S G pe re ci en al Ec Se on cti om on y

Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

OUTLOOK

Brazilian Economic

15

th

Edition | April | 2012

Ministry of Finance

Summary
Foreword Economic Activity Employment and Income Inflation Interest Rates and Credit Fiscal Policy External Sector International Overview Special Section – Green Economy Appendix – Industrial Policy Measures Glossary 7 9 37 53 63 83 101 121 145 167 173
3 Green Economy | 2012

NOTE
Brazilian Economic Outlook is published by the Ministry of Finance. The report consolidates and updates the main macroeconomic variables resulting from the economic policy conducted by the following Secretariats from the Ministry of Finance: Economic Policy Secretariat (SPE), National Treasury Secretariat (STN), International Affairs Secretariat (SAIN), Secretariat for Economic Monitoring (SEAE) and Federal Revenue Secretariat (RFB). Data used in the report were updated until April 9th, 2012.

Ministry of Finance

Sustainable Development and Growth
Brazil demonstrates that it is possible to combine economic growth with social inclusion and sustainability. The country stands out for its environmental performance, holding 12% of world’s surface water and 30% of the remaining tropical forests, besides maintaining about 70% of its area with natural vegetation. In parallel, Brazil increased agricultural production based on productivity gains, with expansion of protected areas, declining rates of deforestation in the Amazon and advance of investments in sustainable activities. The country remains a world leader in renewable energy sources and almost all new cars are flex fuel. These actions show the Brazilian commitment to promote sustainability as a central element of its development strategy. Also essential to the country’s development strategy is the focus on investments as a way of enhancing its competitiveness. The main objective is to increase Brazil´s investment rate steadily until it reaches about 24% of GDP in the coming years. In order to do so, Brazil counts on investments coming from the public and private sectors. In the second stage of the Growth Acceleration Program (PAC 2), about R$ 1 trillion is planned to be invested in several sectors, with emphasis in energy projects and in the My House My Life housing program. Private funds to finance important projects are also encouraged. It is important once the country needs to invest in massive infrastructure projects in sectors such as: telecommunications, energy, transportation. One important measure is related to tax benefits given for debentures issued to finance infrastructure projects. The Administration has launched new measures related to industrial policy, called “Brasil Maior” Plan, such as: i) payroll and industrial products tax benefits; ii) government procurement policy giving priority to domestic goods, especially machinery equipment and pharmaceuticals; iii) foreign trade financing; iv) trade defense: operations to avoid fraud and circumventions; v) funding for production, investment and innovation; vi) new automotive regime, providing incentives for research, development and innovation.

Foreword
Green Economy | 2012 7

Ministry of Finance

Foreword

The Brazilian Government is also paying close attention to the consequences of increasing financial liquidity, as a result of the expansionary monetary policies conducted by advanced economies. The “monetary tsunami” is aimed at improving the economic conditions in the U.S., Euro Zone and Japan. In fact, since 2008, about US$ 9 trillion have been spread to the world economy. All in all, the guiding principle in the Brazilian economy is sustainable development with social inclusion, along with controlled inflation and fiscal balance.

Green Economy | 2012 8

OUTLOOK

Brazilian Economy

Economic Activity
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

Brazilian Economy Picks Up Speed in 2012
The monetary easing measures carried out to accelerate growth since the second half of 2011 have already taken effect by the beginning of 2012. After rising 1.3% and 0.5% in November and December 2011, on a seasonally-adjusted basis, retail trade grew 2.6% in January 2012. The industrial production also increased 1.3% in February 2012 in comparison to January. The expansion was largely due to (i) the strength of formal job market, (ii) the easing cycle of the benchmark interest rate from July 2011 on, and (iii) credit growth, which reached 48.9% of GDP in February 2012. The robust growth of domestic demand, coupled with measures aimed at providing incentives to increase productivity and competitiveness of the industrial sector, is expected to lead to a manufacturing industry recovery throughout 2012 and shall foster activity even more in the service sector. Therefore, economic activity is expected to pick up speed over the year, so that, by the end of 2012, economic growth should have reached its peak. The trajectory brings more robust GDP growth in 2012.

Economic Activity
Green Economy | 2012 10

Ministry of Finance

Robust growth in coming years
Brazil has increased its average growth since the end of the 1990s, going from 1.7%, between 1998 and 2002, to an expected 4.7% for the period 2011-2014. The strength of our domestic market and a great emphasis on investments, as the main driver of growth, are crucial for such well-balanced expansion.

Economic Activity

GDP Growth Rate (% YoY)
PAC
Asean Crisis Bubble Crisis International Financial Crisis

PAC
Sovereign Crisis

5.2

Average 4.6%

Average 4.7%

Green Economy | 2012

Average 1.7%

Average 3.5%

0.0

0.3 4.3 1.3 2.7 1.1 5.7 3.2 4.0 6.1 5.2 -0.3

7.5 2.7 4.5 5.5 6.0

Data: % change from the preceding year * Ministry of Finance forecasts
Source: IBGE Produced by: Ministry of Finance

98

99

00

01

02

03

04

05

06

07

08

09

10

11

*

* 13

12

19

19

20

20

20

20

20

20

20

20

20

20

20

20

14

*

11

20

20

20

Ministry of Finance

Focus on supply and demand
Brazil’s GDP grew 2.7% in 2011. On the demand side, investment growth (4.7%) was higher than that of household expenditure (4.1%), contributing to the sustained increase in productive capacity.

Economic Activity

Growth: Supply and Demand (% YoY)
25 20 15
Green Economy | 2012

10

2.7

2.7

10.4

21.3

6.3

1.6

5.5

7.5

6.9

4.1

4.2

1.9

0

Agriculture

Industry

Services

GDP

Household Expenditure

Government Expenditure

Gross Fixed Capital Formation

4.7

5

3.9

2010 2011 Data: % change from the preceding year
Source: IBGE Produced by: Ministry of Finance

Supply

Demand

12

Ministry of Finance

Domestic demand relevance
Domestic demand remained the main driver of economic expansion. However, there was a drop in its growth rate due to economic policy measures aimed at ensuring a long run balanced growth.

Economic Activity

Decomposition of GDP Growth - Demand Side (% YoY)
12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3

0.7 5.7
5.7

7.5
7.5

6.1
6.1

2.5 2.7
2.7

0.2

1.7 1.1
1.1

0.5 3.2
3.2

4.0
4.0

5.2
5.2

10.3
-0.1 -0.3 -0.2
-0.3

Net Foreign Demand Domestic Demand GDP
2.7
2.7

Green Economy | 2012

5.0

2.7

02

03

04

05

06

07

08

09

10

20

20

20

20

20

20

20

20

20

20

11

7.2-

-0.5

5.3 -1.4

7.5 -1.4

7.5

6.9 6.9 -1.7

10.3 -2.7

3.4 -0.7

Data: % change from the preceding year
Source: IBGE Produced by: Ministry of Finance

13

Ministry of Finance

Brazilian economic growth in more detail
From the supply perspective, 4Q2011 GDP growth was led by a 0.9% increase in the agriculture sector and 0.6% in the services sector, with the industry contracting -0.5% . From the demand perspective, household consumption grew 1.1%, government spending (0.4%) and investments (0.2%).
Composition of GDP Growth (% change)*
Composition of GDP Growth: 4Q 2011 (%) Period of Comparison (%) Previous Quarter 3Q 2011 0.9 -0.5 1.8 -2.5 0.8 0.6 0.7 0.1 0.6 0.3 1.1 0.4 0.2 1.9 2.6 Previous Year 4Q 2010 8.4 -0.4 3.8 -3.1 3.1 1.4 1.3 1.4 4.6 1.4 2.1 1.3 2.0 3.7 6.4 2011/2010 3.9 1.6 3.2 0.1 3.6 2.7 3.4 2.8 4.9 2.7 4.1 1.9 4.7 4.5 9.7

Economic Activity

Agriculture Industry Mining Manufacturing Civil Construction Services Trade Transportation, Storage and Mailing Information Services GDP (Market Prices) Household Consumption Government Consumption Gross Fixed Capital Formation Exports Imports

Green Economy | 2012

Data: % change * Not all sectors were included in Industry and Services
Source: IBGE Produced by: Ministry of Finance

14

Ministry of Finance

Stability in the beginning of the year...
The Economic Activity Index (IBC-Br), released by the Central Bank of Brazil, decreased 0.13 percent in January, compared to December. It was mainly due to the decline in industrial production caused by heavy rains in Minas Gerais State, which influenced iron ore production, and problems with truck production, once factories had to be adapted to meet new environmental standards.
Economic Activity Index of Central Bank of Brazil (index number, seasonally adjusted, 2002=100)
150,0 142,5 135,0 127,5 120,0 112,5 105,0 97,5 90,0

Economic Activity

140,73

Green Economy | 2012

Data: index number, seasonally adjusted (2002=100)
20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12

Ja n

20 03

Source: Central Bank of Brazil Produced by: Ministry of Finance
15

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Ministry of Finance

... along with expected recovery along the year
Recent data shows that business conditions for the manufacturing sector have been improving in Brazil. Manufacturing PMI registered 51.4 in February. At 57.1, the Services PMI shows a rise in activity in the beginning of 2012.
Brazil: Purchasing Managers Index (PMI)

Economic Activity

60

57.1 51.4

50

40

PMI Services PMI Manufacturing Data: index Values higher than 50 indicate growth
Source: Bloomberg Consulting Produced by: Ministry of Finance

Green Economy | 2012

30
M 20 Au 08 g 20 No 08 v 20 Fe 08 b 20 0 M ay 9 20 Au 09 g 20 No 09 v 20 Fe 09 b 20 1 M ay 0 20 Au 10 g 20 No 10 v 20 Fe 10 b 20 1 M ay 1 20 Au 11 g 20 No 11 v 20 Fe 11 b 20 12 ay

16

Ministry of Finance

Retail sales continues to grow on a monthly basis
In the accumulated 12 months up to January 2012, retail sales grew 6.6% and broad retail* sales 6.4%. On a monthly basis, there has been some improvement: in January 2012, seasonally adjusted retail sales increased 2.6%, compared to the previous month. It is the largest increase since February 2010.

Economic Activity

Retail Sales Volume (% on a 12 month-basis)
14 12 10 8 6 4 2 0
Ja n M 200 ay 9 Se 200 p 9 2 Ja 00 n 9 M 201 ay 0 Se 201 p 0 2 Ja 01 n 0 M 201 ay 1 Se 201 p 1 2 Ja 01 n 1 20 12

Retail Sales Volume (% MoM)
3.0 2.5 2.0 6.6 6.4 1.5 1.0
0.7 0.7 1.3 1.6 0.5 1.8 0.0 2.6 1.4

Retail Monthly Survey Retail Monthly Survey (Broad)* Retail Monthly Survey Retail Monthly Survey (Broad) Data: % change on a 12 month-basis and % change from preceding month * Including vehicles,motorcycles, parts and construction materials
Source: IBGE Produced by: Ministry of Finance
17

Green Economy | 2012

0.5 0 -0.5

11

11

-0.2

11

1 01 c2 Ja n

p

O ct

No v

De

Se

20

20

20

20

12

Ministry of Finance

Overall industry inventories decreasing
Industry has experienced significant reduction in the level of excessive inventories in recent months. The number of industries which reported excessive inventories decreased from 10.2% in December 2011 to 5.7% in February 2012. It is an indication that industrial production is picking up.

Economic Activity

Overall Industry Excessive Inventories (% of survey respondents)
12 10.2 10 8
Green Economy | 2012

6 4 2
Fe b M 20 ar 10 Ap 20 1 M r 20 0 ay 1 0 Ju 20 n 10 Ju 201 Au l 20 0 g 1 Se 20 0 p 10 O 20 ct 10 No 20 v 1 De 20 0 c 10 Ja 20 n 10 Fe 20 b 1 M 20 1 ar 11 Ap 20 1 M r 20 1 ay 1 1 Ju 20 n 11 Ju 201 Au l 20 1 g 1 Se 20 1 p 11 O 20 c 1 No t 20 1 v 1 De 20 1 c 11 Ja 20 n 11 Fe 20 b 12 20 12

5.7

Data: % of respondents that inventory is excessive, seasonally adjusted
Source: FGV Produced by: Ministry of Finance

18

Ministry of Finance

Industrial sector increases production
After a monthly decrease of 1.5% in January 2012, the industrial production showed some recovery in February, increasing 1.3%. Capital goods were the highlight with a monthly growth of 5.7%. In relation to January 2012, out of the 26 sectors surveyed, 17 increased their production. A fully recovery of the Industry is expected for the next months, due to the recent measures to stimulate the industrial sector, listed in “Plano Brasil Maior”.
Industrial Production Index (index number, seasonally adjusted, 2002=100)
135 130 125 120 115 110 105 100 95 90

Economic Activity

126,8

Green Economy | 2012

Data: index number, seasonally adjusted (2002=100)
20 07 20 07 20 08 20 08 20 08 20 09 20 20 20 20 20 20 20 20 20
Source: IBGE Produced by: Ministry of Finance

20 07

09

09

10

10

10

11

11

11 Fe b

Fe b

Ju n

ct

Fe b

n

ct

Fe b

n

ct

Fe b

Ju n

ct

Fe b

Ju n

Ju

Ju

O ct

O

O

O

O

12

19

Ministry of Finance

Capacity utilization remains stable
The level of capacity utilization (NUCI) has remained stable in the first months of 2012. FGV’s indicator posted 83.7% in February 2012, the same registered in January. FIESP’s NUCI had a slight increase in February (81.9%), against 81.8% the month before.

Economic Activity

Installed Capacity Utilization Level (%)
90

85

83.7 81.9 81.9

NUCI - CNI NUCI - FGV NUCI - FIESP* Data: %, seasonally adjusted * Covering the industry of São Paulo state only

Green Economy | 2012

80

75

20 08

20 09

20 09

20

20

20

20

20

20

20

Au g

Au g

Fe b

Au g

Fe b

Au g

Au g

Fe b

Fe b

Fe b

Fe b

20

Source: CNI, FGV and FIESP Produced by: Ministry of Finance
20

11

10

07

07

08

10

11

12

Ministry of Finance

Confidence in the Brazilian economy keeps strong
After slowing down in the end of 2011, Consumer Confidence grew from 119.4 in February to 122.7 in March 2012. Industry Confidence increased as well, from 102.5 in February to 103.0 in March. The rebound in the confidence indicators is a sign that 2012 will be better for the industrial sector.
Industry and Consumer Confidence Indexes (points, seasonally adjusted)
130 120 110 100 90 80

Economic Activity

122.7

103.0 Optimistic Pessimistic
Green Economy | 2012

Consumer Confidence Index Industry Confidence Index Data: points, seasonally adjusted

ar Ap 201 r 0 M 20 ay 10 Ju 201 n 0 2 Ju 01 l2 0 Au 0 g 10 Se 201 p 0 O 201 ct 0 No 20 v 10 De 201 c 0 Ja 201 n 0 Fe 201 b 1 M 20 ar 11 Ap 201 r 1 M 20 ay 11 Ju 201 n 1 2 Ju 01 l2 1 Au 0 g 11 Se 201 p 1 O 201 ct 1 No 20 v 11 De 201 c 1 Ja 201 n 1 Fe 201 b 2 M 20 ar 12 20 12

Source: FGV Produced by: Ministry of Finance

M

21

Ministry of Finance

New record for the Brazilian harvest in 2011
The agricultural production in Brazil reached a record of 163 million tons of grains in 2011, an increase of 9.2% compared to 2010. The result consolidates Brazil as one of the world’s leading food producers.

Economic Activity

Brazilian Crop Grains - Cereals, Vegetables and Oilseeds (millions of tons)
200

163.0

150
123.2 119.1 122.5 131.8

144.1 135.1

149.3

Green Economy | 2012

114.7

100

96.8

Data: millions of tons
1/ 02 2/ 03 3/ 04 4/ 05 5/ 06 6/ 07 7/ 08 8/ 09 9/ 10 0/ 11
50

20 0

20 0

20 0

20 0

20 0

20 0

20 0

20 0

20 0

20 1

Source: Conab Produced by: Ministry of Finance
22

Ministry of Finance

Harvest Plan fosters agricultural dynamism
The 2011/12 Agriculture and Livestock Plan reached a total of R$ 123.2 billion, an increase of 6.2% compared to the previous crop. From the total, R$ 107.2 billion is directed to business agriculture and R$ 16 billion to family farming. The resources have been used to operation funding, investment, trading, insurance, premium subside to rural areas and support to sustainable agronomic practices.
Rural Financing Program (R$ billion)
150 120 90 60 24.7 30 0 46.5 32.6 56.9 63.0 78.0 108.0 116.0 123.2

Economic Activity

15.0

16.0

16.0

70.0

7.0

4.2 20.5

5.4 27.2 39.5

9.0 44.4

10.0

12.0

13.0

Total Family Agriculture Commercial Agriculture Data: R$ billion * The difference is due to rural credits which are not related to either family or commercial agriculture
Source: Conab Produced by: Ministry of Finance

Green Economy | 2012

50.0

58.0

65.0

93.0

100.0

107.2

1

09

05

06

07

10

3

4

8

10 /1

08 /

20 02

20 03

04 /

20 07

05 /

06 /

09 /

20

20

20

20

20

11 /1

/0

/0

/0

2

*

*

9.0
20

23

20

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Ministry of Finance

Investment as the main growth component

Economic Activity

While 2011 GDP growth reached 2.7%, investments increased at a stronger pace (4.7%). On the other hand, household and government consumption increased less than investments on the same basis of comparison, i.e., 4.1% and 1.9%, respectively. The growth pace comes as a result of a set of policies taken by the Administration to foster investments.
Investment - Gross Fixed Capital Formation (% YoY)
25 20 15 10 5 0 -5

Green Economy | 2012

4.7

Data: % change
Source: IBGE Produced by: Ministry of Finance

97

98

99

00

01

02

03

04

05

06

07

08

09

10 20

19

19

19

20

20

20

20

20

20

20

20

20

20

20

11

-10

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Ministry of Finance

Balanced combination of the investment components

Economic Activity

Gross Fixed Capital Formation (GFCF) is mainly composed Construction and Machinery & Equipment investments. The latter reached 52.4% of GFCF in 2011, and it has accounted for an average 51.7% of GFCF since 2009. The balanced combination of Construction and Machinery & Equipment sustains long-term growth.
GFCF Annual Composition (% of GFCF)
100 80 60 40 20 0 42.3 2009 40.6 2010* 41.4 2011* 50.1 52.5 52.4 7.6 6.9 6.2

Construction Machinery and Equipment Others Data: % of GFCF * Preliminary results calculated from the Quarterly National Accounts
Source: IBGE Produced by: Ministry of Finance

Green Economy | 2012 25

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Ministry of Finance

Increasing investment shakes up the domestic economy

Economic Activity

Investment opportunities in the Brazilian economy, together with measures to improve the long-term investment, should contribute to the continued increase in the share of Gross Fixed Capital Formation (GFCF) in GDP, which should reach 20.4% in 2012.

