Brazil - After Elections

Confidential
THE MEANING OF JAIR BOLSONARO:

MAKING SENSE OF BRAZIL`S
PRESIDENTIAL ELECTION
NOVEMBER 2018 lfel@patria.com
1
Confidential
Brazil: A Conservative Tidal Wave in the 2018 Presidential Race

VICTORY OF MAVERICK CANDIDATE BOLSONARO SPEAKS OF A MASSIVE SWING AWAY FROM THE LEFT
Bolsonaro: 55% of valid votes

11 million votes lead
Haddad: 45% of valid votes North
Northeast
Bolsonaro’s campaign cost: R$1.7 million

20x less
Haddad’s campaign cost: R$34 million Mid-West
Presidential runoff:
Southeast
percent of valid votes
Bolsonaro’s “share of GDP”: 83% over
Nearly 5x more South Right-wing alliance
Haddad’s “share of GDP”: 17% Leftist coalition
Source: Superior Electoral Court (TSE), Arko Advice, IBGE, Tendencias Consultoria, Bruno Garschagen, Marcus Andre Melo and Patria Investments.
2
Confidential
Brazil: The End of a Political Era

VOTES FOR WORKERS`PARTY PRESIDENTIAL CANDIDATES (1ST BALLOT; PERCENT OF VALID VOTES)
49
46 47
42
election in runoff: Lula
Won presidential election

Won presidential
32
election in runoff: Lula
in runoff: Rousseff
Won presidential election

29
Won presidential
27
in runoff: Rousseff
2013: massive street protests
2016: President Rousseff is

against government
17
impeached
1989 1994 1998 2002 2006 2010 2014 2018
Source: DIAP, Arko Advice, Tendencias Consultoria, Bruno Garschagen, Marcus André Melo and Patria Investments.
3
Confidential
Brazil: Opening of a New Era

REAL GDP GROWTH (4-YEAR MOVING AVERAGE IN PERCENT) VS. BREAKTHROUGH REFORMS & EVENTS
“New Republic”
12 Great Depression; end Military coup
of "Old Republic" Developing countries’ external
10 II World War; end of debt crisis; end of military ruling
I World War Vargas’ dictatorship President Collor is
8
impeached President Rousseff
6 is impeached
4
2
0
-2 Industrialization with State activism to develop key Social security, labor and End of hyperinflation,
“Car Wash”
import substitution industries; welfare institutions capital markets reforms anti-poverty programs
-4 new reforms
1904
1909
1914
1919
1924
1929
1934
1939
1944
1949
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
2009
2014
• Comprehensive corruption probe is reshaping the political system and goes hand in hand with fresh batch of fundamental reforms
Source: IBGE, IPEA, Arko Advice, Inter-American Development Bank, World Bank and Patria Investments.
4
Confidential
Brazil: Understanding the Car Wash Corruption Probe

“THE WORLD`S LARGEST INVESTIGATION TO DATE UNCOVERING CASES OF STATE CAPTURE AND CORRUPTION”
Petrobras graft scandal: Operation “Car Wash” ramifications Operation “Acronym” investigates
(key facts and numbers) § Money laundering in election campaigns
§Estimated stolen funds (includes fines): R$39.9 billion Operation “Zealot” investigates
§Defendants face charges of corruption, conspiracy to § Corruption in the Court of Tax Appeals (CARF)
defraud, bribery, financial fraud and money laundering
§140 individuals convicted (entrepreneurs, corporate Operation “Greenfield” investigates
executives, politicians and top government officials)
§ Corruption in state owned enterprises’ pension plans
§In total, individuals found guilty were sentenced to over
2,036 years in prison
High Electoral Court (TSE) investigates
§R$3.2 billion of stolen funds frozen (reparation purposes)
§ Illegal campaign financing
§45 countries cooperating with Brazilian prosecutors
§176 plea bargain agreements signed with individuals Operation “Unfair Play” investigates
§11 leniency agreements signed with corporations
§ Corruption in Brazil’s Olympics Committee
Former president Lula is one of dozen prominent politicians put behind bars by Federal Judge Moro, who heads the “Car Wash” probe
• “Car Wash” ramifications are hitting hard the Workers’ Party and other traditional parties
Source: Arko Advice, Federal Police, Tendencias Consultoria, Transparency International and Patria Investments.
5
Confidential
Brazil: No Crisis of Representative Democracy

CONFIDENCE IN DEMOCRACY HAS NEVER BEEN STRONGER
144 147
128 69
108
89 61
59
51
48
1989-94 1995-2002 2003-10 2011-18 2018 latest

Collor Cardoso Lula Rousseff/Temer
Brazilian voters (million) "Democracy is the best form of government" (% of total answers)
Source: DataFolha, Sergio Abranches, Arko Advice and Tendencias Consultoria.
6
Confidential
Brazil: What Reforms?

ECONOMIC PROGRAMS AND OTHER REFORMS PROPOSED BY PRESIDENTIAL CANDIDATES
Fernando Haddad Jair Messias Bolsonaro

Key Themes
Ex-mayor of Sao Paulo and former Education minister Retired military, federal representative for Rio de Janeiro
Rebuild state institutions to strengthen welfare network Administrative Cut number of ministries by half and downsize other federal entities
reform
Privatization is a no-no; concession of public assets should continue Privatization/ R$2 trillion privatization program; speed up concession of public assets
Concessions
State activism needed to revive CAPEX; SOEs to have a greater role State activism/ Keep essential SOEs and change regulation to energize private CAPEX
deregulation
Abide but higher tax burden drives drive budget deficit reduction Fiscal discipline Hasten budget deficit reduction with expenditure cuts & privatization
Unavoidable, but targeted changes are modest and very gradual Pension plan Axe civil servants’ entitlements; move to individual capitalization system
reform
Undo labor reform and deregulation of key industries (e.g. oil & gas) Other reforms Emphasis on bills to support anti-crime and anti-corruption programs
Source: Arko Advice, Tendencias Consultoria, Sergio Abranches and Patria Investments.
7
Confidential
Brazil: The Challenges Looking Forward

UNPRECEDENTED PARTY FRAGMENTATION AS A RESULT OF TECTONIC POLITICAL SHIFT
Seats in the Chamber of Deputies Seats in the Federal Senate
20%
10%
Bolsonaro’s die-
hard supporters
• Turnover rate in the Congress was nearly 50%: new political leaderships emerged in both Houses
• Newly elected president will have to carefully build up a ruling coalition: selection of signature legislation legislatures is critical
Source: Goldman Sachs Global Investment Research, Sergio Abranches, Arko Advice and Superior Electoral Court (TSE).
8
Confidential
Brazil: Descent into Authoritarianism Is Exceedingly Unlikely

MORE PLAUSIBLE RISK IS INADEQUATE POLITICAL COORDINATION LEADING TO POOR POLICY IMPLEMENTATION
Russia: United Russia Turkey: Justice and Hungary: Fidesz Poland: Law and Justice
Development Party Sejm (Lower House)
Federation Council National Assembly
128 of 170 seats Grand National Assembly 117 of 199 seats 237 of 460 seats
State Duma 289 of 600 seats European Parliament Senate
341 of 450 seats District municipalities 11 of 21 assigned seats 63 of 100 seats
Governors 800 of 1,351 seats County Assemblies European Parliament
75 of 85 Provincial councilors 245 of 419 seats 16 of 51 assigned seats
Regional Parliaments 779 of 1,251 seats Regional assemblies
3,091 of 3,980 seats 254 of 552 seats
• Regimes deemed authoritarian feature an overwhelming hegemonic party with the ability to reshape institutions at its leader’s will
• Bolsonaro’s hard-core support in the Congress is small and political acumen will be required to prevent his agenda from stalling
Source: Goldman Sachs Global Investment Research, Sergio Abranches, Arko Advice and Superior Electoral Court (TSE).
9
Confidential
Brazil: Outlining a Constructive Agenda

BOLSONARO`S ECONOMIC PROGRAM ENJOYS BROAD SUPPORT; CONTROVERSIAL CIVIL RIGHTS AGENDA DOESN`T
Estimated predisposition of Brazil’s new Congress to market-

friendly economic reforms
• The newly elected president can build up a solid (>70%)
majority to pass key items of his economic program
43% • Central Bank’s formal independence could pass even

before Bolsonaro’s inauguration in early January 2019
• The picture is entirely different for his civil rights

31% agenda, which is deemed divisive and politically costly
27%
• Emphasis on controversial civil rights agenda should

spark institutional reaction (Judiciary branch, media)
Strong opposition Favourably disposed Strong support
Source: Arko Advice, Tendencias Consultoria, DIAP and Patria Investments.
10
Confidential
Brazil: Few Critical Economic Reforms Incomplete

