Henrique de Campos Meirelles Brazilian-American Chamber of Commerce October Brazil Economic Conference

2 Brazil in 2003  60% of total sovereign debt denominated in dollars  IMF debtor country  High public debt to GDP ratio: 60.6%  Policy rate at 25%  Rising inflation  High country risk premiums and sovereign debt rated as speculative grade  Unemployment rate at 12%  Minimum wage at US$ 60

3  Quick disinflation  Jan 03: 30% (annual rate)  Jul 03: 0%  Inflation on target since 2004  Decrease in the public debt  Decrease in sovereign debt exposure on FX  As a result: decrease in country risk premium Changes in Economic Policy 2003: Monetary and fiscal policy stance Austere monetary policy Strong fiscal adjustment

4 Public Sector Net Debt % of GDP Sources: Central Bank of Brazil Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Aug 08 Dec 08 Dec 09 Dec 10 market consensus

5 Floating Exchange Rate Regime and Build Up of International Reserves Source: Central Bank of Brazil international reserves allow for a safe fluctuation of the exchange rate Oct 6 th Aug Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 USD billion

6 Net External Debt and Risk USD billion 1Q Q BBB- BB+ BB BB- B+ BB- Sources: Central Bank of Brazil and S&P

7 reduction of interest rate with more credibility amplified effect lower risk premiums Macroeconomic Responsability Virtuous Circle: macroeconomic stability inflation targets lower inflationary risks decaying net foreign debt floating exchange and intl reserves reduced external risk decline in public debt primary surpluses lower fiscal risk

8 Macroeconomic Policy Framework Macroeconomic fundamentals of inflation targeting, fiscal responsibility, exchange rate flexibility, combined with Adequate prudential policy and solid bank supervision, resulted in  capacity to absorb internal and external shocks  macroeconomic and financial stability  sustainable growth  investment growth  credit and capital market development

Q 00 1Q 01 1Q 02 1Q 03 1Q 04 1Q 05 1Q 06 1Q 07 1Q 08 1Q 09 3Q 10 investments GFCF (left) country risk - Brasil t-2 (right) 1995 = 100 basis points Investments x Country Risk 2Q 10 Sources: IBGE and JPMorgan

10 Credit – Outstanding Balances ,000 1,200 1,400 1,600 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Aug 10 R$ billion % of GDP consistent growth throughout the period Source: Central Bank of Brazil

11 Source: CVM (Brazilian Securities Comission) *12 months to August Capital market – primary issues * StocksCommercial papersOthers R$ billion

12 Net Foreign Direct Investment market consensus USD billion Source: Central Bank of Brazil (market consensus)

Spain Peru South Africa Chile Japan Canada Malaysia Australia France Poland Tailand Vietnan Indonesia German United Kingdom Mexico Russia United States Brazil India China 3 rd preferred host economy for FDI for the period Source: UNCTAD

14 as a percentage of the gross external liabilities Brazilian External Liabilities * FDI 37% Stocks (domestic and foreign) 31.3% Fixed income 18.6% FDI 32.8% Stocks (domestic and foreign) 9.9% Fixed income 30.9% Others 13.2% Others 26.4% Source: Central Bank of Brazil*August

Source: Central Bank of Brazil (market consensus) Exports USD billion 14

16 Exports’ Diversification Source: Central Bank of Brazil* July % * USA Europe Latin America Asia

17 Price Stability and Real Payroll Growth Source: Central Bank of Brazil % change in 12 months Jan 03 = Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jul 10 IPCA real payroll stability generates increasing well-being

18 Formal Job Creation Source: MTE/CAGED average average average million jobs created since 2003 from January to August thousands

19 Unemployment in Brazil seasonally adjusted Source: IBGE Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Ago 10 %

20 relatively dynamic labor market Source: Bloomberg Unemployment Rate South Africa Spain Lithuania Croacia Ireland Colombia Greece Poland Hungary Portugal India Turkey Euro zone United States France Belgium Venezuela Finland Italy Chile Canada Argentina United Kingdom Germany Sweden Brazil

Source: IBGE/PNAD Gini Index Income Inequality Reduction

22  From 2003 to 2009  35.7 million people have entered the middle class  20.5 million have crossed the poverty line upwards  forecast for the current trend  36.0 million more will enter the middle class  14.5 million more will come out of poverty  Family Grant Program (Bolsa Família): reduction of people in extreme poverty from 12% to the 4% level Middle Class Growth and Poverty Reduction Source: FGV-CPS

23 Lower Level of Poverty % of population Source: CPS/FGV

24 Social Mobility * A/BCDE millions of people +44.1% +19.0% Source: Finance Ministry; * estimated

25 Source: FMI (WEO Oct 2010); * estimated GDP real growth % compared to other emerging markets Performance Before and After the Crisis (*) 5.6 (*) (*) EME ex. Brazil, India and China Brazil

26 GDP Growth Sources: IBGE and Central Bank of Brazil annual real growth rate -0.2% 7.3% % ( ) 3.3% ( ) 5.1% ( )

27 Agenda for the Future  Level of Domestic Saving  Quality of Public Expenditures  Investment Rate and Infra-Structure  Education  Review and Simplification of the Tax System  Legal Environment more favorable to Business  Incentive to Long Term Investment

28 Investment prospects - industry Source: BNDES % Oil and Gas Mining Steel Petrochemical Automobile Electric/Electronics Pulp and Paper Total BRL billionGrowth

29 Investment prospects - infrastructure Source: BNDES % Electricity Telecommunication Sanitation Railways Highways Ports Total BRL billionGrowth

Henrique de Campos Meirelles October 2010