Investment – Gross Fixed Capital Formation (% of GDP)
25 20 15
Green Economy | 2012

10 5

Data: % of GDP
16.4 15.3
2003

16.1
2004

15.9
2005

16.4
2006

17.4
2007

19.1
2008

18.1
2009

19.5
2010

19.3
2011

20.4
2012*

0

* Ministry of Finance estimates
Source: IBGE Produced by: Ministry of Finance

2002

26

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Ministry of Finance

Brazil stands out in port investments

Economic Activity

Brazil has two of the largest projects of investment in ports in the world: the expansion of the Port of Santos and the construction of the Açu Port in Rio de Janeiro, the largest venture investment in port in Latin America.

Nine Major Projects of Ports in the World* (US$ billion)
China Panama Netherlands China Brazil United Kingdom Qatar Brazil Oman London Gateway Port Yangshan Port Panama Canal expansion Port of Rotterdam expansion Yangtze River dredging

8.0 6.5 4.0 3.6 2.9 Port of Santos expansion (SP)

Green Economy | 2012

2.5 2.0 Ras La an Port expansion

Data: US$ billion * In the final stages of preparation or in progress
Source: CG-LA, Exame yearbook 2011-2012 Produced by: Ministry of Finance

1.8 Açu Superport (RJ) 1.0 Port of Sohar expansion

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Ministry of Finance

Investments in the oil and gas sectors

Economic Activity

Petrobras investments in building platforms and ship-oil-platforms are also highlights in the Oil and Gas sectors. Together, they total US$ 40 billion.

Ten Major Projects in the Oil and Gas Sectors in the World* (US$ billion)
Australia Australia Australia Australia Brazil Canada Nigeria Brazil Turkey Indonesia Gorgon gas eld Pilbara gas eld Wheatstone gas eld Ichthys gas eld Petrobras oil platforms (RJ-ES-SP) Keystone XL oil pipeline Trans-Saharan gas pipeline

44.0 35.0 30.0 30.0 25.0
Green Economy | 2012

20.0 20.0

15.0 Petrobras platform ships (ES-RJ-SP) 11.3 Nabucco gas pipeline 10.0 Abadi gas eld

Data: US$ billion * In the final stages of preparation or in progress
Source: CG-LA, Exame yearbook 2011-2012 Produced by: Ministry of Finance

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Ministry of Finance

Significant investments in the energy sector

Economic Activity

The energy sector is also a priority for the Brazilian government. Among the fifteen largest sector projects in the world, six are located in Brazil, with emphasis on the construction of the Belo Monte power plant. See also the map of investments in the energy sector in the Special Section.

Fifteen Major Projects in the Electricity Sector in the World* (US$ billion)
China Brazil Brazil
USA Jiuquan wind power base Belo Monte (PA) hydroelectric power plant São Luiz do Tapajós (PA) hydroelectric power plant 12.6 Green Power Express transmission 12.0 Yangjiang nuclear plant 10.2 Santo Antônio (RO) hydroelectric power plant 10.0 Jirau (RO) hydroelectric power plant 8.2 Xiluodu hydroelectric power plant 6.8 Pace River hydroelectric power plant 6.6 Romaine hydroelectric power plant 6.5 6.3 Xiangjiaba hydroelectric power plant Angra 3 nuclear plant 6.3 4.2 Mundra thermal power plant

18.2 16.0

China Brazil Brazil China Canada Canada China Brazil India Colombia Brazil

Green Economy | 2012

Data: US$ billion * In the final stages of preparation or in progress
Source: CG-LA, Exame yearbook 2011-2012 Produced by: Ministry of Finance

3.0 Pescadero hydroelectric power plant 2.5 Teles Pires (MT-PA) hydroelectric power plant

29

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Ministry of Finance

Brazil has a wide investment program in transportation

Economic Activity

Among the 16 largest investment projects related to transportation in the world, four of them are in Brazil: two related to the expansion of its railway network, one for subway system and another to build highways throughout the country.

Sixteen Major Transport Projects in the World* (US$ billion)
China USA China China Malaysia USA Brazil Vietnam USA China Brazil Vietnam Brazil Vietnam Brazil
New Kunming Airport O´Hare airport modernization program 15.0 Harbin-Dalian railroad 14.0 Hong Kong-Zhuhai-Macau bridge 10.7 Kuala Lumpur-Klang Valley railroad 10.3 6.9 Railroad transportation (Colorado) 6.7 Norte-Sul railroad (GO-MA-MG-MS-PA-SP-TO) 5.7 Nha Trang railroad 5.3 Detroit River international crossing 5.0 Shangai-Hangzhou train 4.3 São Paulo subway expansion 4.0 Hau river underground railroad 3.8 São Paulo beltway, north section 3.7 Ho Chi Minh City beltway 3.4 Transnordestina railroad (CE-PE-PI)

23.1

Green Economy | 2012

Data: US$ billion * In the final stages of preparation or in progress
Source: CG-LA, Exame yearbook 2011-2012 Produced by: Ministry of Finance

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Ministry of Finance

Airport concessions generate more investments for the sector

Economic Activity

Investments scheduled for the airport sector in Brazil are close to R$ 3 billion, if only the concessions of the airports in Brasília, Guarulhos and Viracopos are considered. The licensing system is important for the private sector to take part in the growth of the sector. The well-succeeded auction showed the great interest of the private sector and the potential for profit.
Airport Concession: Planned Investments (R$)

Brasília
Expansion of: passengers terminal, airport patio, departure and boarding areas.

Guarulhos
New terminal building, new taxiway, departure area expansion.
Planned Investments: R$ 3 billion

Viracopos
Terminal building (first phase) and departure area expansion.
Green Economy | 2012

2012 - 2014

2012 - 2014

2012 - 2014

Data: R$
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance

R$ 627 million

R$ 1.38 billion

R$ 873 million

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Ministry of Finance

Investments for the 2014 World Soccer Cup in accelerated rhythm

Economic Activity

Brazil has relied on investments in several sectors, including sports. A total of R$ 33 billion is allocated in the implementation of the infrastructure for the 2014 World Soccer Cup. Most is directed to transportation projects, of which R$ 11.6 billion for urban mobility and R$ 5.5 billion for ports and airports.

Investments to the 2014 World Soccer Cup (R$ billion)
Stadiums Urban Mobility Ports and Airports Civil Infrastructure (Total) Telecom and Energy Security and Health Hotels Total Infrastructure

5.7 11.6 5.5 22.8 3.8 4.6 1.9 33.1
Data: R$ billion
Source: Ministry of Sports Produced by: Ministry of Finance
Green Economy | 2012 32

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Ministry of Finance

My House My Life: a successful Brazilian housing program

Economic Activity

My House My Life program has already benefited 1 million households. For the second stage of the program (2011-2014), the aim is to build 2.6 million units, with investments predicted to reach a total of R$ 143 billion.

My House My Life Housing Program: Units Built and Planned Investments (R$ billion)
My House My Life 2 Total investments = R$ 143 bi 2.6 million units

40 35 30 25 20 15 10 5 0

Green Economy | 2012

0.0
15.5
2009

29.1

39.6
2010

0.0 32.8
2011

Target Contracted

7.9
2012

36.6
2013

36.6
2014

Data: R$ billion
Source: Caixa Econômica Federal Produced by: Ministry of Finance
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Ministry of Finance

PAC investments continue to grow in 2012

Economic Activity

The amounts committed to PAC (Growth Acceleration Program) increased significantly, reaching R$ 35.4 billion in 2011. It represents a growth of almost 20%, when compared to 2010, and a 121.3% expansion between 2007 and 2011. In line with the economic growth model based upon investments, a 20.3% expansion has been estimated for 2012, reaching R$ 42.6 billion.
PAC: Contracted Nominal Values (R$ billion)
50 40 30

Green Economy | 2012

20 10 0

Data: R$ billion

16.0
2007

17.0
2008

27.1
2009

29.7
2010

35.4
2011

42.6
2012*

* Budget Law 2012
Source: Ministry of Planning Produced by: Ministry of Finance

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Ministry of Finance

Growth Acceleration Program in detail

Economic Activity

The second stage of the Growth Acceleration Program (PAC 2) aims to provide infrastructure through investments near R$ 1 trillion within 2011-2014. About 50% of the total is directed to investments in energy and 30% in the My House My Life housing program. Investments in energy and transportation sectors have already been established from 2014 on.
Growth Acceleration Program (PAC 2) (R$ billion)

PAC 2 Axes
PAC Citizenship Community Pac Water and Light for All PAC Better City PAC Transportation PAC My House My Life PAC Energy

2011-2014
23.0 30.6 57.1 104.5 278.2 461.6

After 2014
– – – 4.5 – 626.9

Total
23.0
Green Economy | 2012

30.6 57.1 109.0 278.2 1,088.5
Data: R$ billion
Source: Ministry of Planning Produced by: Ministry of Finance

Total

955.0

631.4

1,586.4

35

OUTLOOK

Brazilian Economy

Employment and Income
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

Brazilian labor market is in good shape
Despite the moderate pace in economic activity in 2011, the labor market remained robust, highlighted by the decline in the annual average unemployment rate to 6.0%. It is well known that changes in activity in the labor market occur with some time lag compared with changes in production, but recent data have not shown unfavorable signs at the margin. According to IBGE, the Brazilian Bureau of Statistics, the unemployment rate stood at 5.7% in February 2012, a record low for the month. It is a much better situation than that of the labor market in the world’s largest economies. The Brazilian Government is still very focused on fostering growth with social and productive inclusion. The expansion of the conditional cash transfer program “Bolsa Família” plays an important role in that matter and it is now part of the “Brazil without Poverty” Plan, which aims at improving the income and well-being of the very poorest. It means tracking these families and including them in the social safety net.

Employment and Income
Green Economy | 2012 38

Ministry of Finance

Income inequality has decreased consistently
Brazil’s Gini index is the lowest since the 1960’s. The reduction of educational inequality and work income inequality have been the main drivers to accomplish such reduction. Moreover, the increase in government social programs have also played its role onto the reduction.

Employment and Income

Brazil: Gini Index (12-month moving average)

0.64 0.62 0.60 0.58 0.56 0.54 0.52 0.50 0.48 0.46
Green Economy | 2012

Data: 12-month moving average * Estimates based on IBGE data (PNAD, PME and Census)

0.537
1960

0.583
1970

0.590
1979

0.609
1990

0.596
2001

0.545
2009

0.538
2010*

0.519
Jan 2012*

PNAD adjusted by the Census and PMEs
Source: FGV Produced by: Ministry of Finance
39

Ministry of Finance

Poverty decreased 52% in eight years
In terms of poverty reduction, Brazil has anticipated to just eight years the 25-year period Millennium Development Goal for 2015, established by the UN in 1990. From 2003 to 2014, poverty is expected to reduce almost 70%.

Employment and Income

Poverty Rate (% share of population)

40 35 30 25 20 15 10 35.0 35.0 28.6 28.8 28.4 26.9 28.7 27.5 26.7 28.1 25.4 22.8 19.3 18.3 16.0 15.3 13.7 12.9 9.6 8.6 5 0 10.9

Expected Drop of 69.4%

Green Economy | 2012

Data: 12-month moving average * Estimates based on IBGE data (PNAD, PME and Census) PNAD adjusted by the Census and PMEs
Source: FGV Produced by: Ministry of Finance

19 92 19 93 19 95 19 96 19 97 19 98 19 99 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 1 20 1 12 20 * 13 20 * 14 *

40

Ministry of Finance

Economic growth and income distribution
The economic growth of recent years has allowed all levels of per capita household income to record substantial growth. It’s noteworthy the 7.2% growth rate of per capita household income from the 10% poorest.

Employment and Income

Average Growth Rate of the Per Capita Income - 2001 to 2009*
8 7 6 5 4 3 2 1 0
10% richest 10% poorest

Brazilian Average = 4.55

Green Economy | 2012

Data: average growth rate (2001-2009) * Estimates based on PNAD (2001 to 2009)
Source: IBGE Produced by: Ministry of Finance

7.2
Fi rs t Se

6.3
nd co

5.9
Th ird Fo

5.4
th ur

4.9
h ft

4.6
h xt Se

4.0
nt h ve

3.3
th gh

2.5
h Te nt nt

1.4
h

Ni

Si

Ei

Fi

41

Ministry of Finance

“Bolsa Família” program reduces income inequality
The conditional cash transfer program “Bolsa Família” is recognized as one of the most efficient programs to reduce poverty due to its specific focus on the lower income segments of society and its conditional upon the receivers’ actions, such as: enrolling children into public schools, getting regular medical check-ups, and receiving vaccinations. The Program has significantly contributed to the reduction of income inequality, encompassing - with a relatively low cost - 13.4 million households in February 2012.
“Bolsa Família” Conditional Cash Transfer Program (% of GDP, R$ billion and millions of households)

Employment and Income

0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00

20

18.1
15

13.4
10

% of GDP R$ billion Number of households (million) Data: % of GDP and R$ billion and millions of households * On a 12-month basis up to February
Source: MDS Produced by: Ministry of Finance

Green Economy | 2012

5

0.2
2004

0.3
2005

0.3
2006

0.3
2007

0.3
2008

0.4
2009

0.4
2010

0.4
2011

0.4
2012*
0

42

Ministry of Finance

Improved wellness can be seen in various indicators
In recent years, there has been an improvement in the indicators of poverty, income and inequality. More recently, in January 2012, income rose 2.7% when compared to the same month of previous year, while poverty rate and Gini fell 2.1% and 7.9%, respectively.

Employment and Income

Recent Developments in Income Inequality and Poverty Indicators* (%,12-month moving average)
8 6 4 2 0 -2 -4 -6 -8 -10 -12

0.5

2.7

0.5

4.6

6.1

2.7 -1.5

0.3

2.1

9.12.11.2-

-1.9

-1.2

-2.1

-7.5

-8.8 -11.7 -7.9

Jan 2011-Jan 2012 May 2010-May 2011 May 2009-May 2010 May 2008-May 2009 May 2002-May 2008 Data: %, 12-month moving average * Based on PME (IBGE) data

5.1-

0.3

2.1

Green Economy | 2012

Average Income

Gini Index

Poverty

Source: FGV Produced by: Ministry of Finance
43

Ministry of Finance

Real minimum wage has grown more than 50% since 2003
The acceleration of growth in recent years caused a significant expansion of per capita income. As a result of the enhancement policy implemented by the Government, the minimum wage has increased even more significantly, i.e., 57.5% in real terms, from 2004 to 2012. The last increase of 14% of the minimum wage in nominal terms (from R$ 545 to R$ 622), is expected to inject more than R$ 50 billion in our domestic market.
Real Minimum Wage Evolution
57.5%

Employment and Income

600 500

30.8%
400

Green Economy | 2012

300 200

Data: annual average at January 2012 R$ prices
273.8 285.6 292.9 304.6 307.4 318.0 346.9 355.7 358.2 371.5 397.4 453.2 480.6 495.4 531.2 559.4 559.9 564.2

* Average of the last 12 months up to January 2012 Nominal Minimum Wage: R$ 622 in January 2012
Source: IPEA Produced by: Ministry of Finance

100 0

95

96

97

98

99

00

01

02

03

04

05

06

11

07

08

09

10

19

19

19

19

19

20

20

20

20

20

20

20

20

20

20

20

20

20

12

*

44

Ministry of Finance

Brazilian is now a middle class country
With the improvement in income distribution, lower income D and E classes have been reduced, giving rise to a growing middle class with different tastes and preferences. The Brazilian middle class reached 105.5 million in 2011, representing 55% of the population. Such increase allows a more stable and consistent growth consumption pace.
Brazilian Population: Economic Classes (millions of people)*

Employment and Income

200

150

8.8 45.6

13.3 12.9 55.4 65.9

22.5
55% of the population

100

105.5

Green Economy | 2012

50

A and B Classes C Class D and E Classes Data: millions of people * Based on PNAD (IBGE) data
Source: FGV Produced by: Ministry of Finance

92.9
1993

83.3
1995

96.2
2003

63.6
2011

0

45

Ministry of Finance

Low unemployment rate as a result of consistent employment creation
Even in a scenario of lower growth in the economy, the labor market showed a strong dynamism in 2011, which--to a great extent-- was reflected in unemployment decline (4.7% last December). The recent data of 2012 has shown the continuity of such process with the unemployment rate reaching 5.7%, a new record low for February.
Unemployment Rate (% of the economically active population)
14 13 12 11 10 9 8 7 6 5 4

Employment and Income
Green Economy | 2012

5.70

Data: % of the economically active population
Source: IBGE Produced by: Ministry of Finance

04

05

06

07

08

09

03

20

20

20

20

20

20

20

20

20

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Fe b

Fe b

20

12

10

11

46

Ministry of Finance

The behavior of regional unemployment rates
Recent regional unemployment data confirm that most metropolitan areas reached their lowest rates for the month of February. It is important to highlight the unemployment rates of Porto Alegre (4.4%) and Belo Horizonte (4.7%), which are levels consistent with those of developed countries before the outbreak of financial crisis.
Regional Unemployment (% of the economically active population)*