SECURING FISCAL SOLVENCY OVER THE LONG-TERM IS THE ONLY MACROECONOMIC ISSUE PENDING
Cleared in • Fiscal consolidation basically signifies addressing entitlements and taxation Comprehensive fiscal
Congress responsibility rules
committees I.Social Security: very ambitious original draft: estimated savings of R$140 prevents government’s
billion over five years, stepping up to R$740 billion after 10 years inaction on the budget
Bills awaiting a. set a minimum retirement age of 65 for men and women (under the present
floor votes system they can respectively retire at 54 and 52)
Fiscal consolidation to
b. reduce transfers to public employees pension plans
narrow the budget gap
c. disassociate social security benefits from minimum wage annual rises is inescapable: medicine
may vary though
II.Tax reform: objective is to simplify the tax code, merging duties, levies and
contributions into a nationwide VAT, but short-term goal is
a. Modify PIS + Cofins taxation, which is the most cumbersome, bringing it More emphasis on
closer to a non-cumulative VAT burden higher taxation will
undermine long-term
b. Eliminate incongruous tax breaks granted by former President Rousseff productivity and growth
Source: Arko Advice, Tendencias Consultoria, and Carlos Melo.
11
Confidential
Brazil: Slowly Declining Budget Deficit and On-Target Inflation

FISCAL AND MONETARY DISCIPLINE AFTER ROUSSEFF`S IMPEACHMENT RESTORED SHORT-TERM STABILITY
Central government’s budget result (% of GDP) Interbank rates vs. consumer inflation
0 20
16
-10 President Collor is impeached 12
President Rousseff is impeached 8
-20 4
0
2005 2007 2009 2011 2013 2015 2017
Interbank rate CDI (% a.a. LTM)
-30
Consumer inflation IPCA (% LTM)
1991 1995 1999 2003 2007 2011 2015 Inflation target (% p.a.)
• Only 6% of government debt is US dollar-indexed or denominated in foreign currency; non-residents hold a slim 12% of outstanding stock
• Needed primary fiscal effort needed to stabilize gross government debt: +3% of GDP (past two years = +1.8% of GDP)
Source: IBGE, IpeaData, Central Bank of Brazil, Instituicao Fisccal Independente, Tendências Consultoria and Pátria Investimentos.
12
Confidential
Brazil: External Accounts Are Doing Just Fine

FEVERISH CURRENCY HEDGING HAS DRIVEN THE REAL LOWER
§ Trade surplus in 2017 was a record-high US

US $ billion
101
$64 billion and remains strong in 2018
80
97
88
87
78
§ Current account deficit is a slim 0.8% of GDP
75
71
70
70
51
§ International reserves very close to at all- 60
45
33
31
29
28
time high: US $381 vs. US $382 billion
23
13 19
19
18
17
14 15
11
10
§ Record US $101 billion net foreign credit 40
4
position (foreign assets - external debt)
0
-8
-10
11
-16
4
-19
-24
-24
-24
-25
-26
§ Net FX inflow of US $21 billion YTD 2018: US
-26
20
-31
-31
-34
$37 billion from merchandise trade
-59
-74
-75
-76
-77
§ US $16 billion financial outflow YTD speaks 0
of deleveraging (2017: -US $52 billion)
-104
§ Escalating demand for currency protection -20
outpaced net FX inflows until recently
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
§ Currency hedging speaks of concerns about
global gyrations and local political woes Net foreign direct investment Current account balance Trade balance (RHS)
Sources:, Central Bank of Brazil, IpeaData and Patria Investments.
13
Confidential
Brazil: Preserving the Economic Recovery

PACE OF BUDGET DEFICIT REDUCTION SHOULD SET THE TONE OF LONG-TERM ECONOMIC GROWTH
§ The economy is recovering from a deep

downturn and output gap is still sizable Key economic variables: 12-month change
§ A modest economic growth rate (~2% p.a.) in 8 2
2019-20 is viable even without CAPEX revival
§ Stronger growth requires robust investment 4 1
and thus a constructive reform mix
§ Fundamental issue is reduction of fiscal 0 0
imbalance, preferably without raising taxes
§ Further microeconomic reforms to improve -4 -1
business environment would be welcome
§ Optimistic scenario: long-term economic -8 -2
growth rate speeds up to around 3.5% p.a.
§ Base case scenario: long-term economic -12 -3
growth rate around 2.5% p.a.
2014 2015 2016 2017 2018
§ Worst case scenario long-term economic
Broad retail sales (%; LHS) Industrial output (%; LHS) Net formal job creation (million; RHS)
growth rate slowing to 1%-1.5% p.a.
Source: Tendencias Consultoria, IpeaData, IBGE and Patria Investments.
14
Confidential
Brazil: Large Fluctuations around Equilibrium FX

ESTIMATING REAL EFFECTIVE EXCHANGE RATE DEVIATION (IN PERCENT) FROM ESTIMATED LONG-TERM PPP EQUILIBRIUM
60
Overvaluation
Global commodity
super-cycle ends
40
Asian crisis
U.S. taper tantrum
Russian default Global commodity
20 Mexican crisis super-cycle
(Tequila) Brazil switches to freely
floating FX system
Petrobras corruption
0 scandal surfaces
Successful economic
stabilization plan (Real) Dot-com crash
Lehman Brothers
President Collor
-20 is impeached
collapses
Undervaluation
President Rousseff 2018 general

is impeached elections
-40 Democratic transition: Brazil
promulgates new Constitution
Argentine default
Market distress before
-60 Lula elected president
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
• Statistics report very strong mean reversion: the Brazilian currency in Sep-18 (R$4.12 per US $) was substantially undervalued
Source: Central Bank of Brazil and Patria Investments.
15
Confidential
Brazil: The Economy over Presidential Terms

ACTUAL AND FORECASTED PATH OF KEY MACROECONOMIC VARIABLES
Benign electoral cycle could easily lift

27.2
expected growth: +0.5% p.a.
14.8
11.2
9.3 8.2 8.1
7.0 6.9
2.3 4.1 5.8 3.1 3.5 2.5 3.8
1.5 0.3 0.3 1.3 1.6
-0.7
-1.9 -1.9
-10.1
-16.4
Cardoso Lula Rousseff Temer Next government
(2019-22): Consensus
Real GDP growth (% p.a.) Inflation IPCA (% p.a.) Policy rate Selic (% p.a.)
FX change (% p.a.) Primary fiscal result (% of GDP)
• Realistic scenario for pending social security and tax reforms: multi-year process that will roll over into future administrations
• xx
Source: Tendências Consultoria, Arko Advice and Pátria Investimentos.
16
Confidential
Brazil: The Fiscal Challenge

CONSOLIDATED PUBLIC DEFICIT IS NARROWING BUT LONG-TERM IMBALANCES PERSIST
Central government’s budget deficit (% of GDP) Brazil's consolidated social security balance
0
-57 -86
-150
-182
-146
-10 President Collor is impeached
-156
President Rousseff is impeached -171
-180
-20
30 million pensioners
4 million pensioners * Estimated
-30 2014 2015 2016 2017*
1991 1995 1999 2003 2007 2011 2015 Public sector (R$ billion) Private sector (R$ billion)
• Rousseff’s awkward policies increased public spending and reduced tax proceeds: public deficit peaked at nearly 11% of GDP
• Budget discipline has been restored and the only key adjustment still pending is in the social security system
Source: Brazil’s Finance Ministry, IpeaData, Central Bank of Brazil, Tendências Consultoria and Lozardo, E., Santos, C. H. & Costanzi, R. N. (2018) “O Crescimento Insustentável dos Gastos com Previdência e Pessoal”, Nota Técnica IPEA.
17
Confidential
World: A Tale of “Deglobalization”

GLOBAL ECONOMIC INTEGRATION GOING INTO REVERSE SINCE THE 2008-9 FINANCIAL CRISIS
Global exports as share of world's GDP: 1960-2017

U.S. trade conflicts under President Trump
30 % of GDP De
gl ob Countries most Value of imports
aliz Major battlegrounds
ati affected possibly affected
on
n
it o Safeguard restrictions to
l i za solar panel and washing China, South Korea US $10 billion
a
20 S ta l ob machine imports
ods gfla
t ion G
o Steel and aluminum Canada, European
W
n TT
t o
r e t GA imports as national Union, Mexico, US $45 billion
B &
security threats South Korea
10 Unfair trade practices for US $46 billion (+
technology and China further potential
intellectual property US $200 billion)
Auto & part imports as Canada, European US$ 208 billion

national security threats Union, Mexico, (not including
0 (not yet concluded) Japan parts)
1960 1970 1980 1990 2000 2010
• Other indicators (e.g. ratio transnational foreign direct investment to global GDP) also report deterioration
Sources: Peterson Institute for International Economics, World Bank, Ruchir Sharma, Patria Investimentos and “Impacts on Global Trade and Income of Current Trade Disputes” Freund, C. Ferrantino, M. Maliszewska M. & Ruta, M., World Bank Group MTI Practice Notes, July 2018, Number 2.
18
Confidential
World: Major Implications of “Deglobalization”

EMERGING MARKETS AND DEVELOPED ECONOMIES`EXPOSURE TO FOREIGN CONDITIONS VARIES CONSIDERABLY
Share exports of goods & services to GDP compared Real effective FX: deviation from 2010 levels (percent)
USA 11 USA 18
12
China 42 China 17
20
38 Saudi Arabia 16
EU 46 India 0
Japan 16
16 EU -2
Brazil 14 Mexico -15
13
Mexico 28 Nearly ¾ go to Russia -20
38 the USA
25 South Africa -22
Argentina 11 Brazil -22
Latin America 24
21 Japan -24
World 28 Argentina -37
29
% of GDP Turkey -48
2007 2017 Depreciation Appreciation
• Net impact of deglobalization likely to be slower world growth (not recession though) along with wider dispersion of real exchange rates
Sources: Peterson Institute for International Economics, World Bank, Ruchir Sharma, Patria Investimentos and “Impacts on Global Trade and Income of Current Trade Disputes” Freund, C. Ferrantino, M. Maliszewska M. & Ruta, M., World Bank Group MTI Practice Notes, July 2018, Number 2.
19
Confidential
LatAm: Commodity Prices are Bouncing Back

A FAVORABLE SHOCK TO ASSET PRICES AND ECONOMIC GROWTH
12-m price change: commodities vs. stock markets (MSCI) Commodity price change vs. LatAm’s growth since 1961
75 8
Real GDP growth in LatAm

R² = 0.1778
50 6
25 4
2013 2012
0 2 2017
2015 2014
-25 0
2016
-50 -2
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 -30 -20 -10 0 10 20 30 40
Global commodity prices Latin America's stocks MSCI Real change in world commodity prices
• The drop in world commodity prices from 2012 until 2016 was worst than that recorded after the global financial crisis
• Since 2017 realignment of global supply & demand for commodities and a better world growth outlook have been lifting prices
• As a norm, better terms of trade boost asset prices and speed up economic growth in the region above potential
Source: IMF, Patria Investments and World Bank.
20
Confidential
LatAm: What Is the Best Predictor of Currency Paths?

