1. Brazilian Crisis – 1998/1999

2. Brazil vs. Asia Current Account of ~4%GDP vs. 8% for Thailand Fixed Peg vs. Crawling Peg (Slow Currency Depreciation 8% p.a.) Privatization and FDI were expected to cover more than 30% of CA deficit Strong Foreign Investment Pattern (95-US$5B; 96- US$13B; 97-US$16B) Political Stability Controlled Credit Expansion (Below 30% of GDP)

3. What went wrong? Two Main Factors Adverse Price Shock between Jan-97 and Jan-99 Exported Products Prices fell 16% International Credit Restrictions Russian Crisis – August/98 The Brazilian Strategy assumed that the Country would have time to do the necessary adjustments, while the rest of the world financed the current account deficit.

4. Crisis Cronology Deterioration of Primary Results (Interest not Included) Increase in Public Debt Source199419951996199719981999 Federal9.210.113.615.221.124.4 States and Municipalities 9.810.611.513.014.415.6 State Enterprises 7.06.65.82.82.6 Total26.027.330.931.038.142.6

5. Budget Deficit 19951996199719981999 Budget Deficit (R$ MM) 47,027 45,741 53,232 72,490 96,158 GDP (R$ B) 974 1,000 1,033 1,035 1,043 Deficit (%GDP)4.83%4.57%5.15%7.00%9.22%

6. Debt Evolution (% of GDP) Source199419951996199719981999 Federal9.210.113.615.221.124.4 States and Municipalities 9.810.611.513.014.415.6 State Enterprises 7.06.65.82.82.6 Total26.027.330.931.038.142.6

7. Crisis Cronology Increase in CA Deficit as a % of GDP Increase in financial needs

8. Current Account Deficit

9. Trade Balance 199419951996199719981999 1. Trade Balance 10,843 (3,353) (5,556) (8,365) (6,591) (1,198) 2. Services (14,743) (18,600) (21,044) (27,289) (28,799) (25,211) 3. Unilateral Transfers 2,588 3,974 2,899 2,216 1,778 2,035 Current Account (1,312) (17,979) (23,701) (33,438) (33,612) (24,374)

10. Financial System

11. Crisis Cronology Political Issues Itamar Franco (former President and current Governor of Minas Gerais) announced a default on the State Debt. International Agents fly out of the country

12. Unemployment Rate

13. Interest Rate

15. International Reserves

16. Foreign Exchange Rate

17. Stock Exchange Bovespa

19. GDP Growth

20. GDP US$

21. Inflation Rate

22. Monetary Base

23. Gross Capital Formation

24. National Accounts