1. 1 Eduardo Loyo Cancún January 2005 The Brazilian Economy: 2003-2004 and Beyond

2. 2 s.a., % Source: IBGE GDP Growth -4.8 -1.4 2.2 7.8 7.5 5.5 4.2 -6 -4 -2 0 2 4 6 8 10 1Q032Q033Q034Q031Q042Q043Q04 q-o-q, annual rate

3. 3 GDP Growth Source: IBGE 120 125 130 135 140 145 1Q 99 3Q 99 1Q 00 3Q 00 1Q 01 3Q 01 1Q 02 3Q 02 1Q 03 3Q 03 1Q 04 3Q 04 s.a., 1990 = 100

4. 4 Industrial Output s.a., 2002 = 100 Source: IBGE 85 88 91 94 97 100 103 106 109 112 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04

5. 5 Domestic and External Contribution to Growth Source: IBGE % Domestic DemandExternal Demand -5 -3 1 3 5 7 1Q 01 3Q 01 1Q 02 3Q 02 1Q 03 3Q 03 1Q 04 3Q 04 Contribution to Y-o-Y GDP Growth

6. 6 Fixed Capital Investment vs. Capacity Utilization 1Q921Q931Q941Q951Q961Q971Q981Q991Q001Q011Q021Q03 3Q04 Capacity Utilization left scale Investment right scale % 1990=100 Sources: IBGE, FGV 70 74 78 82 86 85 95 105 115 125 135

7. 7 % -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 IPCA Inflation Rate Source: IBGE

8. 8 Market Inflation Expectations: IPCA for the next 12 months % Source: Bacen Survey 5 6 7 8 9 10 11 12 13 14 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 5.7

9. 9 5 7 9 11 13 15 17 % IPCA Headline Core by Exclusion IPCA Headline vs. Core by Exclusion Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Oct 04 Apr 04 Jul 04

10. 10 Consolidated Public Sector Primary Surplus Target: 4.5% Source: Bacen Nov 04 4.6% % GDP -2 0 1 2 3 4 5 6 Jul 94 May 95 Mar 96 Jan 97 Nov 97 Sep 98 Jul 99 May 00 Mar 01 Jan 02 Nov 02 Sep 03 Jul 04

11. 11 Net Public Debt/GDP Source: Bacen 47 50 53 56 59 62 1Q022Q023Q024Q021Q032Q033Q034Q031Q042Q043Q04 20042005200620072008 % GDP 2004/2008 Market Consensus 2002/3Q04 (quarterly data) 47.1%

12. 12 Market Consensus of the Expected Public Debt/GDP Trajectory 46 48 50 52 54 56 58 60 200320042005200620072008 December 2002 December 2004 December 2003 Source: Bacen % GDP End of Year Nov 04: 51.1%

13. 13 Debt Dynamics 20032004* Increase of the Debt/GDP1.7-6.1 1. Public Sector Borrowing Requirements 4.91.7 1.1 Primary Surplus-4.1-4.6 1.2 Real Interest7.02.5 1.3 Inflation Adjustment2.13.9 2. Exchange Rate Depreciation-4.0-0.6 3. Hidden Liabilities, Net of Privatizations0.0 4. Other Adjustments1.00.4 5. GDP Increase-0.3-7.6 * November/2004 Source: Bacen

14. 14 Domestic Federal Debt by Index % of Total Outstanding Source: Bacen 0 10 30 40 50 60 Jan 02 May 02 Sep 02 Jan 03 May 03 Sep 03 Jan 04 May 04 Sep 04 Fixed Rate Over-Selic FX-Linked

15. 15 Impact of 1% of Exchange Rate Variation on the Net Debt/GDP Ratio Source: Bacen % 0.11 0.15 0.19 0.23 0.27 0.31 0.35 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04

16. 16 % 0 20 40 60 80 100 00000000 Jan 03 May 03 Sep 03 Jan 04 May 04 Sep 04 0 Rollover Rate of the FX-Linked Debt Average 2003: 69.3%Average 2004: 5.1% Source: Bacen

17. 17 International Reserves US$ billion Source: Bacen, Foreign Sector Press Releases 44.6 46.5 45.9 49.9 52.9 Dec/03 Mar/04 Jun/04 Sep/04 Dec/04 Actual Estimate: Central Bank´s Estimates for International Reserves at the end of 2004, in Selected Months

18. 18 0000000000 -3 -2 0 1 2 3 4 Jan 04 Feb 04 Mar 04 Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec* 04 FX Flows FX Central Banks's Purchases US$ billion FX Flows and BCB´s FX Purchases Source: Bacen * To December 24th

19. 19 Net External Debt of the Private Sector 60 62 64 66 68 70 72 74 1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04 3Q 04 US$ billion Source: Bacen

20. 20 Net External Debt/GDP % 10 15 20 25 30 35 40 199619971998199920002001200220032004*2005* * 2004 and 2005: Bacen projections Source: Bacen

21. 21 External Trade/GDP % 10 15 20 25 30 199619971998199920002001200220032004*2005* Source: Bacen * 2004 and 2005: Bacen projections

22. 22 Net External Debt/Exports * 2004 and 2005: Bacen projections Source: Bacen 1.0 1.5 2.0 2.5 3.0 3.5 4.0 199619971998199920002001200220032004*2005*

23. 23 Interest Payments/Exports % * 2004 and 2005: Bacen projections Source: Bacen 12 16 20 24 28 32 36 199619971998199920002001200220032004*2005*

24. 24 Trade Balance Source: MDIC US$ billion Accumulated in 12 months Exports Imports 62.8 96.5 40 50 60 70 80 90 100 Jan 99 Jul 99 Jan 04 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jul 04

25. 25 Current Account and Trade Balance % of GDP US$ billion -6 -5 -4 -3 -2 0 1 2 Jan 96 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 -10 -5 0 5 10 15 20 25 30 35 Trade Balance right scale Current Account left scale Source: Bacen

26. 26 Foreign Direct Investment 3-Month Moving Average US$ billion 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Source: Bacen

27. 27 Brazil Risk Source: JP Morgan Chase Basis points 300 700 1,100 1,500 1,900 2,300 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05

28. 28 Exchange Rates Source: Bacen R$/U$ and R$/€ R$/¥ 2.0 2.4 2.8 3.2 3.6 4.0 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 0.017 0.019 0.021 0.023 0.025 0.027 0.029 0.031 0.033 R$/U$ (left scale) R$/Euro (left scale) R$/Yen (right scale)

29. 29 Apreciation Against the US$ Dollar: Selected Currencies (2004) 0 4 8 12 16 20 24 Zloty Poland Krone Czech Rep Forint Hungary Peso Colombia Rand South Africa Won Korea Real Brazil Swiss Franc Euro Sterling Canadian Dollar Peso Chile Rublo Russia Yen Lira Turkey Bath Thailand Peso Mexico Peso Philippines Peso Argentina %

30. 30 Exchange Rate Volatility Source: Bacen % 0 10 20 30 40 50 60 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 21-day Annualized Volatility

31. 31 Real Effective Exchange Rate Source: Bacen Jan 1999 = 100 60 80 100 120 140 160 180 Jul 94 Jul 95 Jul 96 Jul 97 Jul 98 Jul 99 Jul 00 Jul 01 Jul 02 Jul 03 Jul 04 Basket of 15 Currencies

32. 32 2.6 2.7 2.8 2.9 3.0 3.1 3.2 3.3 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Market Consensus of the Expected FX Trajectory During 2005 December 2004 September 2004 June 2004 March 2004 Source: Bacen (actual exchange rate)