INFLATION DIFFERENTIAL AGAINST REFERENCE COUNTRY (U.S.) DRIVES FX OVER THE LONG HAUL
CAGR FX change against U.S. dollar per annum (%)

§ Purchasing power parity (PPP) theory rules that inflation differentials Peru 2007-17
Peru 1997-2017
set the tone of currency changes over the long haul
-2 Chile 1997-2017
§ Actual currency changes in LatAm follow PPP very closely: de facto Chile 2007-17
Colombia 2007-17
trend line deviates slightly from theoretical prescription -4 Mexico 1997-2017
Colombia 1997- Brazil 2007-17
§ Longer-term horizons (20-year) usually produce better fits than 2017
shorter-term (10-year)
-6 Mexico 2007-17
Brazil 1997-2017
FX Per
§ Brazil and Argentina are exceptions because they did not have floating -8 ch fec
an t P
FX regimes until 1999 (Brazil) and 2015 (Argentina) ge PP
y = -1.4669x + 0.3073 = C ali
-10 R² = 0.9367 PI gnm
dif e
§ Annualized 12-month FX volatility is not an accurate indicator of the fe nt:
re
forward currency path in the long haul as it overestimates depreciation nt
-12 Argentina 1997-2017
ial
§ Most of the short-term FX volatility dissipates over time and
fundamentals eventually have the upper hand -14
Argentina 2007-17
§ Best predictor of long-term FX path for LatAm currencies is CPI -16
differential against the U.S.
0 2 4 6 8 10 12 14 16
§ CPI gap between major LatAm economies and the U.S. has been
narrowing lately: actual currency depreciation should slow Inflation differential against U.S. per annum (%)
Sources: Patria Investments, International Monetary Fund and Bank for International Settlements.
21
Confidential
LatAm: Mixed Exposure to Gyrations in the U.S.

ESTIMATING THE IMPACT OF HIGHER PROTECTIONISM AND INTEREST RATES
Protectionist bias to foreign trade & investment

Goods exports to the U.S.
(% share of GDP in 2017)
II. Merchandise exports to the U.S. as share of GDP*
ü In Latin America Mexico, Venezuela and Central America would be hit the
hardest by a more hostile U.S. stance Mexico 28
Nicaragua 26
ü Brazil, Argentina and most of South American countries have diversified exports Honduras 23
and foreign investors and depend less on the American market Haiti 11
Costa Rica 8
Dominican Republic 7
Ecuador 7
Colombia 5
Expansionary fiscal policy and higher interest rates in America Venezuela 5
Chile 4
Peru 3
Rising T-bill rates in America hurt, but Latin American economies are not highly Bolivia 3
leveraged and their external financing needs are manageable Brazil 2
Uruguay 1
Argentina 1
Ø External debt service to GDP = 27% below EM’s average
Ø External debt amortization to GDP = 31% below EM’s average
Source: Schmitt-Grohé, S. and Uribe, M. (2016) “How Important Are Terms of Trade Shocks?”, Research Paper, Columbia University, International Monetary Fund (2014) “Regional Economic Outlook - Western Hemisphere: Rising Challenges”, International Monetary Fund,
Page, B. R., Rosenberg J., Nunns J. R., Rohaly J. & Berger, D. (2017) “Macroeconomic Analysis of the Tax Cuts And Jobs Act”, Tax Policy Center and UNCTAD.
22
Confidential
LatAm: Depending on the Kindness of Strangers?

EXTERNAL FINANCING NEEDS & FOREIGN HOLDING OF LOCAL ASSETS VARY CONSIDERABLY
50
Foreign holdings of local T-bills (% of total)

§ Recent stress in global financial markets rekindled the discussion about Median of Emerging Markets
Emerging Markets vulnerability to a sudden stop of capital inflows
§ Traditional metrics of vulnerability focus on foreign ownership of local Indonesia
40
assets and total external financing needs Mexico
South Africa
Malaysia
Peru
§ Economic and political disarray in Venezuela (not in the chart) makes it Poland
extremely vulnerable to deteriorating external financing conditions 30
§ Mexico is another exposed economy in Latin America: non-trivial Russia Colombia Median of Emerging
Markets
external financing needs and large nonresident holdings of local assets Hungary
20
Turkey
§ Brazil reports measured vulnerability, lower than the average of Latin Brazil
America and Emerging Markets in general Thailand
§ Poland, Turkey and Malaysia report the highest risks in the EM space, 10 Philippines
further aggravated by relatively low levels of international reserves China India Chile
§ Distress in global financial markets would bring LatAm’s short-term FX 0 Saudi Arabia
volatility to the forefront, but long-term effects are likely to be limited Vietnam
0 10 20 30 40 50
§ LatAm has sizable room to implement macro-prudential regulation to
mitigate systemic risks in financial markets and in the banking industry Total external financing needs in 2016 (% of GDP)
Sources: Patria Investments, International Monetary Fund and Bank for International Settlements.
23
Confidential
LatAm: Shift towards Market-Friendly Governments

LATIN AMERICAN STOCKS (MSCI US $) SINCE LATE 2015
Venezuela: Anti-socialist opposition elects nearly twice

as much state governors than in previous election
175 Brazil: Workers” Party Rousseff is impeached; President USA: Markets jolted
Temer takes office leading a center-right coalition by inflation fears
Brazil: New center-right ruling coalition wins World: currencies
nationwide municipal elections weaken against USD
150 Chile: President Bachelet’s leftist coalition is
Argentina: Macri wins presidential election and defeated in nationwide municipal elections Brazil: JBS scandal hits
defeats Kirchner’s left-populist coalition President Temer
USA: Trump wins
presidential election
Venezuela: Anti-socialist opposition defeats President Argentina: Macri’s ruling coalition wins mid-
125 Maduro and takes 66% of seats in the National Assembly term gubernatorial and Congress elections
CAGR = 24%
Colombia: Final peace agreement with FARC guerrilla Chile: Piñera wins presidential elections
100 enacted, thus ending nearly 50 years of civil war and defeats Bachelet’s leftist coalition
Peru: Former IMF & World Bank’s official and former

Finance Minister Kuczynski wins presidential election
75
30-Oct-15 21-Jan-16 13-Apr-16 05-Jul-16 26-Sep-16 19-Dec-16 10-Mar-17 01-Jun-17 23-Aug-17 14-Nov-17 05-Feb-18 27-Apr-18
• Governments with controversial, oftentimes market-unfriendly, economic policies are being replaced (exception is Venezuela)
• Better economic teams with stabilizing reforms are reshaping the business landscape, notably for private investment
• Key electoral cycles in 2018: Colombia in May, Mexico in July and Brazil in October
Source: MSCI, Inter-American Development Bank, LAECO and Patria Investments.
24
Confidential
Appendix: Brazil
KEY DATES AND DEADLINES OF THE 2018 GENERAL ELECTIONS
7-Apr-2018
• Deadline for candidates to comply with political party registration if they want What is at stake in 2018?
to run in the 2018 general elections Brazilians will vote for
President
7-Apr-2018 • Deadline for putative candidates that hold public offices to step down Federal deputies
2/3 of senators
20-Jul to 5-Aug State governors
• Party conventions to appoint candidates State representatives
2018
15-Aug-2018 • Deadline for parties to register their candidates and coalition tickets
Vote is mandatory in
Brazil; low turnout is
16-Aug to 6-
Oct-2018 • Electoral campaigning (free TV & radio slots from 31-Aug to 4-Oct) not in the cards
7-Oct-2018 • First ballot

