1. MINISTRY OF FINANCE National Treasury Secretariat Public Debt Management: Brazil Joaquim Vieira Levy Secretary of the National Treasury Fifth Annual OECD-World Bank Bond Market Forum June, 2003 Joaquim Vieira Levy Secretary of the National Treasury Fifth Annual OECD-World Bank Bond Market Forum June, 2003

2. Foreign Exchange Linked Debt Foreign Exchange Linked Debt - Provision of more “exchange rate” hedging, with full disclosure to markets (marking to mark of exposure and monthly data released to the public). - Repurchase (at market prices) of long-term LFTs, and the offer of short-term repos (operacoes compromissadas). Composition of Federal Public Debt March 2003

3. * Position: April 2003 Impact of Turbulence on Debt Indicators Impact of Turbulence on Debt Indicators Election Marking to market made mandatory

4. Summing Up  Since the mid 1990s: National Treasury aimed at changing the composition of its debt (public debt de-indexation by means of a gradual increase in the share of fixed-rate debt); however, the latter were usually of relatively short maturity  The financial crises as from late 90’s led the Treasury to change the focus of debt management strategy in Brazil in order to reduce the refinancing risk (the percentage of Domestic Debt maturing in 12 months dropped from 53.0% in late 1999 to 25.6% in late 2001);  Starting in 1999, the Treasury decided to extend the maturity of the debt by issuing floating-rate securities of much longer terms than those observed historically (5 years and more);  Long-term floating-rate instruments, despite their low duration, started to present significant negative premium in 2002. This led to a demand to exchange them for shorter duration paper.

5. Results so far… Net issuance of R$ 23.6 billion in Jan-May 2003 Position: May 30, 2003

6. Resumption of lengthening process and narrowed discounts Resumption of lengthening process and narrowed discounts Gradual increase in the maturity of new floating-rate bonds (LFT) issued, as well as reduction of the discount rates required by the market …

7. Consistent fiscal and monetary stances  success of the new government in dealing with the higher level of redemptions in the second quarter of 2003;  benefit of Central Bank firm stance against inflation (inflation targeting policy) on public debt dynamics (expectations of lower inflation for the coming years);

8. MAIN GUIDELINES  To lengthen the maturity of debt;  To maintain the share of debt maturing in 12 months at prudent levels;  To improve the debt composition toward lower exposure to interest rates and exchange rates. 2003 Annual Borrowing Plan

9. 2003 Planning Results and Projections – Domestic Public Debt Results and Projections – Domestic Public Debt Increase in the public outstanding debt, under the expectation of, inter alia, a reduction in the money market liquidity, reverting the process triggered by the marking to market of mutual funds in mid-2002; Restoration of the process of lengthening the debt; Room for adjusting the composition of the public debt. Increase in the public outstanding debt, under the expectation of, inter alia, a reduction in the money market liquidity, reverting the process triggered by the marking to market of mutual funds in mid-2002; Restoration of the process of lengthening the debt; Room for adjusting the composition of the public debt. 2003 Perspectives