Employment and Income

14 12 10 8 6 4 2 6.2 6.1 5.3 4.7 4.4

9.2

Salvador Recife São Paulo Belo Horizonte Rio de Janeiro Porto Alegre Data: % of the economically active population *12-month moving average
Source: IBGE Produced by: Ministry of Finance

Green Economy | 2012

08

08

20 09

09

09

20 10

20 10

20 11

0

11 20

Au g

De c

Ap r

Au g

De c

Ap r

Au g

Ap r

Au g

De

De

c2 Fe 01 b 1 20 12

20

20

20

20

c2

01

47

Ministry of Finance

Increasing number of individuals with professional qualification
Increasing number of individuals with professional qualification is one of the most important factors for reducing income inequality. The goal for PRONATEC, a very comprehensive labor force qualification program, is to qualify eight million workers and build about 400 technical schools until 2014. The improvement in education can now be seen by the increase of more qualified people. Between 2009 and 2012 the proportion of people with professional training course increased from 21.6% of the working age population to 24.9%.
Proportion of people with 10 years or more of education* (%, 12-month moving average)

Employment and Income

Fe b

2 Ju 00 l2 3 Ja 003 n 20 Ju 04 l2 Ja 004 n 20 Ju 05 l2 Ja 005 n 20 Ju 06 l2 Ja 006 n 20 Ju 07 l2 Ja 007 n 20 Ju 08 l2 Ja 008 n Ju 200 n 9 20 Ja 09 n 20 Ju 10 l2 Ja 010 n 20 Ju 11 l2 0 Fe 11 b 20 12

30 28 26 24 22 20 18 16 14 12 10

24.9 21.6

Green Economy | 2012

Data: %, 12-month moving average * People with some professional qualification training
Source: FGV Produced by: Ministry of Finance

48

Ministry of Finance

Formalization growing steadily in Brazil
The quality of jobs in Brazil can be verified by the increasing level of formalization in job market. According to the Monthly Employment Survey, the proportion of formally employment jobs has reached 53.3% of total jobs in the last 12 months up to February 2012. In the same direction, the proportion of contributors to social security has reached 71.4% of total population in the same period.
Rate of Formalization (%)

Employment and Income

80 70 60 50 40 30 20

Formally-employed population as a proportion of total employed population Social security contributors as a proportion of total employed population Data: % change
47.6 64.8 49.2 66.4 45.5 63.0 43.5 60.1 43.8 60.1 45.5 62.8 46.1 63.2 49.3 66.1 51.6 69.2 53.6 71.9 53.3 71.4

Green Economy | 2012

10 0

* 12-month average up to January 2012
Source: IBGE Produced by: Ministry of Finance
49

02

03

04

05

06

07

08

09

10

11

20

20

20

20

20

20

20

20

20

20

20

12

*

Ministry of Finance

Generation of jobs in Brazil
Due to entrepreneurial optimism in relation to the country’s economic fundamentals, the Brazilian economy created 1,403 thousand of formal jobs in the last 12 months up to January 2012. From 2003 to 2011, over 12 million jobs were created in Brazil, without taking into account the public sector employment.

Employment and Income

Net Generation of Private Sector Jobs (thousands of jobs)

2,500 2,000 1,500

PRIVATE SECTOR JOB CREATION (2003-2011) 12.7 million
Green Economy | 2012

Data: thousand of jobs
1,000

1,523

1,254

1,229

1,617

1,452

2,137

1,566

645

995

500 0

1,403

* On a 12-month basis up to January ** Not including out of date declarations
Source: MTE Produced by: Ministry of Finance

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012*

50

Ministry of Finance

Education and productivity: better prospects
The increase in the educational level of the employed population provides an important explanation for the increase in productivity, which reduces production costs, raises wages and business profitability. In 2003, the occupied population with 11 or more years of schooling accounted for 46.7% of the total. The percentage jumped to 60.7% in 2011.
Occupied Population by Educational Level (% of total)
80 70 60 50 40 30 20 10 0

Employment and Income

3.0

1.6

6.3

2003 2011

Green Economy | 2012

3.4

24.7 17.3
4 of to sc 7 y ho e ol ars in g

19.1 17.0
8 t of o 1 sc 0 y ho e ol ars in g

46.7 60.7
or m of or sc e y ho e ol ars in g

Data: % of total
Source: IBGE Produced by: Ministry of Finance

N le o s ss ch t o of han oli sc 1 ng ho ye o ol ar r in g

1 of to sc 3 y ho e ol ars in g

ith

11

w

51

Ministry of Finance

Education and healthcare spending grow fast in Brazil
Education and healthcare have been a priority in terms of social policy in Brazil. Total spending on Education has grown from R$ 18.7 billion in 2002 to an estimated R$ 68.6 billion in 2012 (a 267 percent increase). In the same period, real spending on Healthcare rose 137 percent--from R$ 36 billion in 2002 to a projected R$ 85.4 billion.
Government Expenditures on Education and Healthcare* (R$ billion)

Employment and Income

100 80 60 40 20 0

Education Expenditures Healthcare Expenditures Data: R$ billion * Including Central Government spending plus transfers to States and Municipalities ** On a12-month basis up to January 2012
Source: STN/MF and Budget Law 2012 Produced by: Ministry of Finance

Green Economy | 2012

20.7 47.5

28.9 56.7

18.7 36.0

19.0 36.2

18.5 42.0

19.9 44.8

25.3 52.9

37.0 63.9

48.3 66.4

54.6 73.1

04

02

03

05

06

7

20 08

20 09

20 10

1 20 1

20 0

20

20

20

20

20

12

**

68.6 85.4

20

52

OUTLOOK

Brazilian Economy

Inflation
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

Inflation rates under control
In 2011, consumer inflation in Brazil had two crucial moments. The first one was from January to May, recording a 0.8 percent monthly average. Such pressure came mainly from external sources, such as world commodity price shocks that occurred between late 2010 and early 2011. On the other hand, from May up to December 2011, inflation started to ease down considerably, recording a 0.4 percent monthly average. As a result, annual inflation ended the year within the target, at 6.50 percent. The declining path has continued in the first quarter of 2012. The 12-month accumulated IPCA (Broad Consumer Price Index) decreased from 7.31% in October 2011 to 5.24% in March 2012. On a monthly basis, the inflation rate for March 2012 was 0.21%, well below market expectations. Moreover, it is worth noting the absence of major pressures on monitored prices this year, notably urban bus fares and household electricity prices, which may help to keep inflation rates at lower levels in 2012. According to the Central Bank of Brazil Inflation Report (March 2012), the outlook for the 2012 IPCA inflation is 4.4%.

Inflation
Green Economy | 2012 54

Ministry of Finance

Inflation within the target range
For the 7th consecutive year, the broad consumer price index (IPCA) remains within the range set by the National Monetary Council. Price pressures have dissipated and the 12-month accumulated rate began to decrease from October on. According to Central Bank projections*, the IPCA will end 2012 at 4.4%, below the central target (4.5%).
CPI Inflation - IPCA Index (% YoY)

Inflation

14 12 10 8 6 4 2 0

IPCA

IPCA Upper Bound Center of the Target Lower Bound
Upper Bound Center of the Target

Green Economy | 2012

Data: % change from the preceding year * According to the Inflation Report of the Central Bank of Brazil (March 2012)
Source: IBGE and Central Bank of Brazil Produced by: Ministry of Finance

8.9

6.0

7.7

12.5

9.3

7.6

5.7

3.1
3.1

4.5

5.9

4.3

5.9

6.5

4.4

Lower Bound

11 20

06

08

09

01

02

03

04

99

00

05

10

07

20

20

20

20

20

20

20

20

19

20

20

20

20

12

*

55

Ministry of Finance

Consumer inflation rate declining
Consumer inflation was higher in the beginning of 2011 largely due to commodity price pressures in effect since the last quarter of 2010. These pressures diminished significantly during the first half of 2011, leading to lower inflation rates in the second half, a trend likely to continue in 2012. The monthly consumer inflation rose 0.21% in March 2012, the lowest rate since July 2011 and well below market expectations.
Consumer IPCA Inflation Index (% MoM)
1.0

Inflation

Average = 0.77%
0.8

0.6

Average = 0.40%
Green Economy | 2012

0.4

0.2

Average inflation CPI Inflation (IPCA index)

0.75

0.83

0.63

0.83

0.80

0.79

0.77

0.47

0.15

0.16

0.37

0.53

0.43

0.52

0.50

0.56

0.45

0.0

0.21

Data: % change from the preceding month
Source: IBGE Produced by: Ministry of Finance

2 No 010 v 2 De 010 c2 0 Ja 10 n 20 Fe 11 b 2 M 011 ar 20 Ap 11 r2 M 011 ay 20 Ju 11 n 20 Ju 11 l2 Au 011 g 2 Se 011 p 20 1 O ct 1 20 No 11 v 2 De 011 c2 0 Ja 11 n 20 Fe 12 b 2 M 012 ar 20 12

O ct

56

Ministry of Finance

Low inflation rates in the beginning of 2012
The consumer inflation (IPCA) has been lower in the first months of 2012, when compared to the beginning of the previous two years. It is mainly due to the downturn in food prices and monitored prices as well.

Inflation

CPI Inflation - IPCA Index: Headline (% MoM)
0.9 0.8 0.7 0.6
Green Economy | 2012

0.79

0.5 0.4 0.3 0.2 0.1 0.0

0.52 0.21

2011 2010 2012 Data: % change from the preceding month

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: IBGE Produced by: Ministry of Finance

57

Ministry of Finance

Food inflation slowing down
Despite the pressures registered in the last quarter of 2011, both from the “Food Away from Home” and the “Meat” indexes, food and beverage inflation was lower than in the end of 2010. The subsequent reduction on these components in the first quarter of 2012 ensures that food inflation will be at levels below those recorded in recent years.
CPI Inflation - IPCA Index: Food and Beverage Prices (% MoM)
2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5

Inflation

1.55 0.75

0.25

2012 2011 2010 Data: % change from the preceding month

Green Economy | 2012

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: IBGE Produced by: Ministry of Finance
58

Ministry of Finance

Annual inflation on a decelerating path
The 12-month accumulated inflation rate has been decreasing since October 2011, influenced by the path of both market (5.61% in March 2012) and monitored prices (4.22%). The trend is expected to remain throughout 2012.

Inflation

CPI Inflation - IPCA Index: Headline, Market Prices and Monitored Prices (% YoY on a 12-month basis)
10 8 6 4 2 0

5.61 5.24 4.22

Green Economy | 2012

IPCA Headline Market Prices Monitored Prices Data: % change from the preceding year

Ja n M 20 ar 1 20 2 12

l2

l2

l2

l2

Ja n

Ja n

Ja n

Ja n

Ju

Ju

Ju

Ju

Ju

l2

Source: IBGE and Central Bank of Brazil Produced by: Ministry of Finance
59

11

9

10

7

08

8

09

0

00

00

00

01

20

20

20

20

01

1

Ministry of Finance

Annual consumer inflation expected to fall in the coming months
In the 12 months up to March 2012, the IPCA rose 5.24% versus a 5.85% advance in the 12-months up February. Following the downward trend started in October 2011, the 12-month accumulated IPCA inflation is expected* to keep going down until it reaches 4.4% in December 2012, according to the Central Bank of Brazil.
CPI Inflation - IPCA Index - Actual Data and Expectations (% YoY)
8

Inflation

7.31
7

6

Green Economy | 2012

5

5.24 4.4

Data: % change on a 12-month basis * Actual data up to March 2012. Central Bank of Brazil Inflation Report, March 2012
Source: Central Bank of Brazil Produced by: Ministry of Finance

4

9

09

9

9

10

10

8

10

0

1

11

11

1

2 01 De

00

00

00

00

01

01

01

20

20

20

20

ar 2

p2

c2

c2

c2

ar 2

20

20

c2

ar 2

n

ar

n

p

n

Se

De

De

De

p

M

M

M

De

Ju

Ju

Se

Ju

Se

M

c2

01

2

60

Ministry of Finance

Annual IGP-M inflation decreasing for over a year
The 12-month accumulated IGP-M inflation has been declining since the beginning of 2011 reaching 3.23% in March 2012. It is due to the dynamics of producer prices (IPA), especially agricultural products but also industrial items, and tend to influence consumer prices. For 2012, pressures to consumer inflation (e.g. food prices) are likely to cool down. Stable durable goods prices will also contribute to such trend.
Inflation - General Price Index: IGP-M and Main Components (% YoY on a 12-month basis)
15 12 9 6 3 0 -3 -6 7.85 5.47 3.23 1.76

Inflation

IGP-M IPA-M INCC-M IPC-M Data: % change on a 12-month basis
Source: FGV Produced by: Ministry of Finance

Green Economy | 2012

09 2 No 009 v 20 Ja 09 n 2 M 010 ar 2 M 010 ay 20 Ju 10 l2 0 Se 10 p 2 No 010 v 20 Ja 10 n 2 M 011 ar 2 M 011 ay 20 Ju 11 l2 0 Se 11 p 2 No 011 v 20 Ja 11 n 2 M 012 ar 20 12 Se p

Ju l

20

61

Ministry of Finance

Producer prices decrease, following commodities prices
Annual producer prices have been decreasing since the beginning of 2011, due to the reduction of both Industrial and Agricultural products prices, with the latter registering annual deflation of -0.45%. The dynamics follows the accommodation of commodities prices in international markets.
PPI Inflation - IPA-M Index (% on a 12-month basis)

Inflation

30 25 20 15 10 5 0 -5 -10 2.58 1.76 -0.45

IPA-M IPA-M Agricultural Products IPA-M Industrial Products Data: % change on a 12-month basis
Source: FGV Produced by: Ministry of Finance

Green Economy | 2012

2 No 009 v 20 Ja 09 n 2 M 010 ar 2 M 010 ay 20 Ju 10 l2 0 Se 10 p 2 No 010 v 20 Ja 10 n 2 M 011 ar 2 M 011 ay 20 Ju 11 l2 0 Se 11 p 2 No 011 v 20 Ja 11 n 2 M 012 ar 20 12

l2 Ju

Se

p

00 9

62

OUTLOOK

Brazilian Economy

Interest Rates and Credit
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

Credit expansion in line with the country´s degree of development
The analysis of credit evolution in Brazil in the first two months of 2012 shows a slight reduction in the pace of expansion of contracted volume. Credit as a share of GDP reached 48.8% in February 2012, against 49.1% recorded in December 2011. Part of the slowdown can be explained by the increase in consumer credit delinquency, which contributed to the decrease of credit offered by banks, despite the signaling by the Central Bank that interest rates will keep falling. The decline also reflects monetary policy actions and macro-prudential measures introduced throughout 2011. However, in comparison with February 2011, credit as a percentage of GDP increased 3.7 pp Companies and individuals’ outstanding loans increased by 14.6% and 20.4%, respectively, when compared to February 2011, which is consistent with the moderate expansion of economic activity. The continued decline of interest rates coupled with the positive evolution in formal job creation should boost growth in credit operations during 2012, particularly in the second half of the year.

Interest Rates and Credit
Green Economy | 2012 64

Ministry of Finance

Real and nominal interest rates
After an upward interest rate cycle, the Central Bank of Brazil reduced the benchmark interest rate (Selic) in 2.75 pp, to 9.75%, by means of a 50bp pace reduction in August, October, November 2011 and January 2012, along with an additional 75bp reduction in March 2012.The decision took into consideration the macroeconomic fundamentals and the deterioration on the external outlook. The real interest rate reached 3.44% in March 2012.
Nominal Interest Rate (Selic Target) and Real Ex-Ante Interest Rate (% YoY)*
30 25 20

Interest Rates and Credit
Green Economy | 2012

15 10 5 0

9.75 3.44

Selic Target Real Ex-Ante Interest Rate Data: % annual * Deflator: 12-month ahead inflation expectations
Source: Central Bank of Brazil Produced by: Ministry of Finance

02

03

3

01

04

05

06

06

07

08

8

09

10 20

No v

M

20 No 11 v M 201 ar 1 20 12

00

20

20

20

20

20

20

20

20

20

00

c2

Ju l

Ap r

No v

p

c2

20 p

Ju n

Ju l

Ap r

ay

De

Fe b

De

Se

Se

Fe b

65

Ministry of Finance

Term structure of interest rates shows more reduction ahead
In the second half of 2011, there was an overall drop in one-day interbank deposit rates, after the Central Bank of Brazil’s decision to start an interest rate reduction cycle. Market expects an increase in interest rates in 2013.

Interest Rates and Credit

Term Structure of Interest Rates (% YoY)

13.5 12.5 11.5 10.5 9.5

Green Economy | 2012

10.1 9.5 8.9

Jan 2015 Jan 2014 Jan 2013 Data: % change from the preceding year
Source: Central Bank of Brazil Produced by: Ministry of Finance

8.5

0

01 0

10

10

11

11

11

11

11

2 20 1 M

20 1

20 1

20

20

20

20

20

20

20

20

20

Ja n

ar 2

ar

ay

p

Ja n

Ju l

Se p

No v

Ja n

Ju l

M

M

No v

ay

M

M

Se

ar

20

12

10

11

0

66

Ministry of Finance

Room to lowering banking spread to individuals
Banking spread to individuals, although still high in comparison with other economies, remains at historically lows. Over the past six years, it fell 8 pp to 35.8 pp in February 2012. For the remaining of 2012, due to the cycle of falling interest rates and some easing in macro-prudential measures announced in November 2011, a continuity of the spread reduction to individuals is expected.
Banking Spread to Individuals (% YoY)
100 80 60 40

Interest Rates and Credit

45.39
Green Economy | 2012

Spread = 35.82
20 0

Lending rate Funding rate
9.57

Data: % change from the preceding year
Source: Central Bank of Brazil Produced by: Ministry of Finance

c2 Ju 00 n 0 De 200 c2 1 Ju 00 n 1 De 200 c2 2 Ju 00 n 2 De 200 c2 3 Ju 00 n 3 De 200 c2 4 Ju 00 n 4 De 200 c2 5 Ju 00 n 5 De 200 c2 6 Ju 00 n 6 De 200 c2 7 Ju 00 n 7 De 200 c2 8 Ju 00 n 8 De 200 c2 9 Ju 00 n 9 De 201 c2 0 Ju 01 n 0 2 Fe 01 b 1 20 12

De

67

Ministry of Finance

Banking spread to businesses
The banking spread for businesses is still at a historically high level. Over the past two years it had a 0.2 pp slight decline in 2010 and 0.4 pp in 2011. In February 2012, there was another increase (0.8 pp) to 18.8%. The spread encourages Brazilian companies to access external funding via international markets.