Campaigns usually heat
up in the second half,
28-Oct-2018 • Runoff even more so this year
Sources: Arko Advice, Tendencias Consultoria, and Carlos Melo.
25
Confidential
Appendix: Brazil
REFORMS PASSED AND IMPLEMENTED IN 2016
I. Legislation strengthening corporate governance in state owned enterprises to enhance operational performance, fight
corruption and minimize political interference in management
Microeconomic
Reforms II. New electric utility regulation to speed up privatization or concession of public assets
III. Legislation opening up pre-salt oil fields to private investors by scrapping Petrobras obligation to be the area’s sole
operator
IV. Regulation overhaul concerning concessions of public assets & programs attached to PPPs to attract private investment
(domestic & foreign)
Macroeconomic I. Constitutional reform reducing federal, state & municipal budget earmarked expenditures by 30% up to 2023
Reform
II. Constitutional reform limiting federal primary spending to the previous year’s budget values adjusted for inflation only for
the next 10 years, with the option to extend arrangement for a further 10 years
Privatization and ü 14 slots of power transmission lines auctioned on 13-Apr (committed CAPEX= R$7 billion)
Concessions
ü Privatization of CELG-D power distribution utility in the Mid-Western state of Goiás on 11-Nov: (proceeds = R$2.2 billion)
26
Confidential
Appendix: Brazil
REFORMS PASSED AND IMPLEMENTED IN 2017
Microeconomic I. Education (secondary/high school public system): restructuring of the educational model for Brazilian public schooling:
updating of national curriculum, adopt full-day arrangement, enhance role of technical schools
Reforms
II. Labor: over 100 alterations in existing regulations aiming at eliminating outdated dispositions (e.g. mandatory contribution
to unions regardless of actual unionization), reducing overhead costs, increasing the room for arbitration in negotiations (which
should reduce litigation), building a proper legal arrangement for outsourcing and temporary work contracts
Performance clause: parties must have at least 1.5% of vote at national level (stepping up to 3% until 2030) in at least a third of
Political Reform the Brazilian 27 states to tap the federal party fund that finances most of their activities (aiming at reducing party
fragmentation, this measure is expected to cut political organizations in the Congress by half over the next few years)
Party coalitions: forbidden for the election of federal deputies, state representatives and municipal councilors (this measure
also aims at reducing party fragmentation and is expected to further halve the number of political organizations)
Campaign financing: in addition to the federal fund financed with budgetary resources, parties can collect contributions from
individuals (up to 10% of the income reported to the IRS) but not from firms/corporations
27
Confidential
Appendix: Brazil
RRECENT REFORMS PASSED AND CONCESSIONS AUCTIONED
I. New long-term interest rate TLP to benchmark BNDES credit operations: gradual elimination of subsidies (an estimated
Macroeconomic R$231 billion since 2007; annualized R$48 billion in 2017) embedded in National Development Bank’s - BNDES loans that used
Reform the TJLP rate as benchmark via its substitution by the TLP rate, which will converge to the yield of Treasury’s 5-year floating rate
bond indexed to inflation (NTN-B)
ü 4 regional airports on 16-Mar-17 (proceeds = R$3.7 billion)

ü 5 port terminals (Para, Rio de Janeiro, Santa Catarina & Maranhao; total proceeds = R$1.5 billion) from 23-Mar to 21-Sep-17
ü Petrobras’ southeastern gas pipeline (NTS) sold on 4-Apr-17 (proceeds = US $4.2 billion)
Privatization and ü 35 slots of power transmission lines on 24-Apr-17 (committed CAPEX= R$12.7 billion)
ü 14th auction of exploratory oil & gas fields on 27-Sep-17 (proceeds = R$3.8 billion)
Concessions ü Concession of 4 hydroelectric power plants formerly owned by Cemig electric utility on 27-Sep-17 (proceeds = R$12.1 billion)
ü 2nd and 3rd auctions of pre-salt offshore oil fields on 27-Oct-17 (proceeds = R$6.2 billion)
ü 11 slots of power transmission lines on 15-Dec-17 (committed CAPEX= R$8.7 billion)
Executed ü 15th auction of exploratory oil & gas fields on 29-Mar-18 (proceeds = R$8 billion)
Pending • Exploration areas of CPRM (coal, zinc, lead, copper and phosphate)
• 3 railway routes (North-South SP/MG/GO/TO, Fiol BA and Ferrogrão MT/PA)
• 3 power generation plants
• 6 power distribution utilities
• 13 regional airports
• 4th auction of pre-salt offshore oil fields
• Sale of controlling stake of Eletrobras electric utility holding along with retention of golden share
28
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Appendix: Brazil
STARTING POINT: CORRUPTION PROBE HAD THE FORMER PRESIDENT LULA INDICTED ON SEP 20, 2016
Lula would run

for president
Lula is found not
Jul 12, 2017: Judge guilty
Moro pronounces
Lula guilty Lula is found not
guilty
Court of Appeal The majority of Defense to issue legal Verdict to be Lula is found
the Supreme Court: Justices upheld

Lula’s condemnation challenged in
paved the way for the arrest order
Court of Appeal’s verdict and thus
(TRF 4): 3 Justices finds Lula injunction challenging the unveiled in two- guilty: key topic is
Appellate Judges guilty (2 x 1) essence of verdict three quarters incarceration
Defense to issue legal Verdict to be confirmed in

Disagreement on the injunction challenging the two to three quarters: key
sentence to be imposed essence of verdict topic is incarceration
Lula was Defense issued legal Defense’s embargoes

unanimously Unanimity on sentence dismissed (3 x 0): key topic
injunction challenging the
found guilty (3 x 0) imposed is Lula’s incarceration
wording of verdict
Jan 24, 2018 Mar 26, 2018 Apr 5, 2018

Source: Arko Advice, Tendencias Consultoria, Luciano Dias and Patria Investments.
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Appendix: Brazil
ESTIMATING CURRENCY RISK: STATISTICAL EXERCISES WITH DAILY FX QUOTES 1994-2017 AS PUTATIVE ENTRY POINTS
80 2-year horizon 150 5-year horizon

60 1-year horizon
60
Appreciation
40 100 Entry point too

40 depreciated: PPP
requires appreciation
20 50
20
0 0
0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 0
0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50
0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50
-20 BRL per USD -20
-50
Depreciation
-40
-40
y = 19.939x - 48.03 y = 60.341x - 127.93
y = 10.187x - 24.997 -60 R² = 0.3284 -100 R² = 0.8352
-60 R² = 0.1916
150 7-year horizon

• In the short-term (up to 2 years), the BRL • No FX hedging and judicious entry points
is quite unpredictable 100 best suit long-term investors
• Swings of up to 40% occur almost • Best entry FX rate is almost always
50 Entry point too
regardless of the entry FX rate appreciated: PPP contrarian to market sentiment
requires depreciation
• Over time, however, the BRL becomes 0 • Rate of depreciation follows inflation
0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50
more predictable (PPP) differential Brazil vs. USA
-50
• Estimates of currency swings after 5 years • Continuously compound rate of
or more yield very good fits -100
y = 65.996x - 138.45 depreciation since 1994: 4.4% p.a.
R² = 0.8773
Source: Central Bank of Brazil and Patria Investments. Note: exercise consists of picking daily FX rates and tracking actual appreciation/depreciation over different time horizons.
30
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Appendix: Brazil
ESTIMATING CURRENCY RISK: EXERCISES WITH MONTHLY CPI INFLATION AND FX CHANGE 1980 - 2016
5.E+13 End of hyperinflation %

91
(Real Plan)
3.E+12
70
Ln of indices (Jan/80 = 100)
1.E+11 64
PPP rules that FX should 57 55
6.E+09
move in line with inflation 48
43
3.E+08 differential between 36
countries, not headline 30
2.E+07 25
inflation in one of them
8.E+05 9
3
4.E+04
2.E+03 1-year 5-year 10-year 15-year
1.E+02 windows windows windows windows
1980 1985 1990 1995 2000 2005 2010 2015 Frequency CPI overtakes FX: percent of total sample
Consumer inflation index (IPCA) Frequency FX overtakes CPI: percent of total sample
Currency depreciation (BRL vs. USD) index Median spread CPI over FX within windows
• CPI beats currency depreciation 57% of the time in 1-year windows but 91% of the time in 15-year windows
• Staged capital deployment to average FX rates and allow inflation to work is a good proxy for full CPI indexation
Source: Central Bank of Brazil, IPEA and Patria Investments. Note: CPI is IPCA consumer price index and currency depreciation refers to R$ against US $.
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Appendix: Brazil
MASSIVE TRUCK DRIVERS’ STRIKE CHALLENGED PETROBRAS`AGGRESSIVE FUEL PRICE POLICY
Diesel price change: sample of 111 countries Petrobras’ stock price

15 % change in US $ 3-m through 28-May-2018 Brazil =
+11.8%
Median
10
14% and over

1% to 2%
2% to 3%
3% to 4%
4% to 5%
5% to 6%
7% to 8%
8% to 9%
9% to 10%
-5% to -4%
-4% to -3%
-3% to -2%
-2% to -1%
-1% to 0%
10% to 11%
11% to 12%
12% to 13%
13% to 14%
0% to 1%
6% to 7%
• Petrobras monopolistic position allowed the company to catapult domestic fuel prices and sharply improve its earnings
• Petrobras’ dividends paid to its controller (Treasury) help reduce fiscal gap; new management to adopt a less ambitious pricing policy
Source: Global Petrol Prices and Petrobras.
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Appendix: Brazil
NEW FUEL PRICING STRATEGY SHOULD HELP SMOOTH ADJUSTMENT IN THE TRUCK TRANSPORTATION SECTOR
Petrobras’ fuel pricing & market position Trucks vs. transportation activity
4
2.3
2.2
2
2.1
2.0
0
1.8
-2
-4
-6
-8
2012 2013 2014 2015 2016 2017
Registered trucks (million) GDP Transportation (LTM %; LHS)
• Sizable financing subsidies provided by the previous government inflated Brazil’s truck fleet and increased competition among drivers
• High fuel prices lifted operating costs in the transportation industry at a time it was still struggling to recover from deep downturn
Source: IBGE, ANTT and Petrobras.
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Appendix: Latin America

