Brazil - Economic Outlook OECD, Paris December 2008

2 Brazil Recent Performance

3 Sustainable growth rates with inflation under control Source: IBGE. GDP: Annual Real Variation (%) * BNDES (forecast).

4 Proper management of the public debt  Declining net debt  A net foreign creditor Net External Debt – US$ billion International Reserves: US$ billion (26 Nov´08) Source: Banco Central

5 Low leverage in banking credit Total Credit (% of GDP) - Brazil  Credit / GDP has been growing in recent years…. ….but it is still far below developed countries. Sources: Central Banks, IMF and World Bank. Total Credit and Mortgage (% of GDP)

6 Major impacts of the international crisis in Brazil

7 International crisis impact and Government´s response  Pressure on the interbank market  Liquidity constraint faced by small and medium-sized banks  Reserve requirements over local banking deposits have changed  Currency depreciation  Shortage of short-term export trade lines (ACCs)  Temporary liquidity swap facilities with FED (US$ 30 billion)  Currency swap auctions  Short term export trade finance  Increase in local credit costs  Decrease in industrial output  Expectations: reduced 2009 GDP prospects  Decrease in commodity prices  Short term / Long-term finance provided by public banks  Mantainance of long-term investments (PAC) Liquidity in Foreign Currency Market Liquidity in local credit market IMPACTS RESPONSES Since Sep´08, as a consequence of the global crisis, local liquidity has fallen. Immediate measures have been taken.

8 Some highlights on immediate responses...  Short term / Long-term finance provided by public banks –New BNDES lines for working capital (R$ 6 billions) –Agribusiness: Treasury announced renegotiation (BB is the main agent) and increased the amount directed to agriculture. –Housing and construction: additional support mainly from Caixa ACTIONS TAKEN OVER LIQUIDITY ISSUES NO SYSTEMIC SOLVENCY ISSUES IN BRAZIL  Short term export trade finance –Central Bank is investing a small part of its international reserves in credit lines to local banks (onlending to exports) –BNDES announced a credit line of R$ 5 billions to trade finance  Reserve requirements over local banking deposits –Decreased –Loan portfolios and interbank deposits bought from smaller banks can be used instead of local Treasuries

9 Despite the severity of international crisis, Brazil have the tools to overcome this critical stage and keep economic growth: Some comments on permanent actions  Brazilian public sector significantly deleveraged in foreign currency terms  Room to reduce reserve requirements over local banking deposits  Room to reduce interest rate  PAC (Growth Acceleration Program)  Strategic role of public banks

10 PAC: assuring investment on infra-structure *R$/US$ = 1.94 BNDES in PAC: 198 projects Associated investments – US$ 73 billion BNDES financing - US$ 36 billion

11 Public Banks: important source of domestic credit Source: Central Bank Data of June Top 3 Public = BB, BNDES & Caixa Top 3 Private = Bradesco, Itaú & Unibanco Top 3 Foreign = ABN Amro, HSBC & Santander OBS: There are two ongoing merger processes: ABN Amro / Santander and Itaú / Unibanco. Relevant sources of BNDES and CAIXA´s funding come from GOVERNMENT- ESTABLISHED FUNDS: BNDES: FAT (sources must be driven to create jobs) Caixa: FGTS (sources must be driven to sanitation & building construction)

12 Final Remarks

13 Future prospects  Infrastructure investment will lead growth of GDP  Key drivers: - Solid public sector - A healthy and capitalized banking system - Relevant role of public banks - Large number of high return/low risk projects in infrastructure (PAC) - A resilient and lean corporate sector

14 Maria Isabel Aboim Deputy CFO Brazilian Development Bank - BNDES BRAZIL: ECONOMIC OUTLOOK OECD, PARIS December 2008