Interest Rates and Credit

Banking Spread to Corporations (% YoY)
40 35 30 25 20 15 10

28.55

Spread = 18.79

Green Economy | 2012

Lending rate Funding rate
9.76

Data: % change from the preceding year
Source: Central Bank of Brazil Produced by: Ministry of Finance

De c2 Ju 00 n 0 De 200 c2 1 Ju 00 n 1 De 200 c2 2 Ju 00 n 2 De 200 c2 3 Ju 00 n 3 De 200 c2 4 Ju 00 n 4 De 200 c2 5 Ju 00 n 5 De 200 c2 6 Ju 00 n 6 De 200 c2 7 Ju 00 n 7 De 200 c2 8 Ju 00 n 8 De 200 c2 9 Ju 00 n 9 De 201 c2 0 Ju 01 n 0 2 Fe 01 b 1 20 12

5

68

Ministry of Finance

Increasing credit average term
On February 2012, the average term for individuals increased 34 days, from 563 to 597 days. In the last 6 years, it expanded 308 days, as a result of the favorable evolution in the labor market. Nevertheless, the average term in the business segment remained somewhat stable (404 days) in the beginning of 2012.

Interest Rates and Credit

Average Term of Credit Operations (Days)
600 500 400 300 200 100
20 De 01 c2 0 Se 01 p 20 Ju 02 n 20 03 Ap r2 0 Ja 04 n 20 0 O ct 5 20 05 Ju l2 0 Ap 06 r2 0 Ja 07 n 20 0 O ct 8 20 08 Ju l2 0 Ap 09 r2 0 Ja 10 n De 201 c 1 Fe 201 b 1 20 12 ar n 20 00

597.05

403.6
Green Economy | 2012

Individuals Corporations Data: days
Source: Central Bank of Brazil Produced by: Ministry of Finance

Ju

M

69

Ministry of Finance

Banking credit to individuals
Credit disbursements to individuals have increased 1.9% in the first two months of 2012, when compared to December 2011. The performance is consistent with an environment of moderate expansion in economic activity. Real estate financing, though, had a remarkable 6.9% rise in the same period.

Interest Rates and Credit

Banking Credit to Individuals (% accumulated in the period)
25 20 15 10 5
1.3 0.8 1.2

Green Economy | 2012

2010 2011 2012
10.0 10.6 12.5 13.1 14.8 14.7 16.9 17.5 19.6 19.1 22.4 20.9 4.2 3.7 5.7 5.4 7.7 7.6 8.9 9.3

Data: % accumulated in the period
Source: Central Bank of Brazil Produced by: Ministry of Finance

0

Jan

2.3 2.3 1.9

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

70

Ministry of Finance

Banking credit to businesses
Banking credit to businesses in the first two months did not repeat the performance on the same period of 2011. The deceleration is consistent with the reduction in the economic activity growth rate that took place within the last 12 months.

Interest Rates and Credit

Banking Credit to Businesses (% accumulated in the period)

20 15 10 5
2.2 3.3 0.9 1.2 1.4 2.1 11.3 8.9 13.5 11.9 15.8 11.3 18.0 14.0

2010 2011 2012
0.3 0.0 19.2 17.4 4.6 4.5 7.5 6.1 9.0 7.3

Green Economy | 2012

Data: % accumulated in the period
Source: Central Bank of Brazil Produced by: Ministry of Finance

0 -5

-1.3

Jan

Feb

-1.2

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec
71

Ministry of Finance

More credit disbursements to individuals
Daily average credit disbursements to individuals have shown relative stability in 2011. The monetary easing and credit measures taken in the second half of the year should have a greater impact on the total amount of credit during 2012.

Interest Rates and Credit

Daily Average Credit Disbursements to Individuals (R$ billion, constant prices - September 2011)*

4.5

4.0

3.8 3.6 3.4 3.1

3.5

2009 2010 2011 2012 Data: R$ billion at constant prices (September 2011) * According to the Central Bank of Brazil Regulation n. 3445 (2009)

Green Economy | 2012

3.0

2.5

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: Central Bank of Brazil Produced by: Ministry of Finance

72

Ministry of Finance

Moderation on credit disbursements to businesses
Daily average credit disbursements to businesses, at constant prices, reached R$ 5.13 billion in the first two months, below the historical average (2009-2011). The slight reduction was consistent with the economic activity moderation in the last 12 months.

Interest Rates and Credit

Daily Average Credit Disbursements to Businesses (R$ billion, constant prices - February 2012)*
8

7

6 5,13

5,81 5,49 5,47

2009 2010 2011 2012 Data: R$ billion at constant prices (February 2012) * According to the Central Bank of Brazil Regulation n. 3445 (2009)

Green Economy | 2012

5

4

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: Central Bank of Brazil Produced by: Ministry of Finance
73

Ministry of Finance

Increasing delinquency rates but still within historical levels
There was a significant reduction of delinquency rates starting in 2009 until 2011. Despite its recent rise, credit for individuals default rates have remained at historical average. As for the business segment, it has also remained stable, at around 4% since mid-2009.

Interest Rates and Credit

Delinquency Rates (% of total)
10 8 6

7.6

4.1
4 2 0

Green Economy | 2012

Individuals Corporations Data: % of total

c2 Ju 00 n 0 De 200 c2 1 Ju 00 n 1 De 200 c2 2 Ju 00 n 2 De 200 c2 3 Ju 00 n 3 De 200 c2 4 Ju 00 n 4 De 200 c2 5 Ju 00 n 5 De 200 c2 6 Ju 00 n 6 De 200 c2 7 Ju 00 n 7 De 200 c2 8 Ju 00 n 8 De 200 c2 9 Ju 00 n 9 De 201 c2 0 Ju 01 n 0 2 Fe 01 b 1 20 12

Source: Central Bank of Brazil Produced by: Ministry of Finance

De

74

Ministry of Finance

Room to prudent credit growth
Despite its recent expansion and potential growth, domestic credit to the private sector in Brazil remains low, as opposed to other economies. In China and South Africa, for instance, it goes beyond 120% of GDP. So, there is room for expansion in the coming years, which will happen in a prudent way and without increase in risk taking.
Credit to the Private Sector in 2010* (% of GDP)
250

Interest Rates and Credit

Data: % of GDP * Financial resources provided to the private sector, such as loans, equity purchase (except stocks), commercial credit and other receivables. Data released by the World Bank include financial sector asset categories not considered as credit to the private sector by the Central Bank of Brazil
2,09 5,88 1,54 48,46 105,743 7,76

200

150

Green Economy | 2012

100

50

202
St at es
0

169
an O

162
D EC

145
ic

136

134

130

108
In

49
a di Ru

45

44

44

25

15

48.9

** Data refer to February 2012 according to the Central Bank of Brazil methodology
Source: World Bank and Central Bank of Brazil Produced by: Ministry of Finance

rm an y

L ss an atin ia d Ca Am rib er be ica an Tu rk ey M ex ic o Ar ge nt in a Br az il* *

a st As ia Eu ro zo ne

Ja p

h

Af r

Un ite d

So

ut

Ge

Ea

Ch in a

75

Ministry of Finance

Earmarked credit at the forefront of credit expansion
Non-earmarked total credit amounted to R$ 1.3 trillion in February, with a 15.0% annual increase. Earmarked total credit, though, had an even more robust expansion, totaling R$ 732 billion, an annual increase of 21.5%.

Interest Rates and Credit

Credit Transactions with Earmarked and Non-Earmarked Resources (R$ billion and % of GDP)

2,500 2,000 1,500 1,000 500 0 25.7% 147.4 240.9 24.3% 161.7 259.1 25.9% 181.4 330.2 31.0% 237.2 511.3 35.3% 279.4 40.4% 362.3 472.7 45.1% 43.3% 602.0

48.9%

731.5

Green Economy | 2012

28.2% 202.7 413.0

% of GDP Earmarked Non-Earmarked
963.6 1,132.9 1,303.3

680.1

866.8

Data: R$ billion and % of GDP
Source: Central Bank of Brazil Produced by: Ministry of Finance
76

3

4

05

06

07

08

09

20 10

20 11 Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

20 12

20 0

20 0

20

20

20

20

20

Ministry of Finance

Housing credit growth in Brazil
Credit to housing in Brazil has grown considerably since 2003, and more prominently after the launching of the “My House My Life” program in 2009. By 2014, planned disbursements will have reached R$ 106.6 billion.

Interest Rates and Credit

Caixa Econômica Federal’s Housing Credit (R$ billion)
110 88 66 44

11.7 20.7

18.1 22.7

Disbursed Credit Contracted Credit
70.2 80.1 33.0 46.5 55.8 75.9 106.6

Green Economy | 2012

10.6 13.9

Data: R$ billion * Caixa Econômica Federal Estimates
Source: Caixa Econômica Federal Produced by: Ministry of Finance

84.3

0

4.4 5.9

4.2 4.1

7.1 8.8

22

20 05

20 06

20 07

20 08

20 09

20 10

20 11

20 12 *

20 13 *

96.9

20 14 *

20 03

20 04

77

Ministry of Finance

Housing credit stands out in the past years
Housing credit has presented an outstanding performance in recent years. In the past 12 months, total amount allocated for housing finance grew 39.7%, reaching R$ 205.9 billion in January 2012, far above other modalities.
Credit Transactions for Individuals (R$ billion)
250 200 150 100 50 0

Interest Rates and Credit

205.9 201.7 160.9
Green Economy | 2012

Real Estate Loans Retail Payroll Data: R$ billion
l2 00 8 l2 00 9 l2 01 l2 01
Source: Central Bank of Brazil Produced by: Ministry of Finance

0

0

1

1

20 08

Ja n

Ja n

Ja n

Ja n

Ja n

Ju

Ju

Ju

Ju

20 12

20 09

20 1

20 1

78

Ministry of Finance

Funding to real estate
The expansion of new housing supply has benefited millions of Brazilian population over the past few years. The Guarantee Fund for Long Working Service (FGTS) - with disbursements amounting to R$ 33.4 billion in 2011, as compared to R$ 24.4 billion in 2010 - and savings, with an increase of around R$ 5 billion between 2010 and 2011, were the main funding sources.
Real Estate Financing: Main Funding Sources (R$ billion)
80 70 60 50 40 30 20 80 70 60 50

Interest Rates and Credit
Green Economy | 2012

40 30 20

Disbursements 2010 Disbursements 2011 Data: R$ billion
33.4 30.3 70.2

24.4

25.5

55.8

10 0

10 0

* FAR: Residential Leasing Fund SBPE: Brazilian System of Saving and Lending
Source: Caixa Econômica Federal Produced by: Ministry of Finance

6.0

FAR*

FGTS

SBPE*

Total

FAR*

6.6

FGTS

SBPE*

Total

79

Ministry of Finance

BNDES share in total credit remains at historical levels
In the first two months of 2012, BNDES share in total credit reached 20.5%, in line with the historical average between 2000 and 2011.

Interest Rates and Credit

Brazilian Financial System: BNDES - Every February of Each Year (% of total credit)
25 20 15
Green Economy | 2012

10 5 0

18.8

21.2

24.3

23.8

21.7

19.9

18.7

16.9

17.3

20.2

20.9

20.5

Data: % of total credit
Source: Central Bank of Brazil Produced by: Ministry of Finance

09

10

11 20

03

04

05

06

07

01

02

08

20

20

20

20

20

20

20

20

20

20

20

12

80

Ministry of Finance

Steady growth on asset trading in Brazil
Annual trading volume on Bovespa has been increasing systematically. Over the last 10 years, the average annual growth was 21.3%. Over the past 12 months, the volume reached a significant daily average of R$ 1.63 billion.

Interest Rates and Credit

Trading Volume on Bovespa (R$ billion)
2,000

1,500

Green Economy | 2012

1,000

307.5

405.8

206.4

154.6

1,190.3

1,364.6

1,288.1

1,592.8

1,604.8

1,630.3
*

149.7

135.4

597.5

500

163.2

184.7

206.1

Data: R$ billion * 12-month accumulated up to February 2012
Source: Central Bank of Brazil Produced by: Ministry of Finance

0

96

98.7

7

8

99

00

01

02

3

04

5

6

7

8

9

0

1

19 9

19 9

20 0

20 0

20 0

20 0

20 0

20 0

20 1

19

19

20

20

20

20

20 1

20

12

81

OUTLOOK

Brazilian Economy

Fiscal Policy
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

Fiscal policy soundness continues in 2012
The Government will work hard to meet the R$ 139.8 billion primary surplus target for the Public Sector in 2012. In order to achieve the goal, the Government announced a R$ 55 billion cut in its 2012 Budget Law, without compromising investments and social policy programs. In light of the clearly established goals, the first results of the fiscal policy have already proved successful. In the first two months of 2012, the Central Government produced a R$ 25.6 billion surplus, which represents 91.2% of the target for the first four months of the year. The result, along with those of regional governments, has led the Public Sector to achieve a R$ 35.5 billion primary surplus, which represents 25.4% of the year target. Such figure exceeds that of 2011, which posted 20.4% of the year target fulfilled in the first two months of the year.

Fiscal Policy
Green Economy | 2012 84

Ministry of Finance

Primary Surplus larger than predicted
The primary surplus achieved in the first two months of 2012 represented 91.2% of the target for the first four months of the year, the highest level of the last ten years. It also corresponds to 26.3% of the annual target.

Fiscal Policy

Central Government Primary Fiscal Result* (R$ billion and % share of fiscal target)
30 25 20 15 10 5 0
38.1 60.2 61.6 51.7 61.9 71.3 71.0 91.2

100 80 60 40 12.8 16.3 25.5 20

Primary Surplus Achieved in Jan-Feb of each year/ Target for Jan-Apr of each year Primary Surplus Achieved in Jan-Feb of each year Data: R$ billion and % share * Not including state-owned companies and authorized reductions in the Budget Law
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance

Green Economy | 2012

11.3

12.0

10.6

6.6
23.0

14.5

20.8

33.5

5.7

20

20

20

20

20

20

20

20

20

20 12

03

04

09

11

05

06

07

08

10

85

Ministry of Finance

Economic growth with fiscal consolidation
The public sector continues to pursue the fiscal target in line with fiscal responsibility principles, one of the pillars of Brazilian economic policy. In fact, the coordination between fiscal and monetary policy has contributed to an expressive reduction in interest rates. For the next years, the projected targets will reduce the nominal deficit and public debt.
Public Sector Fiscal Result (% of GDP)
Public Sector Primary Result Central Government Subnational Entities Primary Result(States and Municipalities) State-owned Companies Primary Result Public Sector Nominal Result Data: % of GDP * On a 12-month basis up to February 2012 (including Petrobras capitalization)
Source: Central Bank of Brazil Produced by: Ministry of Finance

Fiscal Policy

4 3 2 1 0 -1 -2 -3 -4 -5 -6

3.2

3.3

3.7

3.8

3.2

3.3

3.4 2.7 2.0 2.4 1.0 0.1 1.3 0.6 2.1 0.5 0.1

3.1

3.3

2.7 0.9 0.1

2.6 1.0 0.2

2.2 0.8 0.1

2.5 0.8 0.1

2.3 0.8 0.2

2.2 0.8 0.2

2.2 0.7 0.3

2.2 1.1

Green Economy | 2012

-2.0 -2.9 -3.6 -4.4 -5.2 -3.6 -2.8 -3.3

-2.5

-2.6

-2.3

06

07

08

2

3

4

5

9

0

1

00

00

00

00

00

01

20

20

20

01

c2

c2

c2

c2

c2

c2

De c

De c

De

De

De

De

De c

De

De

De

c2

20

12

*

86

Ministry of Finance

Stability of the payroll expenditure
Despite the increase in the number of civil servants in recent years and their salary improvement, payroll cost ended 2011 below the average of the last 10 years, in 4.3% of GDP. The belt-tightening measure was important to the 2011 fiscal consolidation and will remain in 2012, in order to maintain spending on investments and transfers to families. The level of payroll cost remains the same in the 12 months up to February 2012.
Public Expenditures (% of GDP on a 12-month basis)
10 9 8 7 6 5 4
2 03 00 20 c2 c2 De c De De
4.8 4.7 6.8 7.2 8.1 7.6 8.4 8.5 8.1 8.7 8.5 8.6 8.7

Fiscal Policy
Green Economy | 2012

Transfers to families Payroll Data: % of GDP * 12-month accumulated up to February 2012
Source: National Treasury Secretariat/ Ministry of Finance/Senate Produced by: Ministry of Finance

4.5

4.3

4.3

4.4

4.4

4.3

4.4

4.3

4.3

4

05

6

07

08

09

0

1 01 c2 Fe b

00

00

20

20

20

20

01

c2

De c

De c

De c

De c

De

De

c2

De

20

12

*

87

Ministry of Finance

Improvement on public spending
The Central Government balance has been going through considerable changes since 2002, due to the formalization of the economy and the focus on reducing inequalities. The increment in net revenues is allocated to income transfers to households and public investment.