LOOKING GOOD OVER THE LONG-TERM: BASIC ECONOMIC DEVELOPMENT INDICATORS 1967-2016
$37,087
7.6
5.8
3.8
3.4 3.3
2.9
$8,252 2.6
$7,800 $7,676
$6,680
$1,616 $1,505
East Asia & Pacific South Asia Latin America & Middle East & North Sub-Saharan Africa OECD (Developed Eastern Europe &
(ex-High Income) Caribbean Africa Countries) Central Asia
Median economic growth rate per annum % Per capita Gross National Income in US $ of 2016
• Latin America offers mix of vast natural resources, reasonable growth and medium-high per capita income (deep domestic markets)
• Even with sharp currency depreciation after 2012, the region has the Emerging Markets’ highest per capita income
• Latin America lifted over 70 million people out of poverty and expanded the middle class by more than 50% in 10 years
Source: World Bank , Inter-American Development Bank and Patria Investments,.
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QUALITY OF INSTITUTIONS MATTER: BERTELSMANN`S TRANSFORMATIONAL INDEX 2006 VS. 2016
Singapore Taiwan Taiwan

South Korea Singapore
South Korea
Chile
MULTI-DIMENSIONAL MATRIX Uruguay
Brazil Costa Rica
China Chile
Uruguay Political transformation Turkey
“Stateness” Peru Costa Rica
Turkey Mexico South Participation
Russia Mexico Colombia Brazil
Argentina Africa Rule of law
Stability of democratic institutions South
China Peru Africa
India Political & social integration Russia
Colombia
India
Indonesia Economic transformation Indonesia
Level of socioeconomic development
Saudi
Venezuela Argentina
Saudi Organization of market & competition Arabia
Arabia FX & price stability
Nigeria Private prosperity
Welfare arrangement
Iran Economic performance Nigeria
Sustainability
Venezuela
Iran
Management
Structural features
Steering capability (normalized ranking;
Resource efficiency GDP-size adjusted)
Consensus-building ability
Somalia International cooperation
Somalia
• BTI evaluates the quality of democracy, a market economy and political management in 129 developing and transition countries
• LatAm’s institutions compare well with other emerging economies and have been evolving in recent years (towards the “Northeast”)
Source: Bertelsmann Stiftung (2016) “Latin America and the Caribbean Regional Report: in the Wake of the Quiet Revolution”.
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MAPPING RESILIENCE TO REAL SHOCKS FROM ABROAD
Response to a 1% permanent decrease in China’s real Projected average real GDP growth in Latin America under
economic growth alternative commodity price scenarios
Average
(cumulative real GDP % change after

three years)
• Impact of China’s slower growth in LatAm varies considerably from country to country owing to their diversified commodity exposure
• The region can growth even with adverse commodity price conditions, but country performance would vary considerably
Source: Gruss B. (2014) “After the Boom–Commodity Prices and Economic Growth in Latin America and the Caribbean”, Working Papers 15/154, IMF and International Monetary Fund (2015) “World Economic Outlook: Uneven Growth – Short and Long-Term Factors”, IMF.
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STRUCTURES OF THE ECONOMIES COMPARED
Estimated response of real income to shocks: % of total

Relevance of commodity exports vs. openness to world trade
explained (forecast-error-variance-decomposition)
100 Middle East &

Peru Chile
Primary exports to total in 2016 (%)
North Africa 7.1

20.5
75 Colombia Sub-Saharan Africa 27.4
Argentina
Brazil Brazil Latin 47.1
50 Latin America 37.2 America
Europe &
World Central Asia 22.0
25 High Income 30.0

