1 How to Sustain Stability July 2002 Banco Central do Brasil Ilan Goldfajn

2 IPCA - Monthly Inflation Jan-94Jan-95Jan-96Jan-97Jan-98Jan-99Jan-00Jan-01Jan-02 %

3 IPCA Inflation Jun-944, Jun Jun Jun Jun Jun Jun Jun Jun Accum. in 12 months Average in the year Accum. in 12 months 19942, * * Jan-Jun 2002

4 Inflation Targeting Regime * Actual Central Target IPCA * - * Central Bank forecasts (constant current exchange and interest rates) Upper Limit Lower Limit

5 IPCA - Targets IPCA accumulated in 12 months (%) TargetIPCA Central Bank forecasts

6 IPCA - Market Expectations Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul * As of July 12 th

7 IPCA - Market Expectations Jan Feb Mar Apr May Jun Jul 2002 * IPCA - Median of Market Expectations Aggregate Top 5 - Short Refer to the last business-day of each month. * July 12th, 2002

8 Net Public Sector Debt 43,2 33,0 56,0 30,8 31,4 35,8 41,7 41,1 41,8 29,6 39,7 32,3 40,840,1 41,6 42,5 49,2 30,6 30,0 33,3 34,3 41,7 49,4 53, No skeletons Constant exchange rate Actual

9 Net Public Sector Debt 56,0 26,8 25,3 48,8 23,0 34,3 41,7 49,2 49,4 53,3 33,3 30,6 30,0 27,8 26,0 24,1 25,8 20,6 46,4 43,1 43,3 36,4 31,2 31,5 29,9 21,8 20,3 22,2 17,4 18,4 23,9 26, *2001*2002 Actual Hyp II: 3.5% Primary (95-98) Hyp I: Selic-5% (95-98) Hyp III=Hyp I and Hyp II

10 Net Public Sector Debt No skeletons Constant exchange rate Actual % of GDP

11 Net Public Sector Debt % of GDP Actual Hyp I: Selic-5% (95-98) Hyp II: 3.5% Primary (95-98) Hyp III=Hyp I and Hyp II

12 External Debt Indebtedness indicators US$ million / Medium and Long term debt (A) 122,541135,521154,906197,494199,000189,501182,276 Short term debt (B) 30,52437,78736,71526,29826,60927,42027,627 Total debt (C)=(A+B) 2/ 153,065173,308191,621223,792225,609216,921209,903 GDP705,449775,475807,814787,889531,057594,247527,544 Total debt/GDP (%) / Excludes principal, amortization and service related to intercompany loans. Includes revision of medium and long term debt position of the private sector. 2/ Excludes intercompany loans.

13 Total External Debt/GDP % of GDP

14 Imports Imports Evolution Consumer goods 2, %3, %-23.62% Durable 1,1895.3%1,9196.6%-38.05% Non-durable 1,6637.4%1,8156.3%-8.35% Raw-materials 11, %14, %-23.20% Fuel and lubricants 2, %3, %-10.03% Capital goods 5, %7, %-25.95% Total 22, %29, %-22.62% US$ million Share ShareEvolution Jan-Jun 2002 Jan-Jun 2001 Source: MDIC/Secex

15 Trade Balance - US$ billion Source: MDIC/Secex Jun US$ million monthlyacc.12-month 6755,327 acc.year 2, jan/98 may/98 sep/98 jan/99 may/99 sep/99 jan/00 may/00 sep/00 jan/01 may/01 sep/01 jan/02 may/02 monthly accumulated in 12 months monthly 12 months

16 Current Account X FDI Current Account Deficit versus Net FDI Accumulated in 12 months Net FDI Current Account Financing Necessity jan/98 may/98 sep/98 jan/99 may/99 sep/99 jan/00 may/00 sep/00 jan/01 may/01 sep/01 jan/02 may/02 jan/97 may/97 sep/97

17 Amortizations Total Registered External Debt – Principal Amortization Schedule - Including intercompany loans and regularization operations - as of March 30, ,6 22,7 29,0 21,1 16,3 14,7 8,3 6,9 4,44,4 2,2 2,0 2,3 21, Beyond US$ billion

18 Brazilian Capital Abroad US$ million ItemizationTotal Total69,657 Loans Direct Investment Abroad 50,746 Equity Equity43,641 Intercompany Loans Intercompany Loans7,104 Portfolio Investment 5,163 Stocks Stocks2,517 Fixed Income Fixed Income Bonds and Notes Bonds and Notes Short-Term Securities Short-Term Securities BDRs BDRs Other Portfolio Investment Other Portfolio Investment1,326 Other Investment 3,412 Derivatives Leasing 1 Financing Deposits Abroad 9,442

19 Foreign Capital Census – Basis 2000 Consolidation by Economic Sector R$ billion % % % Agriculture %7.32.9%8.82.5% Industry % % % Services % % % Total % % % Assets Net Worth Sector Stock Capital Consolidation by Region R$ 1,000 % % North 817, ,5942.0%3,072,8381.5% Northeast1,573,9723.9%6,231,9473.1% Mid-West 211, ,9570.5%2,549,2291.3% Southeast35,674, %174,659, % South2,221,0415.5%14,721,3377.3% Abroad 50,356 50,3560.1% 199, ,7400.1% Total40,548, %201,434, % Region Capital of Non-Residents

20 –Monetary Responsibility Law: aims to facilitate the task of introducing appropriate regulations –Payments System: aims at reducing the systemic risk –Prudential Regulations: Central Bank’s initiatives aim at providing a more transparent structure to the financial system –Corporate Law: protection to the minority shareholders –Bankruptcy Law: acts at the recuperation and the judicial liquidation of the commercial and economic civil corporations –Corporate Governance (New Market): new rules in order to guarantee greater transparency and security to the investors –Banking Spread: measures that aim at the reduction of the banking spread in Brazil –Transparency: improves the communication of the Central Bank with the market participants Structural Reforms

21 Real Interest Rate Average Swap 360 Deflator: 12-month IPC-A jan/97 jul/97 jan/98 jul/98 jan/99 jul/99 jan/00 jul/00 jan/01 jul/01 jan/02 % p. a. jun/02