Fiscal Policy

Central Government Fiscal Result – Above the Line (% of GDP)
Em % PIB
Receita Bruta Transferências para Estados e Municípios Receita Líquida Total Despesas Primárias Pessoal e encargos Transferência de Renda às Famílias** Investimentos Custeio com saúde e educação Demais despesas de custeio Resultado Primário sem FSB e Cessão Onerosa Impacto do FSB e da Cessão Onerosa*** Resultado Primário (acima da linha) Receita Líquida menos Transferências de Renda às Famílias

2012*
24,3 4,2 20,1 17,6 4,3 8,7 1,0 2,0 1,6 2,5 0,0 2,5 11,4

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

21.7 3,8 17,9 15,7 4,8 6,8 0,8 1,7 1,6 2,1 0,0 2,1 11,1

21,0 3,5 17,4 15,1 4,5 7,2 0,3 1,6 1,6 2,3 0,0 2,3 10,3

21,6 3,5 18,1 15,6 4,3 7,6 0,5 1,7 1,5 2,5 0,0 2,5 10,5

22,7 3,9 18,8 16,4 4,3 8,1 0,5 1,8 1,8 2,5 0,0 2,5 10,8

22,9 3,9 19,0 17,0 4,5 8,4 0,6 1,7 1,8 2,1 0,0 2,1 10,6

23,3 4,0 19,3 17,1 4,4 8,5 0,7 1,8 1,8 2,2 0,0 2,2 10,8

23,6 4,4 19,2 16,4 4,3 8,1 0,9 1,7 1,4 2,8 -0,5 2,4 11,1

22,8 3,9 18,9 17,7 4,7 8,7 1,0 1,9 1,4 1,2 0,0 1,2 10,2

22,4 3,7 18,7 17,4 4,4 8,5 1,2 2,0 1,4 1,2 0,8 2,1 10,2

23,9 4,2 19,7 17,5 4,3 8,6 1,0 2,0 1,5 2,3 0,0 2,3 11,1

Data: % of GDP * On a 12-month basis up to February 2012 ** Including social security benefits, allowance and unemployment insurance, assistential benefits (LOAS and RMV) and “Bolsa Família” Program *** Including the Sovereign Wealth Fund constitution (2008) and the capitalization operation of Petrobras (2010)
Source: National Treasury Secretariat/ Ministry of Finance/Senate Produced by: Ministry of Finance

Green Economy | 2012 88

Ministry of Finance

Job creation helps social security balance
The declining social security deficit has largely contributed to the primary balance. In part, such performance derives from stricter rules for benefits concessions. But growth on Social Security revenues and the formalization process within the labor market are the most important factors. For instance, the quantity of Social Security contributors registered a record (71.4%) of the occupied population in February 2012.
Social Security (% of GDP)
8 7 6 5 4 3 2 1 0
05 06 08 09 07 10 11 12 * 20 20 20 20 20 20 20 20

Fiscal Policy

Social Security Contributors (% of occupied population)
2.0
75 70

1.5
65 60 55 50
05 07 08 09 11 06 10 20 20 20 20 20 20 20 20 12 *

1.0
0.90

Deficit Revenue Benefits Data: % of GDP * On a 12-month basis up to February 2012
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance
62.2 5.6 63.0 64.2 65.8 66.8 68.4 7.5 71.0 8.1 71.4

Green Economy | 2012

0.5

89

Ministry of Finance

Federal Public Debt profile improving
The share of floating rate bonds in FPD decreased to 27.8%, its lowest value since May 1998. On the other hand, the share of fixed rate plus inflation linked bonds, which ensure greater predictability to the public debt, reached its maximum historic level of 68.2%.

Fiscal Policy

Federal Public Debt Profile** (% of total debt)
4.0
0,8 0,6 0,4 0,2 0,0

Exchange Rate

41.6

27.8

25.7 5.2 27.5
91 92 93 94 95 96 97 98

Floating Rate*

In ation Linked

31.4

Exchange Rate Floating Rate* Inflation Linked Fixed Rate Data: % of total debt * Including SELIC, TR and others ** Including domestic and external debts managed by the National Treasury
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance

Green Economy | 2012

Fixed Rate
99 00 01 02 03 04 05 06 07

36.8

0 20 8 09 20 10 20 Fe 1 b 1 20 12

19

90

19

20

20

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

90

Ministry of Finance

Public debt drops to pre-crisis levels
Since the financial crisis, fiscal policy in Brazil has kept Gross and Net Public Debt / GDP ratios in a downward trend. For instance the Gross General Government Debt went from 63.1% in October 2009 to 55.7% in February 2012, whereas Net Public Sector Debt went from 42.9% to 37.5% in the same period.

Fiscal Policy

Gross General Government Debt and Net Public Sector Debt (% of GDP)
70 60 50 40 30 20 10 0 57.1 46.7

63.1 55.7 42.9

37.5

Gross General Government Debt* Net Public Sector Debt** Data: % of GDP * Methodology since 2008 ** Excluding assets and liabilities of Petrobras and Eletrobras
Source: Central Bank of Brazil Produced by: Ministry of Finance

Green Economy | 2012

2 Ap 00 r2 7 0 Ju 07 l2 O 007 ct 2 Ja 007 n 2 Ap 00 r2 8 0 Ju 08 l2 O 008 ct De 200 c 8 M 20 ar 08 Ju 200 n 9 Se 20 p 09 2 O 00 ct 9 De 20 c 0 M 20 9 ar 09 Ju 201 n 0 20 Se 10 p 2 De 01 c2 0 M 01 ar 0 2 Ju 011 n 2 Se 01 p 1 De 201 c 1 Fe 20 b 11 20 12

Ja n

91

Ministry of Finance

The lengthening of Federal Public Debt average maturity
The maturity structure of Domestic Federal Public Debt – DFPD also registered historical advances. The average maturities of the bonds issued through auctions increased to 5.3 years, the highest value since December 1999. As a result, the average maturity of the DFPD outstanding climbed to 3.7 years, another record in the same period. Considering the whole Federal Public Debt outstanding, the average maturity moved to 3.8 years, the highest level since October 2002.
Average Maturity of Domestic Federal Public Debt (years)
6 5 4 3 2 1

Fiscal Policy

3.7
Green Economy | 2012

Issuance Outstanding
1.4 3.8 1.7 1.2 2.0 2.1 4.6 2.8 3.6 3.1 5.1 4.2 5.3

Data: years
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance

0

00

01

02

03

04

05

06

07

08

09

10

11 20 Fe b

20

20

20

20

20

20

20

20

20

20

20

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

Fe b

20

12

92

Ministry of Finance

A diversified investor base helps mitigate risks
A diversified investor base, with respect to investment terms, risks preferences and motives for trading assets, is vital for stimulating transactions, increasing the liquidity of public bonds and obtaining government financing under various economic scenarios. The data below show that non-resident investors demand much more fixed rate bonds, while pension funds, for instance, prefer inflation-rate bonds.
Federal Public Debt Holders (% of total)*
100 90 80 70 60 50 40 30 20 10 0 1.5 21.4
21.4

Fiscal Policy

24.6
24.6

77.1

15.6
3.5

15.6 3.5

33.4
33.4

55.5

27.7

27.7

55.5
52.3
52.3

77.1
9.6

26.7

26.7

Fixed Rate Floating Rate Inflation Linked Other Data: % of total * Data from February 2012 ** Including funds administered by the Federal Government
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance

Green Economy | 2012

49.4
49.4
Banks

9.6

80.8
80.8

24.7

24.7

23.2

23.2

13.3

13.3

39.9

39.9

19.9

19.9

Funds

Social Security Non-Resident Government**

Insurance

93

Ministry of Finance

Increasing number of non resident investors in Brazilian public debt
In the first two months of 2012, the Brazilian domestic public bonds remained attractive to foreigners, reaching the highest level of the series (11.88% of total domestic debt). Typical non-resident investors differ from domestic ones as they demand more fixed rate bonds and have more appetite for longer maturities, which contributes to the improvement of domestic debt profile.
Non-resident Share in Federal Public Debt (% of total domestic debt)

Fiscal Policy

12 10 8 6 4 2 0
IOF 2.0% on Foreign Investment In ow Tax IOF 1.5% on Foreign Investment In ow Tax

11.80
IOF 6.0% on Foreign Investment In ow Tax

11.88

Green Economy | 2012

Data: % of total domestic debt
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance

M a M r 20 ay 0 7 Ju 200 l2 7 Se 0 p 0 No 20 7 v 07 Ja 20 n 07 M 20 a 0 M r 20 8 ay 0 8 Ju 200 Se l 20 8 p 08 O 20 ct 08 Ja 20 n 0 M 20 8 ar 09 M 20 ay 0 9 Ju 200 Se l 20 9 p 0 No 20 9 v 09 Ja 20 n 09 M 20 a 1 M r 20 0 ay 1 0 Ju 201 l2 0 Se 0 p 10 O 20 ct 10 Ja 20 n 1 M 20 0 ar 11 M 20 ay 1 1 Ju 201 l2 1 Se 0 p 1 No 20 1 v 11 Ja 20 n 11 Fe 20 b 12 20 12

94

Ministry of Finance

Annual Borrowing Plan: public debt strategy and expected results
The strict fulfillment of Annual Borrowing Plan targets has guaranteed great advances in public debt management. For 2012, the National Treasury expects a final volume of Federal Public Debt (FPD) stock between R$1.95 trillion and R$2.05 trillion, compared to R$1.87 trillion in 2011. The fixed rate share of FPD, which closed 2011 at 37.2%, is estimated to end 2012 between 37% and 41%. The upper limit for the percentage of debt maturing in 12 months is 26%.
Expected Results for FPD

Fiscal Policy

Indicators Stock (R$ Billion)
Fixed Rate Floating Rate Exchange Rate Average Maturity (years) % Maturing in 12 months

Limits for 2011 Minimum
1,800.00 36.0 26.0 28.0 4.0 3.5 21.0

2011

Limits for 2012 Minimum Maximum
2,050.00 41.0 34.0 26.0 5.0 3.8 26.0

Maximum
1,930.00 40.0 29.0 33.0 6.0 3.7 25.0 1,866.35 37.2 28.3 30.1 4.4 3.6 21.9

1,950.00 37.0 30.0 22.0 3.0 3.6 22.0

Green Economy | 2012

Data: R$ billion % of total debt and years
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance

95

Ministry of Finance

Floating rate bond share expected to fall
According to its Annual Borrowing Plan, the National Treasury expects a decrease in the percentage of floating rate securities in 2012, reaching its lowest level since May 1998, even with a more conservative strategy (26%). On the other hand, the fixed rate share is likely to achieve its historical maximum level.
Expected Results for Floating and Fixed Rate Share Bonds (% of total debt)
52 48 44 40 36 32 28 24 20

Fiscal Policy

Floating rate debt

30.1
26 (Maximum) 22 (Minimum)

20 03

20 04

20 05

20 06

20 07

20 08

20 09

20 10

20 11

20 12

Green Economy | 2012

45 40 35 30 25 20 15 10 5

37.2 Fixed rate debt

41 (Maximum) 37 (Minimum)

Data: % of total debt
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance
03 04 05 06 07 08 09 10 11 20 20 20 20 20 20 20 20 20 20 12

96

Ministry of Finance

Inflation linked bond share expected to increase
Also, according to its Annual Borrowing Plan, the National Treasury expects to end 2012 at the maximum historical level of inflation linked share bonds, even in a more conservative strategy (30%). In addition, the average maturity is likely to reach its highest levels.
Expected Results for Inflation-Linked Share Bonds1 and FDP Average Maturity2
36 32 28 24 20 16 12 8 34 (Maximum) 30 (Minimum)

Fiscal Policy

In ation-linked debt

28.3

03

04

05

06

07

08

09

10

11

12

Green Economy | 2012

20

20

20

20

20

20

20

20

20

3.9 3.7 3.5 3.3 3.1 2.9 2.8

20
3.8 (Maximum)

Average maturity (years) 3.6

3.6 (Minimum)

Data: 1 % of total debt and 2 years
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance
03 05 06 07 08 09 10 11 20 04 20 20 20 20 20 20 20 20 20 12

97

Ministry of Finance

Consistent declining yield at the issuance of 10-year Brazilian bonds
The Brazilian National Treasury carried out, on last January 3rd, the reopening of its 10-year benchmark bond, the Global Bond 2021, in the amount of US$ 825 million. The bond was priced at 110.997 percent of its face value, resulting in a yield of 3.449 percent per year, the lowest rate for a Brazilian Global bond issuance.
Yield at the Issuance of 10-year Brazilian Bonds (% YoY)
15 12 9 6 3 0
14.6 12.6 10.6 10.8 8.2 7.9 7.7 7.8 6.2 5.9 5.3 6.1 5.8 4.8 5.0 4.6 4.2 3.5
Global 2009 Global 2012 Global Global 2013 2014 Global Global 2014 2015 Global Global 2015 2015 Global Global Global 2017 Global 2017 Global 2019N 2019N Global Global Global 2017 2019N 2021 2021 Global 2021

Fiscal Policy
Green Economy | 2012

Global 2021

Date Issuance Data: % change from the preceding year
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance

25 Ja , 19 n 11 99 Ju , 2 0 n 17 02 ,2 Ju l 1 003 4, De 20 c 8 04 Fe , 2 0 b 28 04 ,2 Ju 0 n 21 05 ,2 No 00 v 9, 5 No 20 0 v 7, 5 20 Ap r 3 06 M , 20 ay 0 7, 7 Ja 200 n 8 6 M , 20 ay 09 7 De , 2 c 1 009 5 Ap , 2 r 1 009 5 Ju , 20 1 l2 7, 0 20 Ju l 7 10 , Ja 201 n 3, 1 20 12

ct

98

O

Ministry of Finance

Continuous improvement in risk assessment by rating agencies
The degree of investment in Brazil is the result of solid macroeconomic fundamentals, which include improvements in federal debt profile, maintenance of a responsible fiscal policy and monetary policy credibility. The policy, kept in a context of high volatility, has ensured upgrades from all the major credit rating agencies.
Rating on Sovereign Risk of Brazil
Fitch Ratings
AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC CC C D

Fiscal Policy

Standard & Poor’s
AAA AA+ AA AAA+ A A-

Moody’s
Aaa Aa1 Aa2 Aa3 A1 A2 A3

Signi cance in scale Investment grade High quality and low risk

2011

BBB+ BBB BBBBB+ BB BBB+ B BCCC CC C D

2011

Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C

2011

Investment grade Average quality Speculative grade and low quality

Green Economy | 2012

High risk of default and low demand

Data: rating
Source: Risk agencies Produced by: Ministry of Finance
99

Ministry of Finance

Tax benefits encourage investments
In order to boost economic activity, the Government has given tax benefits to several sectors. These include, for instance, payroll and investment benefits. Only in 2011, benefits totaled R$ 39.2 billion, 30 percent (R$ 11.4 billion) was investment tax benefits. In the last five years, tax benefits corresponded to a total of, at least, R$ 97.8 billion. From the value, R$ 31.0 billion were allocated directly to encourage investments.
Tax Benefits 2007-2011 (R$ billion)*
40 35 30 25

Fiscal Policy
Green Economy | 2012

20 15 10 5 0

Total Tax Benefits Investment Tax Benefits Data: R$ billion * Estimated impact for the implementation year of the measure and the following year
Source: Federal Revenue/ Ministry of Finance Produced by: Ministry of Finance

7.4
2007

2.0

29.3 6.9
2008

12.6 3.8
2009

9.4
2010

6.9

39.2 11.4
2011

100

OUTLOOK

Brazilian Economy

External Sector
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

Strong foreign direct investment inflows in 2012
Despite the uncertainty in the international economic scenario in the beginning of 2012, the Brazilian external sector remains stable. Up to February 2012, the current account deficit has been around 2.1% of GDP on a year-over-year basis, and fully financed by foreign direct investment (FDI). As a result of macroprudential measures, in particular relative to short and medium term foreign capital flows, there has been a decline in net capital inflows and a reduction of exchange rate volatility. On the other hand, productive investments remain strong in 2012. According to estimates from the Central Bank of Brazil*, FDI inflows are expected to reach US$ 50 billion in 2012. It demonstrates higher market confidence in the Brazilian economy.

External Sector
Green Economy | 2012

* External Sector Report (February 2012)

102

Ministry of Finance

Flow of exports continue to grow
The flow of Brazilian exports continues to expand, reaching US$ 259.8 billion in the 12 months accumulated until March 2012. The increase in exports is associated with the continued diversification of markets and rising commodity prices. Imports totaled US$ 230.7 billion, which led to a trade balance surplus of US$ 29 billion.

External Sector

Trade Balance (US$ billion on a 12-month basis)

300 250 200 150 46.5 50.0 47.7 53.3 53.0 59.7 51.1 57.8 48.0 49.3 100 50 0

50 40 30 20 10 55.1 55.8 58.2 55.6 60.4 47.2 73.2 48.3 96.7 62.8 118.5 73.6 137.8 91.4 160.6 120.6 197.9 173.0 153.0 127.7 201.9 181.6 256.0 226.2 259.8 230.7 0 -10

29.1

Green Economy | 2012

Exports Imports Trade Balance Data: US$ billion * On a 12-month basis up to March 2012
Source: MDIC Produced by: Ministry of Finance

19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 *

103

Ministry of Finance

Change in the last years: more diversified exports
Market diversification has played a pivotal role to growth in exports from Brazil. The exports share to China and Mercosur markets has grown up importance in recent years. Over the last twenty years, Chinese participation rose from 1.2% to 17.3% of the total, while Mercosur increased from 4.2% to 10.9%.

