan Apr Apr Jul Jul Oct Oct Jan Jan Apr Apr Jul Jul Oct Oct Jan Jan Apr Apr Jul JulNov

9 PriceQuantum Source: Funcex Exports Quantum and Price Index 1996 average = 100 Price Quantum JanAprJulOctJanAprJulOctJanAprJulNov

10 External Debt / Exports

11 2. Longview I: Macro Reforms

12 Structural fiscal reforms Structural fiscal reforms Inflation targeting / floating exchange rate Inflation targeting / floating exchange rate Structural fiscal reforms Structural fiscal reforms Inflation targeting / floating exchange rate Inflation targeting / floating exchange rate Longview I: Macro Reforms

13 Privatization Privatization State banks reform State banks reform Public administration reform Public administration reform Social security reform Social security reform Fiscal Responsibility Law Fiscal Responsibility Law Fiscal Crime Law Fiscal Crime Law Privatization Privatization State banks reform State banks reform Public administration reform Public administration reform Social security reform Social security reform Fiscal Responsibility Law Fiscal Responsibility Law Fiscal Crime Law Fiscal Crime Law Structural Fiscal Reforms

14 % GDP * Net Public Sector Debt /* GDP reviewed on October 2000 Medium-Term Fiscal Scenario *1999*

15 Efficiency and cost reduction Enhanced public services Enhanced public services Transparency and social control Transparency and social control Managerial reform: the “Avança Brasil” Managerial reform: the “Avança Brasil” Efficiency and cost reduction Enhanced public services Enhanced public services Transparency and social control Transparency and social control Managerial reform: the “Avança Brasil” Managerial reform: the “Avança Brasil” Public Administration Reform

16 Private workers mandatory regime Public service regime Public service regime Complementary pension regime Complementary pension regime Private workers mandatory regime Public service regime Public service regime Complementary pension regime Complementary pension regime Social Security Reform

17 Social Security Social Security Balance - Accumulated in 12 months (R$ billion) /* (+) deficit Dec 97 Mar 98 Jun 98 Sep 98Dec 98 Mar 99 Jun 99 Sep 99Dec 99 Mar 00 Jun 00 ALT

% GDP Previous Scenario Post-reform Scenario Social Security Reform Private Workers Mandatory Regime Annual Deficit Private Workers Mandatory Regime Annual Deficit ALT

19 Inflation Targeting Focus on inflation Commitment Commitment Transparency Transparency Focus on inflation Commitment Commitment Transparency Transparency

20 3.Longview II: Structural and Micro Reforms 3. Longview II: Structural and Micro Reforms

21 Education and health Global integration Global integration Privatization / competitiveness / regulation Privatization / competitiveness / regulation Banking reform Banking reform Capital markets reform Capital markets reform Tax reform Tax reform Education and health Global integration Global integration Privatization / competitiveness / regulation Privatization / competitiveness / regulation Banking reform Banking reform Capital markets reform Capital markets reform Tax reform Tax reform Longview II: Structural and Micro Reforms

22 Net Ground Schooling Rate EducationEducation Source: MEC/INEP/SEEC 86 % 89 % 91 % 93 % 96 % 97 %

23 Source:IPEA, based upon PNAD Iliteracy Rate - Brazil % of population at 15 or more years of age Iliteracy Rate - Brazil % of population at 15 or more years of age EducationEducation

24 EducationEducation Source: MEC System’s Expansion (enrollment increase %) System’s Expansion (enrollment increase %) Basic education 13 % High school and technical education College education 28 % Basic education 13 % High school and technical education College education 28 % 57 %

25 Health Infant Mortality Rate (per new-born) Infant Mortality Rate (per new-born)

26 Evolution of the per capita federal social expenditure GSF PER CAPITA AVERAGE GSF PER CAPITA Brazil In 1998 R$

27 GDP per capita GDP per capita * Source: IBGE In 1999 R$ /* GDP reviewed on October 2000

Minimal wage Basic basket Source: PROCON/DIEESE Price variation of the basic basket vis-a-vis variation of the minimal wage Brazil May 94 Nov 94 In R$ May 95 Nov 95 May 96 Nov 96 May 97 Nov 97 May 98 Nov 98 May 99 Nov 99 May 00

29 Proportion of the poor and the indigents over the total population - Brazil Proportion of the poor and the indigents over the total population - Brazil Indigence Line Poverty Line Source: PNAD ( ) Preparation: IPEA % of total population

30 Average Import Tariffs % % % %

31 0 1,000 2,000 3,000 4,000 5,000 6, Source: ABNT (estimated ADTP) Certificates Issued ISO ,285

* Program Sale Revenue Debt Transfer TOTAL Federal Privatizations 46,724 11,326 58,050 Telecommunications 26,978 2,125 29,103 Other 19,746 9,201 28,947 State Privatizations 26,172 6,592 32,764 Total 72,896 17,918 90,814 *As of 1st March * Program Sale Revenue Debt Transfer TOTAL Federal Privatizations 46,724 11,326 58,050 Telecommunications 26,978 2,125 29,103 Other 19,746 9,201 28,947 State Privatizations 26,172 6,592 32,764 Total 72,896 17,918 90,814 *As of 1st March Privatization Program US$ million

Sector Total Investment Private Sector (US$ billion) Telecommunications % Energy % Oil 54 31% Transportation % Sector Total Investment Private Sector (US$ billion) Telecommunications % Energy % Oil 54 31% Transportation % Infrastructure Investments %Total

34 * estimated Source: MME Installed Capacity (GW) Electric Power Generation *

35 * estimated Source: MME Installed Computers (millions) (millions) Information Technology *

36 * estimated Source: MME Internet Users (millions) (millions) Information Technology Jan 98 Jul 98 Dec

37 Mobile Phones (millions) (millions) TelecommunicationsTelecommunications *As of May *

38 Regulatory agencies  Regulatory agencies  Competition policy  Consumer protection  Intellectual property rights  Environmental legislation New Regulatory Framework

39 Supervision / regulation  Supervision / regulation  Payments System  Financial liberalization Banking reform

40 % p.y. Average banking spread Banking Spread JanAprJulOctJanAprJulOctJanAprJulNov

41 Corporate Law  Corporate Law  Accounting standards  Regulation Capital Markets Reform

42 4. Growth prospects

43 Openness Deregulation Deregulation Stabilization Stabilization Privatization Privatization Openness Deregulation Deregulation Stabilization Stabilization Privatization Privatization Summing up CompetitionCompetition InvestmentInvestment PredictabilityPredictability EfficiencyEfficiency

44 Labor force growth Capital accumulation Capital accumulation Productivity (TFP) Productivity (TFP) Labor force growth Capital accumulation Capital accumulation Productivity (TFP) Productivity (TFP) Growth Accounting 1.5% 2.5% 1 - 3% 2.5% 1 - 3% 1.5% 2.5% 1 - 3% 2.5% 1 - 3%

45 Brazil Towards a Sustainable Growth Path: Stabilization and Consolidation of Structural Reforms Brazil Towards a Sustainable Growth Path: Stabilization and Consolidation of Structural Reforms January 2001