South Asia East Asia & 8.7
Mexico
Pacific
0
0 10 20 30 40 50 Commodity prices Domestic interest rates
Commodity prices Domestic
Exports goods & services to GDP in 2016 (%) Domestic productivity World interest rates & others
Domestic productivity World int
• LatAm economies depend more heavily on commodities than the world average, however they are typically less open to trade flows
• Foreign drivers: commodity prices are more relevant than international interest rates; in Brazil local interest rates matter the most
Source: World Bank and Fernández, A., González, A. and Rodríguez, D. (2015) “Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies”, IADB WP 640.
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IN A GEOPOLITICAL SWEET SPOT
• Crime is an issue in many urban areas but massive violence or warfare in the region is fairly low
• Likelihood of Latin American investment theses being adversely affected by geopolitical gyrations is quite small
Source: World Bank , Inter-American Development Bank and Cambridge University.
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ESTIMATED PETTY CORRUPTION COMPARED
• Progress in fighting petty bribery is fueling broader anti-corruption campaigns and changing LatAm’s political landscape
Source: “People and Corruption” Global Corruption Barometer compiled by Transparency International, Latin America & the Caribbean and Europe & Central Asia 2017 editions. Note(*): taken from the 2014 Eurobarometer survey.
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THE REGION`S GRAND NARRATIVE
8 % per annum % 26
§ GDP: US $5,955 billion § Average GDP growth 25-y through 2017: 2.8% p.a.
6 24
§ Population: 644 million § Average annual labor force growth past 10-y: 1.6%
4 22
§ GNI per capita (Atlas): US $8,200 § Poverty gap (US $ 3.20 a day) since 1990: -65%
2 20
§ In the past decade, Latin America managed to lift more than 70 million people out of 0 18
poverty while expanding the middle class by more than 50% -2 16
2000 2004 2008 2012 2016
§ Major industries: oil & gas, petrochemicals, minerals, agribusiness, fishing, food & Real GDP growth (LHS)
Data as of 2017 Gross investment to GDP (RHS)
beverages, banking, telecom, health, construction, motor vehicles and parts Gross national savings to GDP (RHS)
• Recent economic slowdown in the region seemed to be cyclical and spoke of a combination of less benign foreign environment along
with domestic issues affecting a few large economies, notably Brazil, Argentina and Venezuela (the latter still facing a deep crisis)
• LatAm’s real GDP growth bottomed in 2016 but bounced back in 2017 and is expected to further speed up from 2018 onwards thanks
mostly to improved policy frameworks and first benign developments of structural reforms recently implemented by several countries
• Terms of trade have somewhat recovered after the demise of the commodity super-cycle in 2012-13 but are still considerably below
their historical peak and should play a secondary role compared to internal growth drivers
• Better-quality education, infrastructure, logistics and health services have become part of the core demands of the rising middle class
and are expected to underpin domestic market expansion over the long haul
• Low level and poor quality of investment (in human capital as well) are the major factors hindering lfaster growth in the region
Source: World Bank , IMF, Inter-American Development Bank, Patria Investments, “The Economic History of Latin America since Independence” by Bulmer-Thomas, V., Cambridge University Press, New York, 2014; “América Latina: Nuevos Desafíos para el Crescimiento y la
Estabilidad” by Adler, G., Cubeddu, L. M., Iakova D. and Sosa S., International Monetary Fund, Washington D.C. 2014 and “Latin American Economic Development” by Reyes, J. A. and Sawyer, W. C., Routledge, 2016.
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BRAZIL`S GRAND NARRATIVE
10 % per annum % 24
8 22
§ GDP: US $2,056 billion Average GDP growth 25-y through 2017: 2.6% p.a. 6
4 20
§ Population: 209 million Average annual labor force growth past 10-y: 1.6% 2 18
§ GNI per capita (Atlas): US $8,580 Poverty gap (US $ 3.20 a day) since 1990: -84% 0
-2 16
-4 14
§ Exploiting vast natural resources and a large labor pool, Brazil is Latin America’s largest
economy, pursuing industrial and agricultural growth and development of its interior rather 2000 2004 2008 2012 2016
than seeking external markets Real GDP growth (LHS)
Gross national savings to GDP (RHS)
• Characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, and a rapidly expanding middle class, Brazil seeks
to strengthen its economy over the long-term by protecting local businesses and investing in human capital & infrastructure
• Brazil overextended the emergency policies used to steer the economy away from the global recession of 2008-9: excessive fiscal spending combined
with the fast growth of credit facilities provided by state-owned banks and a host of tax breaks and subsidies eventually undermined productivity, lifted
inflation to double-digit rates and generated the country’s worst downturn ever
• A deep political crisis (Petrobras graft scandal – “Lava Jato”) further imperiled governability and led to the impeachment of President Rousseff in 2016
• Vice President Temer took over and successfully built a broad political coalition to support a market-friendly stabilization program centered on fiscal
consolidation, disinflation, micro-macroeconomic reforms (e.g. labor market) along with an ambitious privatization/concession of state-owned assets
• A cyclical recovery is taking place due to vigorous exports, ample spare capacity and joblessness but long-term growth requires further progress on
fundamental reforms chiefly to address fiscal primary deficits (a byproduct of social security imbalances) and poor productivity
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MEXICO`S GRAND NARRATIVE
8 % per annum % 26
6
4 24
§ GDP: US $1,150 billion Average GDP growth 25-y through 2017: 2.6% p.a.
2
§ Population: 129 million Average annual labor force growth past 10-y: 2.0% 22
0
§ GNI per capita (Atlas): US $8,610 Poverty gap (US $ 3.20 a day) since 1990: -59% -2 20
-4
-6 18
§ The Mexican economy has been diversifying away from oil & gas production and has
2000 2004 2008 2012 2016
become increasingly oriented toward global manufacturing in the decades since the NAFTA
with the U.S. and Canada entered into force Real GDP growth (LHS)
• Mexico's government emphasized ambitious economic reforms in 2012-14, passing and implementing education, energy, financial, fiscal and telecom
reform legislation, among others, with the long-term aim to improve competitiveness and economic growth across the economy
• These reforms, combined with a solid policy framework, allowed economic activity to grow at a steady rate and inflation to remain low, despite the
foreign-induced increase in FX and asset price volatility since the global financial crisis of 2008-9
• Steady economic growth is now under jeopardy owing to President Trump’s hostile stance towards Mexican exports (nearly ¾ of them go to America)
and emigrants, which imperils the country’s integration into the NAFTA
• Ongoing economic and social domestic concerns: low real wages, high underemployment, unequal income distribution, rampant violence, pervasive
corruption and few advancement opportunities for the largely indigenous population in the impoverished southern states
• The newly elected President Andrés Manuel López Obrador vowed to address the social malaises listed above while pushing ahead new economic
reforms, for instance, a more solid fiscal footing (approximately 30% of government revenue still comes from the state-owned oil company, Pemex)
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ARGENTINA`S GRAND NARRATIVE
12 % per annum % 24
8 22
§ GDP: US $634 billion Average GDP growth 25-y through 2017: 2.7% p.a. 4 20
18
16
-4 14
§ GNI per capita (Atlas): US $13,040 Poverty gap (US $ 3.20 a day) since 1990: -46%
-8 12
-12 10
§ Argentina benefits from rich natural resources, an export-oriented agribusiness, a highly
2000 2004 2008 2012 2016
literate population and a diversified industrial base, but suffered from recurring economic
crises induced by bad policies along with controversial reforms Real GDP growth (LHS)
• Bouncing back from the 2001 sovereign debt collapse, the country has focused on economic development with social inclusion, having invested heavily
in health and education and specific programs, including the Universal Child Allowance, which reaches approximately 9% of the population
• The government relied extensively on expansionary policies for several years, along with state intervention in strategic industries, which have kept
inflation in the double digits and created several microeconomic distortions
• A new administration, headed by President Mauricio Macri, emerged from the November 2015 general elections, its priorities being to preserve social
inclusion but also restore sound economic policies and normalize relations with the international financial community to speed up economic growth
• Having ended the external debt moratorium, the government is implementing a wide-ranging reform agenda whose main items are achieving fiscal
stabilization (now with help of an IMF stand-by program), shoring up domestic savings and stimulating private investment
• The main structural challenges for long-run growth and sustainable development are related to tenuous macroeconomic foundations, shortcomings in
the business environment, limited technological innovation and integration, along with regional income and sectoral development gaps
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COLOMBIA`S GRAND NARRATIVE
8 % per annum % 28
26
6 24
§ GDP: US $309 billion Average GDP growth 25-y through 2017: 3.5% p.a.
22
20
§ GNI per capita (Atlas): US $5,830 Poverty gap (US $ 3.20 a day) since 1990: -52% 2 18
16
0 14
§ Colombia is the world's fourth largest coal exporter and LatAm's fourth largest oil producer,
2000 2004 2008 2012 2016
having determinedly promoting free trade agreements in the region, as well as with other
economic blocks in recent years Real GDP growth (LHS)
• Colombia's consistently sound economic policies and its longstanding strategy to bolster its commercial ties and boost investment at home have
produced perhaps the most consistent economic growth story in the region
• A five-decade-long conflict between government forces and antigovernment insurgent groups, principally the Revolutionary Armed Forces of Colombia
(FARC) funded by the drug trade, has ended and a peace agreement is being enacted
• On the other hand, Venezuela’s escalating economic and social crisis has produce an exodus to Colombia (870 thousand refugees up to July 2018), thus
putting a burden on the government as authorities are struggling to absorb the influx and provide the migrants with food, medicine and shelter
• Faster economic development is stymied by inadequate infrastructure, income inequality, poverty, underemployment and residual narco-trafficking
along with the still uncertain security situation in some regions
• Colombia still depends heavily on energy and mining exports, making it vulnerable to commodity price decline; furthermore the country needs to
progress further in increasing productivity; strengthening public institutions and increasing social mobility
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CHILE`S GRAND NARRATIVE
10 % per annum % 28
8 26
§ GDP: US $277 billion Average GDP growth 25-y through 2017: 4.4% p.a. 6
24
22
2
§ GNI per capita (Atlas): US $13,610 Poverty gap (US $ 3.10 a day) since 1990: -83%
0 20
§ Exports of goods and services account for approximately one-third of GDP, with -2 18
commodities making up some three-quarters of total exports: copper alone provides 19% of 2000 2004 2008 2012 2016
government revenue Real GDP growth (LHS)
• Chile has a market-oriented economy characterized by a high level of foreign trade and a reputation for strong financial institutions and sound policy
that have given it the strongest sovereign bond rating in South America
• In 2014 the government introduced a structural reform agenda to reduce social inequity by providing broader access to education and health care
• To fund this agenda a controversial tax reform was implemented and is expected to generate additional fiscal revenues equal to 3% of Chile’s GDP,
mostly by increasing corporate tax rates
• The measured rate of economic growth after 2012 reflects the adverse impact of the end of the commodity super-cycle combined with uncertainties
and adjustment costs from the reform agenda, which has been materially higher than originally expected and thus dented business confidence
• President Sebastián Piñera took over in 2018 vowing to revive the economy through a simplification of the tax code and enhanced infrastructure
• Heavy dependence on mineral exports makes the economy vulnerable to fluctuations in world commodity prices while the increase in the frequency
and intensity of natural disasters affecting the country raises the likelihood of adverse supply shocks
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VENEZUELA`S GRAND NARRATIVE
25 % per annum % 50
20
15 40
§ GDP: US $236(?) billion Average GDP growth 25-y through 2017: 2.2(?)% p.a. 10
30
5
§ Population: 32 million Average annual labor force growth past 10-y: 1.7% 0 20
-5
§ GNI per capita (Atlas): US $7,375(?) Poverty gap (US $ 3.20 a day) since 1990: +109%? -10 10
-15
-20 0
§ As domestic production and industry have significantly underperformed for several years,
2000 2004 2008 2012 2016
Venezuela turned critically dependent on oil revenues, which account for roughly 96% of
export earnings, about 40% of government revenues, and 11% of GDP Real GDP growth (LHS)
• Venezuela has benefited from the historically high international oil prices of the past decade, which have enabled increased government spending on
ambitious programs, notably to address social malaises (Misiones), and secured support for the “Bolivarian socialism” among the very poor
• The government also nationalized several private companies in sectors such as hydrocarbons, mining and metallurgy, cement, banking and telecom, a
move that caused material resource misallocation, depressed investment spending and fueled capital flight
• Rampant hyperinflation caused growth to collapse, there is widespread shortage of goods and central bank international reserves are being depleted
• The economic crisis is likely to worsen and, under the present administration, the Venezuelan government’s response has been to increase state
control over the economy, blaming the private sector, domestic political opposition and foreign conditions for the calamities
• President Nicolás Maduro’s highly contested reelection in 2018 speaks of the executive branch exercising increasingly authoritarian control over other
branches of government, which should speed up the deterioration of democratic institutions and worsen political polarization
• The international community has moved to isolate Venezuela, while imposing increasingly broad and stringent sanctions
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PERU`S GRAND NARRATIVE
10 % per annum % 30
8 25
§ GDP: US $211 billion Average GDP growth 25-y through 2017: 5.0% p.a. 6
4
§ GNI per capita (Atlas): US $5,970 Poverty gap (US $ 3.20 a day) since 1990: -78% 15
2
0 10
§ A wide range of important mineral resources are found in the mountainous and coastal
2000 2004 2008 2012 2016
areas (the country is the world's second largest producer of silver and copper) and Peru's
coastal waters provide excellent fishing grounds Real GDP growth (LHS)
• Peru remains one of the best performing economies in Latin America, with solid macroeconomic fundamentals, strong policy frameworks, impressive
gains in poverty reduction and the persistent application of structural reforms to secure private investor confidence
• Peru suffered an economic slowdown with the end of the commodity super cycle: the sharp drop in hydrocarbon and mineral prices, falling external
demand and reduction in private investment associated with mining projects resulted in a lower rate of growth after 2013
• Moreover, the country has navigated roiled political waters: facing impeachment after evidence surfaced of his involvement in a vote-buying scandal,
President Pedro Paulo Kuczynski Godard offered his resignation in March 2018
• Leading indicators speak of a growth revival as a result of robust recovery of formal employment, household consumption and business investment
• Despite Peru's strong macroeconomic performance, dependence on primary exports, notably minerals and metals, and on imported foodstuffs makes
the economy particularly vulnerable to fluctuations in world commodity prices
• Regional inequality persists (poverty in rural population is three times higher than in urban population) along with very high rates of informality
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STRUCTURE OF ECONOMIES COMPARED: EXPENDITURE APPROACH (% OF GDP)
Household final General government final Gross fixed capital