External Sector

Major Trading Partners (% of total exported)
35 30 25 20 15

Green Economy | 2012

5.63 17.31

5 0

4.20 17.36 9.24 10.88

10

24.17 19.06 20.79 10.08

1.22 1.77

33.73 29.83 25.52 20.68

1990 1998 2004 2011 Data: % of total exported
Source: MDIC Produced by: Ministry of Finance

China

United States

EU

Mercosur

104

Ministry of Finance

A stable current account deficit to GDP ratio
In the beginning of 2012, the current account deficit was kept at the same level observed in late 2011. The poor performance of the trade balance in January was offset in February, so the current account deficit in 2012 was at the same level of that observed in 2011. Highlight for the drop in income transfers, determined primarily by lower gross remittances of profits and dividends.
Current Account Balance (US$ billion and % of GDP)

External Sector

20 10 0 -10 -20 -30 -40 -50
-23.5 -2.8
-2.8

4.2 0.8
0.8

11.7 1.8
1.8

14.0 1.6
1.6

13.6 1.3
1.3

4
1.6 0.1
0.1

2 0
-1.7
-1.7

-30.5 -3.5
-3.5

-33.4

-25.3

-24.2

-23.2

-1.5
-1.5

-1.5
-1.5

-7.6 -4.0
-4.0

-4.3
-4.3

-3.8
-3.8

-28.2

-24.3

-2.2
-2.2

-2.1
-2.1

-2.1
-2.1

-2 -4 -6 -8 -10 -12

-4.2
-4.2

-47.3

-52.6

-52.4

Current Account Balance (% GDP) Current Account Balance (US$ billion) Data: US$ billion and % of GDP * On a 12-month basis up to February 2012
Source: Central Bank of Brazil Produced by: Ministry of Finance

Green Economy | 2012

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

19

19

20

20

20

19

19

20

20

20

20

20

20

20

20

20

20

12

*

-60

105

Ministry of Finance

External crisis and currency dynamics damage manufacturing balance
Anticompetitive conduct and monetary policies - which depreciated currencies to increase earnings from exports - influenced the deterioration of trade balance of manufactured goods. From 2005 to 2011, Brazil has gone from a US$ 8.5 billion balance surplus in the manufacturing sector to a US$ 92 billion deficit. In order to change the perspective, the Brazilian Government has taken some measures, such as the “Brasil Maior” industry enhancing program, aimed at slowing these effects and promoting employment, local production and technological innovation.
Manufacturing Trade Balance (US$ billion)
150 100 50 0 -50 -100 -150
-92.1 -183.9 91.8

External Sector
Green Economy | 2012

Manufactured Exports Manufactured Imports Manufactured Trade Balance Data: US$ billion
Source: Funcex Produced by: Ministry of Finance

19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11

-200

106

Ministry of Finance

Current account deficit is a result of the balance on services
Net imports of services amounted to US$ 39 billion in the first two months of 2012, the major result of the series. Rental equipment and travel costs are the main drivers of such result.

External Sector

Balance of Services (US$ billion)
5 0 -5 -10 -15 -20 -25 -30 -35 -40

-15.0 -17.1

Services International Travel Rental Equipment Data: US$ billion on a 12-month basis
Source: Central Bank of Brazil Produced by: Ministry of Finance

Green Economy | 2012

-39.4

c2 Ja 00 n 0 20 Ja 01 n 20 02 Ja n 20 03 Ja n 20 04 Ja n 20 05 Ja n 20 06 Ja n 20 07 Ja n 20 08 Ja n 20 09 Ja n 20 10 Ja n 20 11 De Fe c 2 b 01 20 1 12 *

De

107

Ministry of Finance

Brazil as one of the main foreign direct investment destinations
According to Unctad, Brazil is among the economies which received major amounts of FDI in 2011. It was ranked at the fourth position, only behind the United States, China and United Kingdom.
FDI in 2011 – Selected Countries (US$ billion)*
250

External Sector

200

150

100

Green Economy | 2012

Data: US$ billion
34.0 33.1 32.3 27.2 25.0 210.7 202.4 22.0

50 0

77.1

65.5

53.0

50.8

41.1

41.0

* Global Investments Trend Monitor, January 2012 ** Including Hong Kong
Source: Unctad Produced by: Ministry of Finance

Un

St at Ch es ite i d na * Ki ng * do m

Un

Br az i Ire l la nd Ru ss Be ia lg Si ium ng ap or e Fr an ce In di a Ita Ge ly Lu rm xe an y m bo ur g Sp a Sw in ed en

ite

d

40.0

108

Ministry of Finance

Brazil continues attracting higher FDI flows
Unctad survey shows that, for the first time, the four major emerging economies are among the five most cited as attractive destinations for FDI by major transnational corporations in the period 2010-2012. Brazil ranks third, only behind China and India.

External Sector

Main Destinations of FDI: 2010-2012 (number of citations)*
120 100 80 60
Green Economy | 2012

24.0

23.0

20.0

19.0

18.0

17.0

16.0

16.0

15.0

15.0

14.0

40 110.0 70.0 67.0 66.0 35.0 30.0 28.0 20 0

Data: number of citations
13.0 11.0

26.0

* World Investment Prospects Survey, 2010-2012
Source: Unctad Produced by: Ministry of Finance

na Ch i

Br a az il US A Ru Un ite M ssia d ex Ki ic ng o d Vi om et In na do m n Ge es rm ia Th an ai y la Po nd Au lan st d ra Fr lia M anc al e ay s Ja ia p Ca an na da So ut Ch h ile Af ric Sp a ai n Pe ru

In

di

109

Ministry of Finance

More equities on the composition of FDI in Brazil
The increase in foreign direct investment (FDI) in 2011 was mainly due to the large increase in equity markets. It shows that the Government’s measures were effective in improving the profile of foreign capital in the country, widening the FDI and also lengthening the period of funding for loans and securities in foreign markets. In the beginning of 2012, the same behavior remains.
Composition of Foreign Direct Investment (US$ billion)
75 65 55 45 35 25 15 5 -5 18.1
18.1

External Sector

11.9 66.7
66.7

10.7 65.0
65.0

75 65 55 45 35 25

15.0 8.5 34.6
34.6

8.4 48.5
48.5

45.1
45.1

6.0 25.9
25.9

3.4 15.1 15.0
15.1

18.8
18.8

18.6 -0.4

15.4

26.1

30.1

19.9

40.1

54.8

54.3

15 5 -5

Foreign Direct Investment Equity Intercompany Loans Data: US$ billion
Source: Central Bank of Brazil Produced by: Ministry of Finance

Green Economy | 2012

4

05

06

7

8

9

0

1

00

00

00

00

01

01

20

c2

20

c2

c2

c2

c2

De c

De c

c2

De

De

De

De

De

De

Fe b

20

12

110

Ministry of Finance

U.S. and Spain at the forefront of direct investments in Brazil
Foreign capital survey in Brazil has shown that the United States and Spain are the main investors in the final investor criteria, with inventories of US$ 104.7 billion (18% of total) and US$ 85.3 billion (15% of total), respectively. There is a relative diversification, if types of industry are considered, particularly for investments in financial services, beverages, telecommunications, extraction of oil and natural gas.
FDI by Country* (% of total)
United States Others

External Sector

28%

18% 15%
Spain

Green Economy | 2012

Netherlands 2% Mexico

5% Belgium Italy 7% 5% Japan 5% United Kingdom Germany France

3% 3%

9%

Data: % of total * Survey of foreign capital in Brazil 2011, base year 2010
Source: Central Bank of Brazil Produced by: Ministry of Finance

111

Ministry of Finance

Dynamics for direct and portfolio investments
The change in the profile of foreign investments observed in 2011 has remained in the beginning of 2012. Portfolio investments reached 0.8% of GDP by February 2012 and FDI reached 2.6% of GDP. The amount was used to finance the current account deficit of 2.1% of GDP.

External Sector

Foreign Direct Investment, Foreign Portfolio Investment and Current Account (% of GDP)
4 3 2 1 0 -1 -2 -3

2.6 0.8

-2.1

Foreign Direct Investment Foreign Portfolio Investment Current Account Data: % of GDP on a 12-month basis
Source: Central Bank of Brazil Produced by: Ministry of Finance

Green Economy | 2012

09

10

11

Ja Fen 2 b 01 20 2 12

08

20

20

20

Ja n

Ja n

Ja n

Ja n

20

112

Ministry of Finance

External liabilities and Foreign Direct Investments
On the composition of foreign investments, FDI and stocks prevail in the country’s external liability, exceeding the amount related to debt. For 2012, we expect the same composition in fixed income and debt, due to lower international growth.

External Sector

Composition of External Liabilities (%)
100 80 60 40 20 0

26.4

30.6

26.5

22.4 24.1 17.3

14.2 21.5

13.4 18.0 30.7

11.0 15.8 39.6

16.8 19.9 21.6

10.9 17.2

11.0 15.0 29.1

13.6 16.4 24.1

12.7 16.2 27.7

30.9 9.9 32.8
1

32.1 7.9 29.4
2

27.8 13.1 32.7
03

25.1

34.9

Other Liabilities Fixed Income Stocks Investments Data: % * On a 12-month basis up to February 2012
Source: Central Bank of Brazil Produced by: Ministry of Finance

Green Economy | 2012

36.1

39.2

37.9

33.6
20 07

41.6

37.1

44.9

45.9

43.4

20 04

20 05

20 06

08

09

10

11 20

20 12

20 0

20 0

20

20

20

20

*

113

Ministry of Finance

International reserves remain at high level
In 2012, the official reserves assets totaled US$ 356.3 billion (about 14.2% of GDP). The balance of reserves continued surpassing the total external debt, keeping the country as net external creditor. The policy of accumulating foreign reserves has been an important mechanism to protect the country from international crises and to reduce external vulnerability.
International Reserves Assets (US$ billion)
400 350 300 250 200 150

External Sector
Green Economy | 2012

60.1

51.8

52.2

44.6

49.3

52.9

38.8

36.3

33.0

35.9

37.8

180.3

193.8

238.5

288.6

352.0

50 0

356.3

100

53.8

85.8

Data: US$ billion * On February 2012
Source: Central Bank of Brazil Produced by: Ministry of Finance

19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 1 20 1 12 *

114

Ministry of Finance

Brazilian external debt profile
The total external debt to GDP and the ratio net debt/GDP remained stable at 84.5% and -3.0% respectively, in the first two months of 2012 . The participation of long-term debt relative to total debt increased to 87.1%, accompanied by the growth of reserves, preserving the solvency conditions of the country. The private sector is primarily responsible for the debt, about 2/3 of total.
External Debt and International Reserves

External Sector

External Debt and International Reserves US$ billion 2011
Reserves Total Debt Long Term Short Term Public Private Total Debt/Reserves Long term debt/Reserves Short Term/Reserves Net External Debt/GDP

2012*
356.3 301.1 87.1% 12.9% 34.6% 65.4% 84.5% 73.6% 14.9% -3.0%
Data: % * Estimated to February 2012
Source: Central Bank of Brazil Produced by: Ministry of Finance
115 Green Economy | 2012

352.0 298.2 86.5% 13.5% 34.4% 65.6%

Debt Indexes (%)
84.7% 73.3% 11.3% -2.9%

Ministry of Finance

Sound indicators of external vulnerability
The good conditions of external solvency were kept in the first two months of 2012, despite the worsening in the international scenario. The volume of international reserves considerably exceeds the external debt and current account deficit remains stable.

External Sector

External Vulnerability Indicators (% of GDP)
50 40 30 20

Green Economy | 2012

18.1

4.8

31.5

42.9

26.5

5.3

12.0

11.7

12.0

0 -10

14.2

10

Current Account International Reserves Total External Debt
-2.1

1.5

2.6

-0.5

-6.8

-6.0

-4.0

-1.7

Data: % of GDP * On a 12-months basis up to February 2012
Source: Central Bank of Brazil Produced by: Ministry of Finance

1974

1982

1987
External Debt Moratorium

1998
Before exible exchange rate regime

2008
World Financial Crisis (subprime)

2012*
Present situation

First oil shock impact

External Debt Crisis

116

Ministry of Finance

Balance of foreign exchange is a result of the trade balance
From the second half of 2011 on, there has been a reversal in the profile of foreign exchange inflows, with the dollar related to trade responding for the major part. The financial inflows balance, on its turn, fell to almost zero by the middle of March 2012 as an answer to short-term capital control measures.

External Sector

Balance of Foreign Exchange (US$ billion)
100 82 64 46 28 10 -8 -26 -44 -62 -80

48.7 48.3 -0.4

Financial Balance Trade Balance Total Data: US$ billion * Position on March 2012

Green Economy | 2012

Au g 2 Ja 00 n 2 20 03

20 04

5

20 06

7

20 08

20 09

20 10

20 11

Ja n M 20 ar 12 20 12 *

20 0

20 0

Source: Central Bank of Brazil Produced by: Ministry of Finance
117

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Ja n

Ministry of Finance

Brazil: currency war being fought
The Brazilian Government has been coping with the so-called “currency war” with great success. The IOF tax on foreign borrowing has been extended, raising the exchange rate (R$/US$) from 1.65 in the beginning of 2011 to 1.82 in the beginning of April 2012.
Nominal Exchange Rate (R$/US$)
1.95 1.90 1.85 1.80 1.75 1.70 1.65 1.60 1.55 1.50 1.54 Average 1st half/2011 R$ 1.63 Average 2nd half/2011 R$ 1.72 1.70 1.90 1.89 Average 1st quarter/2012 R$ 1.75 1.72

External Sector

1.82

Green Economy | 2012

Data: R$/US$
Source: Bloomberg Produced by: Ministry of Finance

20 Fe 11 b 2 M 011 ar 20 Ap 11 r2 M 01 ay 1 20 Ju 11 n 20 Ju 11 l2 Au 011 g 20 Se 11 p 20 1 O ct 1 2 No 011 v 2 De 011 c2 0 Ja 11 n 20 Fe 12 b 2 M 01 2 a Apr 2 r 201 012 2

Ja n

118

Ministry of Finance

The successful Brazilian experience on capital flow management
Due to the great volume of capital coming into the country, the Brazilian Government decided to take some macroprudential measures in order to mitigate the effects of the strong inflows of short-term capital. The main instrument used was the Financial Transaction Tax (IOF) for some capital categories, such as investments in equities, fixed income and directs loans, depending on the term of the transaction.
Macroprudential Measures Related to Capital Flows - IOF (%)

External Sector

March 12 2008
. Fixed Income . Long-term Corporate Bonds . Equity Derivative Margin Deposit External Loan up to . 90 days . 270 days . 1 year . 2 years . 3 years . 5 years Excessive long positions on BRL 1.50% 1.50% 0.00% 0.38% 5.38% 0.38% 0.38% 0.38% 0.38% 0.38% 0.00%

October 19 2009
2.00% 2.00% 2.00% 0.38% 5.38% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

October 4 2010
4.00% 4.00% 2.00% 0.38% 5.38% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

October 18 2010
6.00% 6.00% 2.00% 6.00% 5.38% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

July 26 2011
6.00% 6.00% 2.00% 6.00% 6.00% 6.00% 6.00% 6.00% 0.00% 0.00% 1.00%

December 1 February 29 2011 2012
6.00% 0.00% 0.00% 6.00% 6.00% 6.00% 6.00% 6.00% 0.00% 0.00% 1.00% 6.00% 0.00% 0.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 0.00% 1.00%

TODAY
6.00% 0.00% 0.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 1.00%

Green Economy | 2012

Data: %
Source: Ministry of Finance Produced by: Ministry of Finance

119

OUTLOOK

Brazilian Economy

International Overview
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

International outlook: better, but still risky
A more positive outlook of the world economy has emerged in the first quarter of 2012, as opposed to that of the end of 2011: (i) governments in Europe have been consistent in their willingness to curb unsustainable fiscal deficits; (ii) Greece has addressed its financial crisis issues; (iii) the United States has shown an improvement in the unemployment rate; (iv) China has been successful in reducing its inflation rate; and (v) Japan’s growth prospects have improved. Nevertheless, risks remain high in the short term: (i) oil price increases could boost global inflation; (ii) U.S. housing recovery remains weak; (iii) recession is affecting most European countries, and some of them are still coping with the distrust of financial markets; and (iv) China is beginning to show signs of a cooling economy.

International Overview
Green Economy | 2012 122

Ministry of Finance

G20: GDP growth in 2011 and 2012 forecast
2.0 0.2 2.3

International Overview

Germany
-0.1 1.7 0.4 3.0 -1.6 7.8 4.8 7.0 6.9 7.1

Canada

2.1 1.7

United 0.9 Kingdom France

Russia
3.5 7.5*

4.3

3.5 1.7

0.4

-0.7 9.2

United States
3.4 3.9

Italy

Turkey

Japan
3.6

China India

Mexico

4.5 2.7

Saudi Arabia

South 3.2 Korea
6.5 5.9

GDP (% YoY)
2011** 2012***

Brazil****
3.8 8.8

2.3 3.1

Indonesia
1.8 3.1

Green Economy | 2012

Argentina

South Africa

Australia

* Chinese Government estimate ** Bloomberg *** The Economist forecasts **** 2012: Ministry of Finance Estimate
Source: Bloomberg and The Economist Produced by: Ministry of Finance

123

Ministry of Finance

G20: Fiscal results in 2011 and 2012 forecasts
-2.8 -7.6 -5.0

International Overview

Germany
-4.7 -5.7 -1.5 -1.0 -2.1

Canada

-7.8 -8.2

United -8.1 Kingdom France

Russia
-1.8 -1.7 6.9 14.1 -5.8 -7.3 -2.7 -1.9

0.5

-1.0 -8.3 -8.9

-4.0

United States
-2.5 -2.3

Italy

Turkey

Japan
0.8

China India

Mexico
-1.2
-2.4

Saudi Arabia

South 2.8 Korea
-1.6 -1.4

Fiscal Result (% of GDP)
2011* 2012**

Brazil***
-0.7 -1.0

-5.2 -4.4

Indonesia
-3.3 -0.5

Green Economy | 2012

Argentina

South Africa

Australia

* Bloomberg ** The Economist forecast *** 2012: Central Bank of Brazil Inflation Report (March 2012)
Source: Bloomberg Consulting Produced by: Ministry of Finance

124

Ministry of Finance

Current account balance in 2011 and 2012 forecasts
-2.4 -1.4 -2.8

International Overview

Germany
-2.1 -2.4 4.7 5.3 -2.8

Canada

-3.0 -3.1

United -2.3 Kingdom France

Russia**** 5.5
-8.3 -10.0 17.2 20.6 -2.8 -2.2 2.0

4.0 2.0 2.1

-3.2

United States
-1.7 -0.5

Italy

Turkey

5.2

Japan
1.5 1.7 South Korea**** 0.2 0.6

China India****

Mexico
-2.1 -2.6

Saudi Arabia

Current account (% of GDP) 2011* 2012**

Brazil***
-1.4 -0.3

-4.6 -3.8

Indonesia
-2.2 -2.9

Green Economy | 2012

Argentina***

South Africa

Australia

* Bloomberg ** The Economist forecast *** 2012: Ministry of Finance estimates **** 2011: WEO/IMF, September 2011
Source: Bloomberg and The Economist Produced by: Ministry of Finance

125

Ministry of Finance

G20: Inflation rates in 2011 and inflation expectations in 2012
2.1 2.5 2.9

International Overview

Germany
2.1 2.3 1.9 2.5 2.9 2.6 6.5 4.1 5.4 8.1 8.9

Canada
3.2

2.1

United 4.5 Kingdom France

Russia
9.2 3.8

8.5

5.7 -0.3

-0.3 5.4

United States
4.0 3.4

Italy

Turkey

Japan
4.2

China India

Mexico
4.4 6.5

Saudi Arabia

South 2.8 Korea
5.4 5.2

In ation (% YoY)
2011 2012*
– 9.8

Brazil**

5.3 5.0

Indonesia
3.4 2.8

Green Economy | 2012

Argentina

South Africa

Australia

Data: % change from the preceding year * The Economist forecast ** 2012: Central Bank of Brazil Inflation Report (March 2012)
Source: Bloomberg Consulting Produced by: Ministry of Finance

126

Ministry of Finance

World economic crisis continues
The world economy has been facing major challenges recently, influencing negatively its GDP growth. After a 3.8% increase in 2011, the world output is estimated to grow only 3.1% in 2012. A slight recovery is expected in the coming years.

