1. 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. 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. 3 1. Recent Developments

4. 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. 5 Fiscal Performance Flows in 12 months, based on the GDP reviewed on October 2000 Public Sector (+) deficit (-) surplus % GDP -6 -4 -2 0 2 4 6 8 10 12 14 16 JulJanJulJanJulJanJulJanJulJanNov 959697989900 NominalDeficit PrimarySurplus

6. 6 IPCA 12-month variation (%) Consumer Prices 0 5 10 15 20 25 JanJulJanJulJanJulJanJulJanJulNov 9697989900

7. 7 Exchange Rate R$/US$ 1.20 1.40 1.60 1.80 2.00 2.20 Jan 99 MarMayJulSepNovJan 00 MarMayJulSepDec

8. 8 US$ billion /* (+) deficit Current Account and FDI Current account deficit * FDI 12-month variation data 0 5 10 15 20 25 30 35 40 Jan Jan Apr Apr Jul Jul Oct Oct Jan Jan Apr Apr Jul Jul Oct Oct Jan Jan Apr Apr Jul JulNov 989900

9. 9 PriceQuantum Source: Funcex Exports Quantum and Price Index 1996 average = 100 Price Quantum 75 80 85 90 95 100 105 JanAprJulOctJanAprJulOctJanAprJulNov 70 80 90 100 110 120 130 140 150 160 98 9900

10. 10 External Debt / Exports 300 300 350 350 400 400 450 450 500 500 550 550 19951996199719981999

11. 11 2. Longview I: Macro Reforms

12. 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. 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. 14 % GDP * Net Public Sector Debt /* GDP reviewed on October 2000 Medium-Term Fiscal Scenario 43.41 49.68 49.94 49.28 47.60 40 42 44 46 48 50 52 1998*1999*200020012002

15. 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. 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. 17 Social Security Social Security Balance - Accumulated in 12 months (R$ billion) /* (+) deficit 0 2 4 6 8 10 12 Dec 97 Mar 98 Jun 98 Sep 98Dec 98 Mar 99 Jun 99 Sep 99Dec 99 Mar 00 Jun 00 ALT

18. 18 0.7 0.9 1.1 1.3 1.5 1.7 19992002200520082011201420172020 % GDP Previous Scenario Post-reform Scenario Social Security Reform Private Workers Mandatory Regime Annual Deficit Private Workers Mandatory Regime Annual Deficit ALT

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

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

21. 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. 22 Net Ground Schooling Rate EducationEducation Source: MEC/INEP/SEEC 86 % 89 % 91 % 93 % 96 % 97 % 199119941996199719981999

23. 23 Source:IPEA, based upon PNAD Iliteracy Rate - Brazil 1990-1998 % of population at 15 or more years of age Iliteracy Rate - Brazil 1990-1998 % of population at 15 or more years of age EducationEducation 12 13 14 15 16 17 18 1920 17.2 14.7 15.6 16.4 13.8 199019911992199319941995199619971998 18.3

24. 24 EducationEducation Source: MEC System’s Expansion 1995-1999 (enrollment increase %) System’s Expansion 1995-1999 (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. 25 Health Infant Mortality Rate (per 1.000 new-born) Infant Mortality Rate (per 1.000 new-born) 47.8 45.2 43.0 41.1 39.6 38.4 37.5 36.7 36.1 199019911992199319941995199619971998

26. 26 Evolution of the per capita federal social expenditure 300 350 400 450 500 550 600 650 700 750 1980198119821983198419851986198719881989199019911992199319941995199619971998 GSF PER CAPITA AVERAGE GSF PER CAPITA Brazil 1980-1998 In 1998 R$

27. 27 GDP per capita GDP per capita * 1962 - 1999 Source: IBGE In 1999 R$ 1999 2.000 3.000 4.000 5.000 6.000 1962196519681971197419771980198319861989199219951998 /* GDP reviewed on October 2000

28. 28 170 150 130 110 90 70 50 Minimal wage Basic basket Source: PROCON/DIEESE Price variation of the basic basket vis-a-vis variation of the minimal wage Brazil 1994-2000 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. 29 Proportion of the poor and the indigents over the total population - Brazil 1977-1998 Proportion of the poor and the indigents over the total population - Brazil 1977-1998 13.9 20.7 25.0 9.8 22.1 19.5 32.7 51.0 45.3 42.6 28.2 41.7 0 10 20 30 40 50 60 19771980198319861989199219951998 Indigence Line Poverty Line Source: PNAD (1977-1998) Preparation: IPEA % of total population

30. 30 Average Import Tariffs 1990 32.2% 1993 16.5% 1997 13.8% 1999 13.8%

31. 31 0 1,000 2,000 3,000 4,000 5,000 6,000 1990199119921993199419951996199719981999 Source: ABNT (estimated ADTP) Certificates Issued ISO 9000 5,285

32. 32 1991 - 2000* 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 1991 - 2000* 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

33. 33 2000 - 2003 Sector Total Investment Private Sector (US$ billion) Telecommunications 45 100 % Energy 52 86 % Oil 54 31% Transportation 23 52 % 2000 - 2003 Sector Total Investment Private Sector (US$ billion) Telecommunications 45 100 % Energy 52 86 % Oil 54 31% Transportation 23 52 % Infrastructure Investments 174 68 %Total

34. 34 * estimated Source: MME Installed Capacity (GW) Electric Power Generation 54.1 55.5 57.3 59.2 61.5 64.5 68.0 1994199519961997199819992000*

35. 35 * estimated Source: MME Installed Computers (millions) (millions) Information Technology 2.3 4.0 5.6 6.8 8.3 19951996199719981999*

36. 36 * estimated Source: MME Internet Users (millions) (millions) Information Technology 0.2 0.7 1.4 1.8 2.9 3.4 19951997 Jan 98 Jul 98 Dec 98 1999

37. 37 Mobile Phones (millions) (millions) TelecommunicationsTelecommunications *As of May 0.6 1.3 2.5 6.0 9.2 15.0 17.5 19941995199619971998 1999 2000*

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

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

40. 40 % p.y. Average banking spread Banking Spread 989900 30 30 35 35 40 40 45 45 50 50 55 55 60 60 65 65 70 70 JanAprJulOctJanAprJulOctJanAprJulNov

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

42. 42 4. Growth prospects

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

44. 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. 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