10. 2003 Planning Results and Projections – Federal Public Debt Results and Projections – Federal Public Debt The Federal Public Debt is an enlarged concept of the debt that encompasses both foreign-currency denominated debt and domestic federal debt; By publishing these figures on a consolidated basis, the Treasury aims at increasing the transparency of the available data. The overall picture is not significantly different than that conveyed by the data on domestic federal debt, also reflecting prudent risk exposures. The average maturity as well as the duration of the overall debt is longer than that of the domestic debt (maturity of 40.6 months x 31.8 months, and duration of 31.5 months x 17 months in the domestic debt) By publishing these figures on a consolidated basis, the Treasury aims at increasing the transparency of the available data. The overall picture is not significantly different than that conveyed by the data on domestic federal debt, also reflecting prudent risk exposures. The average maturity as well as the duration of the overall debt is longer than that of the domestic debt (maturity of 40.6 months x 31.8 months, and duration of 31.5 months x 17 months in the domestic debt) The Federal Public Debt is an enlarged concept of the debt that encompasses both foreign-currency denominated debt and domestic federal debt; By publishing these figures on a consolidated basis, the Treasury aims at increasing the transparency of the available data. The overall picture is not significantly different than that conveyed by the data on domestic federal debt, also reflecting prudent risk exposures. The average maturity as well as the duration of the overall debt is longer than that of the domestic debt (maturity of 40.6 months x 31.8 months, and duration of 31.5 months x 17 months in the domestic debt) By publishing these figures on a consolidated basis, the Treasury aims at increasing the transparency of the available data. The overall picture is not significantly different than that conveyed by the data on domestic federal debt, also reflecting prudent risk exposures. The average maturity as well as the duration of the overall debt is longer than that of the domestic debt (maturity of 40.6 months x 31.8 months, and duration of 31.5 months x 17 months in the domestic debt) 2003 Perspectives

11. Brazilian Debt Market Improvements  New Dealers System: Joint regulation by both the Treasury and the Central Bank (primary dealers and market makers). New framework designed to help in the development of debt markets and improve the efficiency of monetary and debt management policies.  Enhanced Transparency: - incentive on electronic trading. Ex: support to the implementation (by the private sector) of electronic trading systems for the secondary market, expected for 2.º sem/03; - implementation of mark-to-market rules; - disclosure of market prices, daily released by Andima (Association of National Financial Market Institutions);

12. Brazilian Debt Market Improvements  Creation of Benchmarks: concentrate issues to stimulate liquidity and conduct exchanges of short for long term securities in auctions to reduce refinancing risk;  Treasury Direct: federal bond sales through the Internet since early 2002 – broadening of investors base.

13. CONGRESS Constitution and Law NATIONAL MONETARY COUNSEL Resolution CENTRAL BANK Circular Letter Circular Letter SECURITIES VALUES COMMISSION -CVM Instructions, Deliberations Explanatory notes Opinions of Orientation PRIVATE SECURITY SUPERVISION SUSEP SECRETARIAT OF SOCIAL SECURITY SPC NATIONAL FINANCIAL SYSTEM STRUCTURE

14. Enhancement SEC: Lei n° 10.303/2001 e outras ä SEC supervises: v Market for futures and derivatives v The WHOLE of mutual funds v Can negotiate with foreign counterpart to investigate deals v Risk management systems of funds industry ä 5 year mandate to directors ä Public disclosures for proceeds and rulings ä Systematic analysis of operations to uncover “insider trading” and other crimes or distortions

15. RISK MANAGEMENT

16. Improvements in Risk Management   Reforms in the institutional framework: Front, Middle and Back Offices;   Medium and Long-Term (Strategic) Planning: Annual Borrowing Plan (since 2001) & Other Studies.   Developing capacity to implement ALM, relying on stochastic modeling and portfolio optimization; considering whether benchmarking would be useful/appropriate   Adopted program to enhance assets and liabilities integrated analysis, improve elaboration and evaluation of public debt strategies, and diversify estimate of financial and risk indicators concerning National Treasury assets and liabilities   System can build scenarios based on macroeconomic and market data, as well as hypothesis related to changes in fiscal policy and pace of recognition of “skeletons”   Capacity to evaluate increasingly complex short- and medium-term strategies

17. Selected Methodologies “At Risk” methods Cash-flow at Risk Cost at Risk Sensitivity analysis Stress tests

18. MINISTRY OF FINANCE National Treasury Secretariat Public Debt Management: Brazil Joaquim Vieira Levy Secretary of the National Treasury Fifth Annual OECD-World Bank Bond Market Forum June, 2003 Joaquim Vieira Levy Secretary of the National Treasury Fifth Annual OECD-World Bank Bond Market Forum June, 2003