International Overview

World GDP Growth (%YoY)

6 5 4
Green Economy | 2012

3 2 1 0 -1

Data: % change from the preceding year
3.6
2003

4.7
2004

4.4
2005

5.1
2006

5.2
2007

2.5
2008

-0.8
2009

5.0

3.8

3.1

3.9

4.1

* Economist Intelligence Unit Estimates
Source: Economist Intelligence Unit Produced by: Ministry of Finance
127

2010 2011* 2012* 2013* 2014*

Ministry of Finance

Slowdown in the world industrial output
Manufacturing downturn has worsened around the world lately, affecting emerging and advanced economies. When one compares industrial output growth in the first quarter 2011 (7.5%) to growth in the fourth quarter 2011 (4.2%), there is a 3.3 pp decrease.
World Industrial Output Growth (%)
8 7 6 5 4

International Overview
Green Economy | 2012

3 2 1 0 7.5 5.2 5.6 4.2
Data: % change in the same quarter from preceding year
Source: United Nations Industrial Development Organization (UNIDO) Produced by: Ministry of Finance

1Q 2011

2Q 2011

3Q 2011

4Q 2011

128

Ministry of Finance

Brazil amongst the world major economies
Emerging economies (Brazil, China, India, Russia) are among the most dynamic economies in the world. Recently, Brazil has overcome the United Kingdom and it is now ranked at the 6th place among the major economies of the globe.

International Overview

GDP 2011 and 2012* (US$ trillion and % YoY)

2011 GDP, in US$ trillion USA China Japan Germany France Brazil United Kingdom Italy Russia India 15.1 7.4 5.6 4.6 2.6 2.5 2.4 2.1 1.9 1.7 -1.6 -0.1

GDP growth in 2012*, in % YoY 2.1 7.5** 1.7 0.4 4.5*** 0.2 3.2 6.9

Green Economy | 2012

Data: 2011: US$ trillion, 2012: % change from the preceding year * The Economist ** Chinese Government target *** Ministry of Finance estimate
Source: Reuters and The Economist Produced by: Ministry of Finance

129

Ministry of Finance

Brazil ranks second in expected hiring activity
According to the Manpower Employment Outlook Survey, Brazil ranked second in hiring plans for the 2nd quarter 2012, amongst 41 countries analyzed. A sample of 850 employers was surveyed in Brazil and 39 percent of them had very high hiring expectations in the period, mainly in the Service Sector. On the other hand, labor market has been weaker in the Czech Republic, Spain and Greece.
2Q 2012 Manpower Employment Outlook Survey (%)

International Overview

India Brazil Taiwan Turkey Peru Japan Singapore China Colombia New Zealand Switzerland Slovakia France South Africa Italy Hungary Ireland Czech Republic Spain Greece

0.0 -1.0 -3.0 -3.0 -3.0 -8.0 -11.0

2.0 2.0 2.0

20.0 19.0 18.0 18.0

23.0 23.0

26.0

36.0

39.0

48.0

Green Economy | 2012

Top 10 Strongest Bottom 10 weakest Data: %
Source: Manpower Consulting Produced by: Ministry of Finance

130

Ministry of Finance

Brazilian unemployment rate among the lowest in the world
The 5.7% unemployment rate as of February 2012 is among the lowest in the world. Advanced countries such as Germany, the USA, and Canada, are facing higher unemployment rates than Brazil.

International Overview

Unemployment Rates for Selected Countries - February 2012 (% change)
25 20 15
Green Economy | 2012

10

Data: % change

3.7

23.3

10.0

9.9

9.2

9.2

8.4

8.3

7.4

6.8

6.5

5.7

5.2

5.2

4.9

4.6

0

4.1

5

* On December 2011 ** On January 2012
Source: Bloomberg Consulting Produced by: Ministry of Finance

ai Fr n** an c Tu e** rk ey In * di a* Ita * ly ** UK ** US Ca A n Ge ada rm an Ru y ss ia Br Au az st il ra li M a Ne e th xic er o la n Ja ds pa n* * So Chi ut na h * Sw Ko itz rea er la nd

Sp

3.1

131

Ministry of Finance

Unemployment rates with different dynamics
Unemployment in Brazil, in the U.S. and in the Eurozone has shown different dynamics. In the U.S., unemployment rate has been decreasing, but it is still above its long-term average. In Europe, the labor market is even more concerning. On the other hand, unemployment rate has been steadily decreasing in Brazil since 2009.
Unemployment Rates in Brazil, U.S. and Eurozone (%)
12 10.8 10 8 6 4 8.3

International Overview

Brazil Euro Zone* USA* Data: % * Seasonally adjusted

Green Economy | 2012

5.7

20 05 Ju l2 00 5 Ja n 20 06 Ju l2 00 6 Ja n 20 07 Ju l2 00 7 Ja n 20 08 Ju l2 0 Ja 08 n 20 09 Ju l2 00 9 Ja n 20 10 Ju l2 01 0 Ja n 20 11 Ju l2 0 Ja 11 n Fe 20 b 12 20 12

Ja n

Source: IBGE Produced by: Ministry of Finance

132

Ministry of Finance

Economic activity in the United States
Economic activity in the United States has shown signs of improvement. The Philadelphia Fed Index increased from 7.3 in January 2012 to 10.2 in February. The Richmond Fed index reached 20 points in February, 8 points higher than the previous month. Lastly, the Empire State Manufacturing Survey, which covers New York State, posted a six-point rise in February, reaching 19.5 points.
USA: Economic Activity (points)

International Overview

40 30 20 10 0 -10 -20 -30 -40 -50

20.0 19.5

10.2

Green Economy | 2012

New York FED Richmond FED Philadelphia FED Data: points
20 20 20 20 20 12

20

l2

l2

l2

Source: FED branches Produced by: Ministry of Finance
133

08

00 8

09

09

10

01 0

11

01 1 Ju

M

Fe b

Ja n

Ja n

ay

Ja n

Ja n

Ju

Ju

Ministry of Finance

European agreement aims to contain fiscal imbalances
In January 2012, a new European agreement to curb fiscal imbalances was settled. It will be achieved by maintaining the structural government deficit below 0.5% of nominal GDP. If a member state breaks the rule, an automatic correction will be triggered. There is also a penalty for noncompliance. Such control is important since, in 2012, the maturing debt of European countries in crisis is above € 500 billion.
European Countries: Maturing Debt (€ billion)
90 80 70 60

International Overview

Total: € 509 bi

Green Economy | 2012

50 40 30

77.0

73.7

38.0

47.8

63.7

41.4

37.5

56.1

21.1

52.8

20 10 0

Data: € billion
Source: Bloomberg Produced by: Ministry of Finance
134

20 12

20 12

20 12

20 1

l2 01

20 1

20 1

20

Au g

20 1 No v

M

M

De c

Ap r

Ju n

ar

ay

Ju

Se

O

ct

p

20 12

2

2

2

12

2

2

Ministry of Finance

Confidence rising in Europe and in the USA
Confidence has shown an upward trend in the U.S. since October 2011. In Europe, though, it has declined since early 2011, with some recovery being registered in March.

International Overview

Confidence Indexes - USA and Eurozone (points)

120 100 80 60 40 20

94.4
Green Economy | 2012

70.2

Economic Sentiment Indicator Eurozone USA Consumer Confidence Index Data: points

Ja n M 20 ar 12 20 12

Ja n

n

Ja n

n

Ja n

n

Ja n

Ju

Ju

Ju

Ju

n

Source: Eurostat and Conference Board Produced by: Ministry of Finance
135

08

08

09

09

10

10

11 20

20

20

20

20

20

20

20

11

Ministry of Finance

The important role of China
China plays an important role in global economic activity. Although the economy has grown over 9% in 2011, a slowing is expected in 2012 due to weak growth forecasts for advanced economies affecting the performance of Chinese exports. On the other hand, 12-month CPI inflation has slowed down, from 4.1% in February 2011, to 3.2% in February 2012.
China: GDP Growth (%YoY)
15 12 9 6 3
10.0 10.1 11.3 12.7 14.2 10.4 8.4 8.3 9.1 9.6 9.2 9.2

International Overview

China: CPI Inflation (% YoY on a 12-month basis)
8 7 6 5 4 3 2 1
7.5

3.2
Green Economy | 2012

Data: % YoY and % YoY on a 12-month basis * Chinese Government Target
Source: Bloomberg Consulting Produced by: Ministry of Finance

0 -1

0

20 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 20 11 12 *

20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1 Ja 20 0 n 11 Fe 20 b 12 20 12

136

Ministry of Finance

Higher international oil prices
Brent oil prices are regularly tied to the world economic activity dynamics and more specifically to the recent political tensions within the Middle East producer countries. Since mid-2011, prices have been above US$115 a barrel, also as a result of the lack of investments and concerns related to political tensions.
Brent Oil Price (Barrel in US$, current prices)
150 120 90

International Overview

125.7

Green Economy | 2012

60 30

Data: Barrel in US$ at current prices
Source: Bloomberg Consulting Produced by: Ministry of Finance

20 09 Ap r2 00 9 Ju l2 00 9 O ct 20 09 Ja n 20 10 Ap r2 01 0 Ju l2 01 0 O ct 20 10 Ja n 20 11 Ap r2 01 1 Ju l2 01 1 O ct 20 11 Ja n 20 1 M ar 2 20 12

Ja n

137

Ministry of Finance

The behavior of commodity prices
After a steady increase in the beginning of 2009, the index of commodity prices began to show moderate decline, with the movement of the foods component. Compared to 12 months until February 2012, total index has reduced by 8.5% while the food index fell by 10.4% and metals by 12.9%. More recently, we have seen some increase, particularly on commodities related metals.

International Overview

Commodity Research Bureau (CRB) Index (index number, 1951=100)
1,200 1,000 800 600 400 200

949.4
Green Economy | 2012

443.3 322.4
0 20 Fe 11 b 20 12 20 07 20 08 10 4 5 6 7 9 20 0 20 0 20 0 20 0 20 0 20 1

CRB Metals CRB Spot CRB Food Data: index number (1951=100)
Source: Bloomberg Consulting Produced by: Ministry of Finance

20 0

4

20

No v

Au g

Au g

M

M

Au g

No v

Fe b

No v

Fe b

ay

Ja n

ay

138

Ministry of Finance

Real effective exchange rate
The real effective exchange rate is a relevant measure as it influences the level of trade and investments between a country and its partners. The U.S. dollar has been in a continued downward trend, bringing surprises to the international economic outlook, both from trade and financial perspective. The Brazilian exchange rate has depreciated recently.
Real Effective Exchange Rate* (index number, 2005=100)

International Overview

115 110 105 100 95 90
Ja n Fe 20 b 10 M 20 ar 10 Ap 20 1 M r 20 0 ay 10 Ju 201 n 0 2 Ju 01 l2 0 Au 0 g 10 Se 20 p 10 O 20 ct 10 No 20 v 10 De 20 c 10 Ja 201 n 0 Fe 20 b 11 M 20 ar 11 Ap 20 1 M r 20 1 ay 11 Ju 201 n 1 2 Ju 01 l2 1 Au 0 g 11 Se 20 p 11 O 201 ct 1 No 20 v 11 De 20 c 11 Ja 201 n 1 Fe 20 b 12 20 12

107.9 104.9

United States Euro Area China Brazil Data: index number (2005=100) * Deflator: consumer price indexes for the respective countries. Increasing means appreciation and decreasing means depreciation
Source: BIS Produced by: Ministry of Finance

Green Economy | 2012

95.5 95.0

139

Ministry of Finance

Exchange rate behavior in the G20 Countries
Exchange rates among G20 countries have been in an appreciation trend related to the US dollar. Currencies from Japan, China and Indonesia were the only exceptions, when the period up to March 15th 2012 is considered.

International Overview

G20 Countries: Exchange Rate Fluctuation* in 2012 (% up to March 15th)

Japan Indonesia China Argentina Euro United Kingdom South Korea Canada Australia Brazil India South Africa Russia Mexico

8.7 1.1 0.4 0.0 1-1.1 .1-1.3 3.14.27.28.25.55.57.81.9-2.4 -2.7 -2.8 -3.9 -5.5 -5.5 -8.7 -9.1

8.7

Green Economy | 2012

Data: % * Positive changes mean currency depreciation and negative changes mean currency appreciation
Source: Bloomberg Consulting Produced by: Ministry of Finance

140

Ministry of Finance

Stock exchange behavior in the G20 countries
In contrast with the 2011 results, stock exchanges in the G20 countries have provided strong gains up to March 15th 2012, after which Europe established a fiscal pact in order to cope with the crisis throughout the continent. The only exception has been Spain.

International Overview

G20 Countries: Stock Exchanges Behavior in 2012 (%)
Fluctuation from January 3rd, 2011 to March 15th, 2012
Spain Canada Mexico South Africa United Kingdom Australia Indonesia Argentina USA - Dow Jones Shangai Italy Russia France South Korea Hong Kong Saudi Arabia USA - Nasdaq Germany Brazil Japan Turkey
-3.4 2.0 2.0 3.7 4.2 4.3 6.1 6.5 6.8 9.4 10.0 11.5 12.1 12.9 13.1 15.0 15.4 16.9 17.5 18.3 19.4

Green Economy | 2012

Data: %
Source: Bloomberg Consulting Produced by: Ministry of Finance
141

Ministry of Finance

Lower spreads in emerging markets
A Credit Default Swap (CDS) contract is a protection against a possible default and, therefore, indicates the financial market’s perception over risks related to sovereign debt. As opposed to previous years, 2012 figures show that advanced economies, such as Italy and France, have higher spreads than emerging economies, such as Brazil.
Five-Year CDS Spreads – Selected Emerging Economies (basis points)

International Overview

Five-year CDS Spreads as of March 15th, 2012

Italy Turkey Russia France Indonesia South Africa Korea Brazil Mexico Japan China Germany United Kingdom Australia United States

365.3 217.9 172.0 168.6 166.2 152.4 121.8 115.7 114.1 107.5 104.3 71.5 64.3 62.0 32.8

Green Economy | 2012

Data: basis points
100 150 200 250 300 350 400

0

50

Source: Bloomberg Consulting Produced by: Ministry of Finance

142

Ministry of Finance

The flood of liquidity from advanced economies
Advanced countries have implemented a “monetary tsunami” by adopting aggressive expansionist monetary policies, harming the competitiveness of emerging economies. The total assets of the major central banks reached US$ 9.1 trillion in March 2012.

International Overview

Total Assets of Major Central Banks (US$ trillion)
10 9 8 7 6 5 4 3 QE 1, and other FED's operations BoE Asset Purchase Facility 1 QE 2 BoJ Asset Purchase Program LTRO BoE Asset Purchase Facility 2

9.1

Green Economy | 2012

Data: US$ trillion
Source: Bloomberg and Central Bank of Brazil Produced by: Ministry of Finance
7 08 8 09 9 10 0 11 1 Ju l2 01 Ja n M 20 ar 12 20 12 00 00 00 20 20 20 01 l2 Ju l2 l2 l2 20 Ja n

Ja n

20

07

Ja n

Ja n

Ja n

Ju

Ju

Ju

143

Ministry of Finance

Advanced countries rating downgraded
One result of the current economic crisis is the decrease in the economic agents’ confidence, as reflected in recent sovereign debt downgrades in several Eurozone countries, as well as in the US. In the opposite direction, Brazil has achieved constant rating upgrades in the same period.
Standard & Poors (rating)
AAA AA+ AA High quality and lower risk AAA+ A ABBB+ Investment BBB Grade BBBBB+ BB Speculative BBGrade B+ B BCCC CC High default risk C D
Dec 2003 Dec 2004 Dec 2009 Dec 2010 Mar 2011 Jul 2011 France USA

International Overview

Spain

Italy Ireland

Brazil
Green Economy | 2012
Portugal

Greece Aug to Mar 2012 Nov 2011

Data: rating
Source: Bloomberg Produced by: Ministry of Finance
144

OUTLOOK

Brazilian Economy

Special Section Green Economy
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

Economic Growth and the Environment
Brazil has shown how it is possible to match sustainable growth with social inclusion and environmental advances in a context of political stability and strengthening of the legal and institutional framework. The feasibility of the new development strategy is demonstrated by the large participation of renewable energy sources in the Brazilian energy matrix, the expansion of agricultural production, with an increase of protected areas and reduction of deforestation, and the promotion of food security and social inclusion. As a central part of the Brazilian strategy, the reduction of poverty contributed to generate a virtuous cycle of stronger and more sustainable growth. These substantial achievements enhance the Brazilian commitment to move forward to an inclusive green economy, materializing the three pillars of sustainable development: environmental, economic and sociopolitical sustainability.

