BRAZIL AND THE WORLD CRISIS Minister of Finance Guido Mantega March 2009

Worsening of World Crisis

No solution to the financial crisis Strong deterioration of economic conditions Brazil has one of the most favorable conditions to face the crisis Government measures smooth the impacts of the crisis and allow an easier recovery Brazil was one of the last countries hit by the crisis and can be one of the first to come out

Real GDP
(% over previous period)
10 1Q08 5 2Q08 3Q08 4Q08 1Q09

0 -5

-10 -15

United States 0.9 2.8 -0.5 -6.2 -5.5

United Kingdom 1.1 0 -2.8 -6.0 -5.0

Italy 2 -1.8 -2.2 -7.1 -5.0

Euro area 2.7 -0.7 -1.0 -5.7 -5.0

Japan 2.8 -3.7 -2.3 -12.7 -12.0

Germany 5.2 -1.7 -2.2 -8.2 -5.0

Brazil 6.7 6.5 6.9 -13.6 -0.5

Chile 6.8 7.4 -0.2 -4.0 -4.0

Hong Kong 8.2 -5.5 -2.8 -7.8 -7.0

1Q08 2Q08 3Q08 4Q08 1Q09

Source: JP Morgan -GDW

Elaborated by: MF/SPE

Risk: Brazil X Emerging

BRAZILS RISK RATING FALLS AND DIFFERENCE TO OTHER EMERGING COUNTRIES INCREASES
1.000 900 800 700 600 500 400 300 200 100 0 -100 jan mar mai 07 07 07
Source: JP Morgan

dif

EMBI+ Brasil

EMBI+ total

jul 07

set nov jan mar mai 07 07 08 08 08

Elaborated by: MF/SPE

jul 08

set nov 08 08

jan mar 09 09
4

World Crisis Smoother Impact on Brazilian Internal Auto Market (tsd units)
Country USA
(Light vehicles)

Jan/09 655.2 301.7 189.4 178.1 157.4 59.4

Jan/08 1.039.1 376.6 220.4 199.6 233.7 101.6

Change % - 36.9% - 19.9% - 14.1% - 10.8% - 32.6% - 41.6%

Japan Germany
(Automobiles)

France
(Automobiles and light commercials)

Italy
(Automobiles)

Spain
(Automobiles)

Argentina Mexico
(Light vehicles)

33.7 69.7 197

55.2 96.8 215

- 38.9% - 28.0% - 8.1%

Brazil

Sources: VDA. CCFA. Anfac. Adefa. Amia. Wards AutoInfoBank. AutoNews Reuters/Japan Automobile Dealers Association

Employment Level*
(Difference between employees hired and dismissed %)
Employment situation better that in the rest of the world
80 60 40 27 20 20 0 0 -20 -40 Brazil EU NAFTA Latin America Asia (Pacific) Nordic Asia (East) Countries World Average (12) (9) (21) (4) 8 n.a. 33 71 54 2008 2009

31 20 4

33

*7.200 enterprises from 36 countries, of which 150 are from Brazil. Source: Grant Thorton International Elaborated by: MF/SPE.

Brazil: In former crisis pro cyclical measures The worsening of the economic situation leads to:
Higher interest rates Higher public debt Higher primary surplus Lower investments Fall of product, unemployment increase, economic fragility

Countercyclical measures
Due to macroeconomic soundness, Brazil can soften the impact of the crisis: Active monetary policy
Expand credit Reduction of interest rate Compensatory fiscal measures Tax exemptions Increase of public investments

Measures to fight the Crisis

Monetary Policy and Credit
Reduction of banking reserves requirements and interest rate Credit for Agriculture and Car Industrie Expansion of State-Owned Bank credit and capitalization of BNDES US$ 42,5 billions. Increase of pre-shipment export financing (ACC) Increase of credit lines to finance private external debt

10

Measures to fight the Crisis

Fiscal Policy
Tax reduction in IVA (IPI) transport Tax reduction in credit Tax reduction in personal income tax brackets Infrastructure investment increase (PAC) New Housing Program 1 million units

11

Why is Brazil in better conditions than most to solve the crisis?

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World Financial Crisis

CREDIT INVESTMENTS DECREASE RETRACTION

NEGATIVE CAPITAL INFLOW

EXPECTATION CHANGE DRASTICALLY

13

World Financial Crisis

WORLD RECESSION NEGATIVE GDP

EXTERNAL TRADE DECREASES

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INVESTMENT % GDP
20% 19,0% 19% 18% 17% 16% 15,3% 15% 14% 13% 12% 2000
Source: IBGE

17,5% 16,8% 17,0% 16,4% 16,1% 16,4% 15,9%

2001

2002

2003

2004

2005

2006

2007

2008

Elaborated: MF/SPE

Sales Volume - Retail

(% yoy) yoy)
20 15 10 6.0 5 0
PMC = Monthly Trade Inquiry

PMC PMC expanded*

2.8

-5 -10 Jan 07 Mar 07 May 07 Jul 07 Sep 07 Nov 07 Jan 08 Mar 08 May 08 Jul 08 Sep 08 Nov 08 Jan 09

(*) includes vehicles, motorcycles, spare parts and housing construction materials. Source: IBGE. Elaborated by: MF/SPE

Sovereig Wealth Fund

Fiscal Saving of 0,5% GDP in 2008 Bigger one primary surplus in 2008

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Better Fiscal Performance

(Deficit as % GDP)
US India UK Russia Japan S.Africa Germany China Brazil Mexico -16.9% -4.7% -11.1% -6.5% -8.8% -3.3% -6.7% 4.0% -4.1% -3.8% -3.8% 0.8% -3.0% -0.5% -2.8% -0.4% -2.7% -1.5% -2.5% 0.0%

2008

2009

Source: Standard & Poors

Elaborated by: MF/STN

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World Financial Crisis

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Unleveraged Housing Market

(% GDP)
249

21

Housing Credit
166

Total Credit

156 137 125 141

111 85 73 53 46 20 13
Chile

63 46 33 10
Hungary

17

28 6 2
Poland

37 2

41

8
Cz.Rep.

US

England

Spain

S.Africa

Sources: Global Property Guide, Central Banks

Netherlands

Elaborated by: MF/STN

Mexico

Ireland

Brazil

India

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Foreign Direct Investments

(US$ bi)
45,1

32,8 28,9 28,6 22,5 19,0 16,6 10,1 18,1 18,8 15,1

34,6

10,8 4,4

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: BCB

100

120

20

40

60

80

0 25,8 Bra zil U SA Ja p a n C o lo m b ia Arg e n tin a Au stra lia In d ia Pe ru T u rke y R u ssia F ra n ce Ita ly UK Sp a in U ru g u a y M e xico Ecu a d o r Bo livia Po rtu g a l C h in a Canada C h ile G e rm a n y So u th Ko re a Ph ilip p in e s Sw itze rla n d Pa ra g u a y

Source: WTO (October 2008) Elaborated by: MF/SPE

Trade to GDP Ratio

(2005(2005-2007)
23

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Entrepreneurs EntrepreneursConfidence
130 120 110 100 90 ici - seasonally adjusted 80 70 Feb 07
Source: FGV
INDUSTRY CONFIDENCE INDEX

May 07

Aug 07

Nov 07

Feb 08

May 08

Aug 08

Nov 08

Feb 09

Elaborated by: MF/SPE