Exports goods & services Imports goods & services
consumption expenditure consumption expenditure formation expenditures
2000 2017 2000 2017 2000 2017 2000 2017 2000 2017
Brazil 65 63 19 20 19 16 10 13 12 12
Mexico 67 66 12 12 23 23 26 38 27 40
Argentina 71 66 14 18 16 19 11 11 12 14
Venezuela 52 ? 12 ? 24 ? 30 ? 18 ?
Colombia 69 63 17 19 15 23 16 15 17 20
Chile 65 62 12 14 23 22 29 29 29 27
Peru 71 64 11 13 20 21 17 24 19 23
Latin America & Caribbean 66 65 15 17 20 19 19 21 20 22
East Asia & Pacific 53 50 16 16 29 32 28 28 28 26
South Asia 66 62 12 11 24 30 14 18 15 22
Eastern Europe & Central Asia 57 56 18 20 23 21 36 43 34 40
Middle East & North Africa 48 51 18 19 23 29 39 39 28 37
Sub-Saharan Africa 60 67 16 16 15 20 38 28 30 31
World 59 58 16 17 24 24 26 29 25 28
Source: World Bank, Inter-American Development Bank and Patria Investments,.
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BASIC ECONOMIC DATA AND FORECASTS
2000-10 2011 2012 2013 2014 2015 2016 2017(E) 2018-22(F) 2000-10 2011 2012 2013 2014 2015 2016 2017(E) 2018-22(F)
LATIN AMERICA & THE CARIBBEAN VENEZUELA
Real GDP growth (%) 3.4 4.7 3.0 2.9 1.2 0.1 -0.9 1.2 2.5 Real GDP growth (%) 3.5 4.2 5.6 1.3 -3.9 -6.2 -16.5 -12.0 -2.4
GDP per capita (constant US $ of 2011) 12,257 14,206 14,463 14,719 14,726 14,564 14,251 14,262 14,843 GDP per capita (constant US $ of 2011) 15,429 17,286 17,996 17,981 17,040 15,764 12,996 11,290 9,910
Consumer inflation (% per annum) 5.9 5.3 4.4 4.5 5.0 6.2 4.6 4.2 3.5 Consumer inflation (% per annum) 21.8 27.6 20.1 57.4 64.7 159.7 303 1133 3899
Net government financing to GDP (%) -2.2 -2.8 -3.1 -3.2 -4.7 -7.0 -6.4 -6.1 -5.4 Unemployment rate (%) 11.9 8.2 7.8 7.5 6.7 7.4 20.6 26.4 34.3
General government gross debt to GDP (%) 50.7 48.0 48.2 48.8 50.7 54.6 58.1 59.8 63.6 Net government financing to GDP (%) -1.9 -10.6 -14.6 -14.1 -16.5 -17.7 -17.8 -18.5 -19.4
Balance of payments' current account to GDP (%) -0.4 -2.0 -2.3 -2.8 -3.1 -3.4 -2.0 -2.0 -2.5 General government gross debt to GDP (%) 35.0 50.6 58.1 72.3 63.5 32.1 31.4 23.0 20.0
Balance of payments' current account to GDP (%) 9.0 4.9 0.8 2.0 2.3 -6.6 -1.6 -0.4 -1.5
BRAZIL
Real GDP growth (%) 3.8 4.0 1.9 3.0 0.5 -3.8 -3.6 0.7 2.8 COLOMBIA
GDP per capita (constant US $ of 2011) 12,669 15,071 15,218 15,535 15,479 14,773 14,129 14,127 15,020 Real GDP growth (%) 4.0 6.6 4.0 4.9 4.4 3.1 2.0 1.7 3.5
Consumer inflation (% per annum) 6.6 6.5 5.8 5.9 6.4 10.7 6.3 3.6 4.0 GDP per capita (constant US $ of 2011) 9,533 11,587 11,916 12,354 12,751 12,992 13,099 13,174 14,095
Consumer inflation (% per annum) 5.8 3.7 2.4 1.9 3.7 6.8 5.7 4.0 3.0
Unemployment rate (%) 9.9 7.8 7.4 7.2 6.8 8.3 11.3 13.1 10.7
Unemployment rate (%) 12.9 10.8 10.4 9.7 9.1 8.9 9.2 9.3 9.1
Net government financing to GDP (%) -3.3 -2.5 -2.5 -3.0 -5.4 -10.3 -9.0 -8.2 -7.3
Net government financing to GDP (%) -1.9 -2.0 0.1 -0.9 -1.8 -3.4 -3.0 -3.2 -1.5
General government gross debt to GDP (%) 67.8 61.2 62.2 60.2 62.3 72.5 78.3 83.4 87.7
General government gross debt to GDP (%) 39.0 35.7 34.1 37.8 43.7 50.6 50.2 48.5 45.3
Balance of payments' current account to GDP (%) -1.0 -2.9 -3.0 -3.0 -4.2 -3.3 -1.3 -1.4 -1.9
Balance of payments' current account to GDP (%) -1.5 -2.9 -3.1 -3.3 -5.2 -6.4 -4.3 -3.8 -3.3
MEXICO
CHILE
Real GDP growth (%) 2.2 4.0 4.0 1.4 2.3 2.7 2.3 2.1 2.4
Real GDP growth (%) 4.3 6.1 5.3 4.0 1.9 2.3 1.6 1.4 2.9
GDP per capita (constant US $ of 2011) 15,442 16,392 16,851 16,887 17,080 17,345 17,558 17,753 18,490
GDP per capita (constant US $ of 2011) 16,837 20,302 21,151 21,773 21,956 22,217 22,337 22,409 23,591
Consumer inflation (% per annum) 4.9 3.8 3.6 4.0 4.1 2.1 3.4 6.1 3.1 Consumer inflation (% per annum) 3.3 4.4 1.4 2.9 4.7 4.4 2.8 2.4 3.0
Unemployment rate (%) 3.7 5.2 4.9 4.9 4.8 4.4 3.9 3.6 3.6 Unemployment rate (%) 9.1 7.1 6.4 5.9 6.4 6.2 6.5 7.0 6.5
Net government financing to GDP (%) -2.4 -3.4 -3.8 -3.7 -4.6 -4.1 -2.9 -1.4 -2.5 Net government financing to GDP (%) 1.7 1.4 0.7 -0.5 -1.5 -2.1 -2.9 -3.1 -1.7
General government gross debt to GDP (%) 41.3 43.2 43.2 46.4 49.5 53.7 58.4 53.3 52.4 General government gross debt to GDP (%) 9.2 11.1 11.9 12.7 14.9 17.4 21.3 24.9 29.9
Balance of payments' current account to GDP (%) -1.2 -1.1 -1.3 -2.5 -1.8 -2.5 -2.2 -1.7 -2.2 Balance of payments' current account to GDP (%) 0.8 -1.7 -4.0 -4.1 -1.7 -1.9 -1.4 -2.3 -3.1
ARGENTINA PERU
Real GDP growth (%) 3.3 6.0 -1.0 2.4 -2.5 2.6 -2.2 2.5 2.9 Real GDP growth (%) 5.4 6.5 6.0 5.8 2.4 3.3 4.0 2.7 3.8
GDP per capita (constant US $ of 2011) 15,975 19,817 19,392 19,638 18,935 19,228 18,594 18,844 19,819 GDP per capita (constant US $ of 2011) 7,836 10,264 10,757 11,241 11,389 11,637 11,974 12,160 13,194
Consumer inflation (% per annum) 9.5 9.5 10.8 10.9 23.9 n/a n/a 22.3 11.3 Consumer inflation (% per annum) 2.4 4.7 2.6 2.9 3.2 4.4 3.2 2.7 2.3
Unemployment rate (%) 13.1 7.2 7.2 7.1 7.3 n/a 8.5 8.1 6.9 Unemployment rate (%) 8.8 7.7 6.8 6.0 6.0 6.4 6.7 6.7 6.7
Net government financing to GDP (%) -0.5 -2.7 -3.0 -3.3 -4.3 -5.9 -5.8 -6.6 -4.8 Net government financing to GDP (%) -0.2 2.0 2.1 0.7 -0.3 -2.2 -2.3 -2.9 -2.0
General government gross debt to GDP (%) 77.1 37.5 38.9 41.7 43.6 56.0 54.2 53.4 51.1 General government gross debt to GDP (%) 37.9 23.3 21.6 20.8 20.7 24.0 24.4 25.5 27.6
Balance of payments' current account to GDP (%) 2.0 -1.0 -0.4 -2.1 -1.5 -2.7 -2.7 -3.6 -4.0 Balance of payments' current account to GDP (%) -0.9 -1.9 -2.7 -4.4 -4.4 -4.8 -2.7 -1.5 -2.1
Source: World Bank, Inter-American Development Bank and Patria Investments.
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KEY BIBLIOGRAPHIC REFERENCES
• Abreu, M. P. (org.) “A Ordem do Progresso: Cem Anos de • Gruss B. (2014) “After the Boom–Commodity Prices and International Monetary Fund.
Política Econômica Republicana 1889-1989”, Editora Economic Growth in Latin America and the Caribbean”, • International Monetary Fund (2015) “World Economic
Campus. Working Papers 15/154, International Monetary Fund. Outlook: Uneven Growth – Short and Long-Term Factors”,
• Adler, G., Cubeddu, L. M., Iakova D. and Sosa S. (2014) • Holanda, S. B. (2006) “Raízes do Brasil”, Companhia das International Monetary Fund.
“América Latina: Nuevos Desafíos para el Crescimiento y la Letras. • Ocampo, J. A. and Ros, J. (eds) (2011) “The Oxford
Estabilidad”, International Monetary Fund. • Inter-American Development Bank (2017) “Latin American Handbook of Latin American Economics”, Oxford University
• Bank for International Settlements (2017) “BIS Quarterly and Caribbean Macroeconomic Report: Routes to Growth Press.
Review for September 2017: Strong Outlook with Low in a New Trade World”, Inter-American Development Bank. • Reyes, J. A. and Sawyer, W. C. (2016) ”Latin American
Inflation Spurs Risk-Taking”, Bank for International • International Monetary Fund (2017) “Regional Economic Economic Development”, Routledge.
Settlements. Outlook - Western Hemisphere: Tale of Two Adjustments”, • Schmitt-Grohé, S. and Uribe, M. (2016) “How Important
• Bertelsmann Stiftung (2016) “Latin America and the International Monetary Fund. Are Terms of Trade Shocks?”, Research Paper, Columbia
Caribbean Regional Report: in the Wake of the Quiet • International Monetary Fund (2016) “Regional Economic University.
Revolution”, Bertelsmann Stiftung. Outlook - Western Hemisphere: Managing Transitions and • Transparency International (2017) “People and Corruption:
• Bulmer-Thomas, V. (2014) “The Economic History of Latin Risks”, International Monetary Fund. Global Corruption Barometer Latin America & the
America since Independence”, Cambridge University Press. • International Monetary Fund (2015) “Regional Economic Caribbean”, Transparency International.
• Cambridge Centre for Risk Studies (2015) “Planning for Outlook - Western Hemisphere: Northern Spring, Southern • World Bank (2017) “World Development Report:
War: a Guide for Businesses”, University of Cambridge. Chills”, International Monetary Fund. Governance and the Law”, The World Bank.
• Fernández, A., González, A. and Rodríguez, D. (2015) • International Monetary Fund (2014) “Regional Economic • World Bank (2016) “World Development Report: Digital
“Sharing a Ride on the Commodities Roller Coaster: Outlook - Western Hemisphere: Rising Challenges”, Dividends”, The World Bank.
Common Factors in Business Cycles of Emerging International Monetary Fund. • World Bank (2015) “World Development Report: Mind,
Economies”, IADB WP 640. • International Monetary Fund (2017) “World Economic Society and Behavior”, The World Bank.
• Furtado, C. (1980) “Formação Econômica do Brasil”, Outlook: Seeking Sustainable Growth”, International
Companhia Editora Nacional. Monetary Fund.
• Gale, W. G. & Samwick, A. A. (2014) “Effects of Income Tax • International Monetary Fund (2016) “World Economic
Changes on Economic Growth”, The Brookings Institution. Outlook: Subdued Demand – Symptoms and Remedies”,
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Important Notice
DISCLAIMER
This presentation and the information contained herein (together with copies or Projections and/or future unrealized values of currently unrealized investments will While such sources are believed to be reliable for the purpose used herein, none of
summaries there of “The Discussion Materials”) are being provided to the recipient depend on, among other factors, future operating results, the value of the assets and the Fund, the General Partner, Pátria, or any of their respective directors, officers,
on a confidential basis for informational and discussion purposes only and do not market and other conditions at the time of disposition, legal and contractual employees, partners, members, shareholders or affiliates, or any other person
constitute an offer to sell or a solicitation of an offer to purchase an interest in any restrictions on transfer that may limit liquidity, any related transaction costs and the assumes any responsibility for the accuracy or completeness of such information.
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affiliates (“Pátria”). The recipients should not construe the contents of the Discussion circumstances on which current unrealized valuations are based and many of which update the information contained herein
Materials as financial, legal, accounting, tax or investment advice. The information are difficult to predict and are beyond Pátria control. Furthermore, subsequent to
PÁTRIA, THE GENERAL PARTNER AND THEIR RESPECTIVE AFFILIATES AND THEIR
contained herein should be treated in a confidential manner and may not be the preparation of certain of the valuations or economic information contained
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS, SHAREHOLDERS,
reproduced or used in whole or in part for any other purpose. herein, the global economy, including in Brazil, has experienced periods of significant
ADVISERS AND AGENTS EXPRESSLY DISCLAIM, TO THE MAXIMUM EXTENT
Any recipient of this Discussion Materials must: market volatility. Such volatility may have had a material adverse impact on the
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(a) Limit the distribution of the Discussion Materials to a limited number of WHATSOEVER FOR ANY DIRECT, INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGE
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ENTITY REGARDING THE POTENTIAL OPPORTUNITY, INCLUDING, WITHOUT
In considering the performance information contained herein, investors should bear unrealized investments may differ materially from the returns indicated herein.
LIMITATION, THE INFORMATION CONTAINED IN THIS PRESENTATION, (II) ANY
in mind that past performance is not necessarily indicative of future results, and Moreover, certain information herein is presented in U.S. dollars, however Pátria
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Unless otherwise indicated, all internal rates of return and multiples of invested actual realized returns on unrealized investments may differ materially from the
capital (“Gross MOIC”) are presented on a “gross” basis (i.e., they do not reflect estimated returns indicated herein.
management fees, “carried interest,” taxes, transactions costs and other expenses Certain information contained in this presentation constitutes “forward-looking Patria Investments UK Limited is regulated by the FCA and is authorized to conduct
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substantial) and reported in US Dollars. Any such Gross MOIs used herein represent as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,”
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51
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Confidential

THE MEANING OF JAIR BOLSONARO:

Brazil: A Conservative Tidal Wave in the 2018 Presidential Race

Bolsonaro: 55% of valid votes

Bolsonaro’s campaign cost: R$1.7 million

Brazil: The End of a Political Era

election in runoff: Lula

Won presidential election

election in runoff: Lula

Won presidential election

2016: President Rousseff is

Brazil: Opening of a New Era

Brazil: Understanding the Car Wash Corruption Probe

Brazil: No Crisis of Representative Democracy

1989-94 1995-2002 2003-10 2011-18 2018 latest

Source: DataFolha, Sergio Abranches, Arko Advice and Tendencias Consultoria.

Brazil: What Reforms?

Fernando Haddad Jair Messias Bolsonaro

Brazil: The Challenges Looking Forward

Seats in the Chamber of Deputies Seats in the Federal Senate

Brazil: Descent into Authoritarianism Is Exceedingly Unlikely

Brazil: Outlining a Constructive Agenda

Estimated predisposition of Brazil’s new Congress to market-

43% • Central Bank’s formal independence could pass even

• The picture is entirely different for his civil rights

• Emphasis on controversial civil rights agenda should

Strong opposition Favourably disposed Strong support

Source: Arko Advice, Tendencias Consultoria, DIAP and Patria Investments.

Brazil: Few Critical Economic Reforms Incomplete

Source: Arko Advice, Tendencias Consultoria, and Carlos Melo.

Brazil: Slowly Declining Budget Deficit and On-Target Inflation

-10 President Collor is impeached 12

President Rousseff is impeached 8

Brazil: External Accounts Are Doing Just Fine

§ Trade surplus in 2017 was a record-high US

Sources:, Central Bank of Brazil, IpeaData and Patria Investments.

Brazil: Preserving the Economic Recovery

§ The economy is recovering from a deep

Source: Tendencias Consultoria, IpeaData, IBGE and Patria Investments.

Brazil: Large Fluctuations around Equilibrium FX

President Rousseff 2018 general

Brazil: The Economy over Presidential Terms

Benign electoral cycle could easily lift

Brazil: The Fiscal Challenge

World: A Tale of “Deglobalization”

Global exports as share of world's GDP: 1960-2017

Auto & part imports as Canada, European US$ 208 billion

World: Major Implications of “Deglobalization”

2007 2017 Depreciation Appreciation

LatAm: Commodity Prices are Bouncing Back

Real GDP growth in LatAm

Source: IMF, Patria Investments and World Bank.

LatAm: What Is the Best Predictor of Currency Paths?

CAGR FX change against U.S. dollar per annum (%)

LatAm: Mixed Exposure to Gyrations in the U.S.

Protectionist bias to foreign trade & investment

LatAm: Depending on the Kindness of Strangers?

Foreign holdings of local T-bills (% of total)

LatAm: Shift towards Market-Friendly Governments

Venezuela: Anti-socialist opposition elects nearly twice

Peru: Former IMF & World Bank’s official and former

Source: MSCI, Inter-American Development Bank, LAECO and Patria Investments.

7-Oct-2018 • First ballot