Special
Green Economy | 2012 146

Ministry of Finance

Brazil: Green Economy at a glance

Special

12% of the World’s amount

30% 70% 12% around 90% 95% over 97%

of surface freshwater (ANA, 2007) with original vegetation (MMA, 2011) tropical forests (SFB/MMA, 2010)

70% of the country is still covered 30% of the World’s remaining

Around 90% of the electricity generation and 45% of the total Brazilian energy needs are met by renewable energy sources (MME, 2011) 95% of brand-new cars sold are
ex fuel (gasoline + ethanol) (Anfavea, 2011)
Green Economy | 2012

(ABAL, 2010)

Over 97% of aluminum cans recycled

Produced by: Ministry of Finance
147

Ministry of Finance

Advances in environmental governance
The strengthening of the environmental governance allowed important achievements in the Brazilian development strategy, such as the reduction of deforestation, expansion of protected areas and sustainable management of natural resources. During the last decades, Brazil has built a solid regulatory and institutional framework to promote sustainability. Specific policies were defined to cover areas such as forests, conservation units, water resources, renewable fuels, climate change and solid waste.
Environmental Policies Timeline
Biodiesel in Brazilian Energy Matrix Climate Change National Policy & National Fund

Special

Forest Code

National Environmental Policy & Council (CONAMA)

Environmental Crime Law

Solid Waste
National Policy

1975 1965 Ethanol
National Program

1997 1981 1998

2000 2005

2006 2009 2010

2011
Green Economy | 2012

Nature Conservation Units
National System

Bolsa Verde
Program

Water Resources
National Policy

Concessions for Sustainable Management of Public Forests
Brazilian Forest Service

Source: Palacio do Planalto website Produced by: Ministry of Finance

148

Ministry of Finance

Renewable energy worldwide
Brazil stands out for the high share of renewable energy in its energy matrix. In 2009, the proportion was above 45%, higher than that observed, for example, in the BRICS and G-7 countries, whose average share of renewable sources is less than 10%.
Renewable Sources in Energy Supply: G-7 and BRICS (% of energy supply)
Brazil India Canada China South Africa Italy Germany France United States Japan United Kingdom Russian Federation 0 45.8 26.1 16.9 11.9 10.0 9.7 8.7
11.9 10.0 45.8 26.1 16.9

Special

9.7
8.7

7.7 7.7 5.4 5.4 3.3 3.2 3.2 2.8

Green Economy | 2012

Data: % of energy supply
5 10 15 20 25 30 35 40 45 50

Source: OECD Factbook 2011 Produced by: Ministry of Finance

149

Ministry of Finance

The Brazilian energy matrix and sustainable development
Nearly 45% of the Brazilian energy matrix comes from renewable sources, far above the world average of less than 20%. In terms of electricity, the proportion of renewable sources rises to almost 90%, since electricity generation is essentially based on hydropower, compared to a world average of 13%.

Special

Renewable Sources in Energy and Electricity Supplies (% of energy supply)
100 80 60

Green Economy | 2012

40 20 0

45.5

18.7

87.8

13.0

Brazil (2010) World Average (2008) Data: % of energy supply
Source: Brazilian Energy Balance/MME (2011), International Energy Agency (2011) Produced by: Ministry of Finance

Renewable Energy Sources Energy Supply

Renewable Sources Electricity Supply

150

Ministry of Finance

PAC 2 and hydroelectric power generation
The second stage of the Growth Acceleration Program (PAC 2) continues to prioritize the generation of energy from clean and sustainable sources. The program has planned and implemented the construction of several hydroelectric power plants in all Brazilian regions, as it can be seen in the map below.
PAC 2: Hydroelectric Power Plants*
UHE Santo Antônio do Jari UHE São Luiz do Tapajós UHE Jamanxim UHE Cachoeira dos Patos UHE Jatobá UHE Santo Antônio UHE Jirau UHE São Manoel UHE Teles Pires UHE Rondon II UHE Dardalenos UHEs Água Limpa UHEs Porteiras UHEs Paraíso UHE São Domingos UHEs Paranhos UHE Baixo Iguaçu UHE Cachoeirinha UHE São João UHEs Itapiranga UHEs Binacionais (2) UHE Passo São João UHE Mauá UHE Telêmaco Borba UHE São Roque UHE Pai Querê UHE Garibaldi UHE São José UHE Tabajara UHE Colider UHE Sinop UHE Toricoejo UHE Mirador UHE Batalha UHE Marabá UHE Belo Monte UHE Cachoeira Caldeirão UHE Ferreira Gomes UHE Serra Quebrada UHE Estreito UHE Castelhano UHE Estreito do Parnaíba UHE Cachoeira UHE Ribeiro Gonçalves UHE Riacho Seco

Special
Green Economy | 2012

UHE Formoso UHE Davinópolis UHE Crenaque UHE Resplendor UHE Travessão UHE Pompéu UHE Simplício

Concluded Action In Execution Bid Preparatory Action * UHE = Hydroelectric Power Plant
Source: PAC 2 Report March 2012 Produced by: Ministry of Finance

151

Ministry of Finance

PAC 2 and alternative energy sources
The second stage of the Growth Acceleration Program (PAC 2) is also investing heavily in alternative energy sources. Several thermal biomass and wind power plants are being built all over the country. Rio Grande do Norte is the state where wind-generated electrical power has a great number of projects in action or concluded, whereas São Paulo State concentrates the majority of thermal biomass plants.
PAC 2: Alternative Energy Sources (Thermal Biomass and Wind)
Wind Ceará Wind Piauí Nº 3 Nº 1 36 Wind Rio Grande do Norte Nº 4 16 59 Nº 1

Special

Thermal Biomass Rio Grande do Norte Thermal Biomass Nº 1 Tocantins Wind Nº Pernambuco 3 Thermal Biomass Nº 1 Alagoas Wind Sergipe Wind Bahia Nº 3 5 2 Nº 3 1 1 Wind Rio Grande do Sul Thermal Biomass Minas Gerais Thermal Biomass São Paulo Nº 5 2 37 Nº 5 7 1 Nº 11 40 Nº 1 1 Nº 1

Green Economy | 2012

Thermal Biomass Mato Grosso

Nº 1 1

Thermal Biomass Goiás

Thermal Biomass Mato Grosso do Sul

Concluded Action In Execution Preparatory Action
Source: PAC 2 Report March 2012 Produced by: Ministry of Finance

152

Ministry of Finance

Electricity from renewable sources
The planning for electricity generation by 2020 prioritizes the use of renewable sources in meeting the growing energy demand in Brazil. The installed capacity is expected to increase about 56.2% over 2010, while the percentage of renewable sources should remain above 80%.
Installed Capacity of Power Generation (% of total)

Special

56.2% increase
Total

109,578 MW
8%

Total

171,138 MW

16%

14% 2% 76% 2% 15% 67%

Hidropower Nuclear Fossil Other Renewables Data: % of total

Green Economy | 2012

2010

2020

Source: PDE 2020 - EPE (2011) Produced by: Ministry of Finance
153

Ministry of Finance

Commitment to reduce greenhouse gas emissions
In 2009, Brazil undertook the voluntary international commitment to reduce 36.1% to 38.9% of projected greenhouse gas emissions by 2020, which means a reduction of about 1.2 Gt (from 3.2 to 2.0). To fulfill the commitment, sector-specific mitigation plans have already been implemented for agriculture, reducing deforestation and energy use. In addition, new plans for transportation, manufacturing and mining industries are being launched in 2012.
Greenhouse Gas Emissions (Gt CO2e)
Land Use Change Agriculture + Cattle Industrial Processes + Waste treatment Energy Target to achieve in 2020 according to Decree n.7390 * Estimated “ceteris paribus” data for 2020 (if considering no target achievement and business as usual for all components) ** Greenhouse gas emissions reduction target (btw 36.1% and 38.9%) - Average = 37.5%
2020** Target
Source: Decree n. 7390 - Dec 9, 2010 Produced by: Ministry of Finance

Special

3.5 3.0 2.5 2.0 1.5 1.0 0.5
0.3 0.3
0.1 0.1
0.1 0.1

3.2

Reduction Target from 3.2 to 2.0

2.1 1.4 1.5

2.2

2.0

Green Economy | 2012

0.2

0.3

0.0

0.2

0.2

0.3

1990

1994

2000

2005

2020* Business as Usual

154

Ministry of Finance

Reducing deforestation
Due to the Government’s comprehensive strategy, deforestation has been consistently reduced since 2004, and reached 6,238 Km2 in 2011. These results were based on technological improvements in monitoring, as well as control enhancement and self-regulatory initiatives. The aim is to reach 3,925 Km2 by 2020. The replication of the strategy to other Brazilian biomes and new economic incentives for sustainable productive activities appear as the new challenges.
Deforestation - Amazon Forest (Km2)
30,000 25,000 20,000 15,000 10,000 5,000 0

Special
Green Economy | 2012

2020 Target

6,238

3,925

Data: Km2
Source: INPE/MCTI Produced by: Ministry of Finance

04

05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

155

Ministry of Finance

Protection of natural vegetation
Brazil has an impressive 75% of all protected areas created in the world since 2003. Protected areas within the country correspond to a total area of 2.635.912 km2, even larger than that of the Mexican territory, being a central part of the national strategy to reduce deforestation and to protect natural resources. Additionally, the Brazilian legislation establishes the obligation to preserve at least 20% of the area of all farms, reaching up to 80% on properties located in the Amazon.
Protected Areas (Km2)

Special

Number of Areas Quantity Federal and State Conservation Units Brazilian Indian Areas Total 1,963 522 2,485 Areas (Km2) 1,539,416 1,096,497 2,635,913 Full protection conservation units Sustainable use conservation units Brazilian Indian Lands Data: Km2
Source: MMA (2010), FUNAI (2009), IBGE (2012) Produced by: Ministry of Finance
156 Green Economy | 2012

Ministry of Finance

Towards a low carbon-emission agriculture
The agricultural sector accounted for 10% of total emissions of greenhouse gases in Brazil in 2005. Through a set of technologies, such as no-tillage and integrated crop-livestock-forestry, the Sectoral Mitigation Plan for Agriculture aims to reduce emissions from 134 to 163 million tons of CO2e by 2020. To meet the target, a new facility was designed, the Low Carbon-Emission Agriculture ABC Program, with R$ 3.15 billion available for 2011/2012.
Low Carbon-Emission Agriculture - Technologies and Targets
Technologies No-tillage system Recovery of degraded pastures Integrated Forest-Crop–Livestock Production Forestry Biological nitrogen fixation Animal waste treatment Targets until 2020 8 million ha 15 million ha

Special
Green Economy | 2012

4 million ha 3 million ha 5,5 million ha 4,4 million m3 of swine residues Data: million ha and million m3
Source: MAPA Produced by: Ministry of Finance

157

Ministry of Finance

Improving land use efficiency
Brazil has combined the agricultural production expansion with the preservation of forests. From 1995/1996 to 2010/2011, grain production went from 73 to 163 thousand of tons (121% increase), mainly based on an increase in productivity, while pressure on native vegetation has been minimized. The leadership in technology for tropical agriculture, coupled with the availability of productive land, enables Brazil to play a key role as a global supplier of food.
Grain Production, Area and Productivity of Brazilian Agriculture (thousands of ha, thousands of tons and tons/ha)
200,000 180,000 160000 140,000 120,000 100,000
37,847.3 100,266.9 36,970.9 73,564.7

Special

Area (thousands of hectares)

3.26

3.5 3.0 2.5 2.0 1.5

60,000 40,000 20,000 0

37,824.3 83,029.9

36,896.2 82,437.9

36,574.8 78,426.7

35,000.8 76,558.7

40,235.0

80,000

1.0
43,946.8 123,168.0 47,422.5 119,114.2 49,068.2 114,695.0 47,867.6 122,530.8 46,212.6 131,750.6 47,411.2 144,137.3 47,674.4 135,134.5 47,415.7 149,254.9 49,888.0 162,837.5 96,799.0

Productivity (ton/hec) Grain Production (thousands of tons) Area (thousands of hectares) Data: thousands of ha, thousands of tons and tons/ha
Source: Conab Produced by: Ministry of Finance

Green Economy | 2012

0.5 0.0

/9 19 6 96 /9 19 7 97 /9 19 8 98 /9 19 99 9 /2 00 20 0 00 /0 20 1 01 /0 20 2 02 /0 20 3 03 /0 20 4 04 /0 5 20 05 /0 20 6 06 /0 20 7 07 /0 20 8 08 / 20 09 09 /1 20 0* 10 /1 1*

19 95

158

Ministry of Finance

Production and Exports of Food Products

Special

Products
Orange Co ee Soybean Beef Broiler Meat Pork Corn Sugar

Brazilian World Production Ranking (%)
57.21 36.77 28.05 15.03 15.70 3.19 7.13 21.25 1st 1st 2nd 1st 2nd 3rd 4th 1st

Brazilian Exports (%)
81.30 27.98 35.61 17.25 42.24 8.34 8.56 41.98

World Ranking
1st 1st 1st 2nd
Green Economy | 2012

1st 3rd 4th 1st
Data: % of world production
Source: USDA Produced by: Ministry of Finance

159

Ministry of Finance

Investing in sustainable agriculture
Improving environmental performance of Brazilian agriculture is a growing concern for farmers and government. Specific concessional credit lines were designed to support investments in sustainable agriculture by family farmers, via Pronaf, as well as mid and large-scale farmers, via BNDES and other financial institutions. Since 2008/2009 until 2011/2012 (still ongoing), nearly R$ 5 billion were committed to these lines.
Credit for Sustainable Agriculture (R$ million)
1,500 1,200 900 600 300 0 270.4 242.6 219.6 2008/2009 529.0 262.4 2009/2010 419.1 166.0 2010/2011 501.2 274.0 2011/2012* 690.4 653.5 597.8

Special
Green Economy | 2012

Constitutional Funds BNDES Pronaf Data: R$ million * Preliminary data
Source: MDA/MAPA Produced by: Ministry of Finance

160

Ministry of Finance

Promoting the right to water and energy
The provision of renewable sources of energy is also important for the Government to meet its social inclusion goals. Through the Water for All program, 410,000 cisterns were built from 2003 until 2011, providing potable water to people in the semi-arid region. Through the Light for All program, access to energy were provided to 2.9 million households from 2004 to January 2012. The target is to reach 3.6 million households until 2014.
Access to Water and Energy
“Water for All” Water Supply Inclusive Program 2003 - 2011 R$ 707 million invested* 410 thousand households reached* “Light for All” Energy Inclusive Program Number of households reached 2004 - Jan 2012 2.9 million 2011 only 247 thousand PAC 2 Target (2011 - 2014) TOTAL 3.6 million households reached 716 thousand

Special
Green Economy | 2012

* Cistern Program only
Source: MME and PAC 2 Produced by: Ministry of Finance
161

Ministry of Finance

Combining social and environmental goals
The “Bolsa Verde” Program, launched in 2011, shows that social and environmental goals can walk together. The Program is based on income transfers to lower income households living in environmentally protected areas, since the maintenance or enhancement of the natural resources is observed. Despite being launched recently, the program has already reached nearly 17 thousand households. The aim is to reach 73 thousand households by the end of 2012.
“Bolsa Verde” Program (thousands of households)
20

Special

15

10

Green Economy | 2012

5

3.6
0

7.5
11

9.2
11

16.0
12

16.6
12

16.9
12

Data: thousands of households
Source: MMA Produced by: Ministry of Finance

11

20

20

20

20

20

No v

ct

De c

Ja n

Fe b

O

M

ar

20

162

Ministry of Finance

“Crescer” Microcredit Program
“Crescer” is a productive-oriented microcredit program aimed at meeting the financial needs of entrepreneurs who run small productive activities. It was launched in September 2011, benefiting 151.7 thousand people on average from September to December. So far, in 2012, it has benefited 168,100 people on average. About 66.6% of beneficiaries were women.
“Crescer” Productive-Oriented Microcredit Program: Average Performance (thousand)

Special

200 175 150 125 100 75 50 25 0

Monthly Average Committed Value (R$ thousand) Monthly Average Number of Operations Data: R$ million * 2011 : information from September on ** 2012: Jan-Feb information
Source: BB, BASA and BNB Produced by: Ministry of Finance

Green Economy | 2012

151.7
2011*

186.4

168.1
2012**

198.4

163

Ministry of Finance

Meeting economic and nutritional needs
Through the Food Acquisition Program - PAA, launched in 2003, food products are acquired from small farmers and delivered to food security programs. In the beginning of the program the number of participants totaled 42 thousand, increasing to 155 thousand in 2010. Thus, local production and consumption is strengthened, boosting the local economy and enhancing food traditions.
Food Acquisition Program (PAA): Execution 2003-2010
Total of Expenses (R$ thousand) Small Farmers Participants Acquired Provisions (tons)

Special

R$ 680,750 462,429
Green Economy | 2012

155,166 R$ 144,920 135,864 42,077
2003 2010 2003 2010 2003 2010

Source: PAA (Management Comittee) Produced by: Ministry of Finance

164

Ministry of Finance

Investments in sanitation are essential to environment
Heavy investments in sanitation are essential to public health in general and also to environment. Since the beginning, the Growth Acceleration Program (PAC) has been concerned with the issue and has invested in several projects. From 2007 to 2009, total investments amounted to R$ 25 billion. From 2011-2014, 4,205 projects were selected to be put into action in the period, totaling R$ 9.9 billion.
PAC: Sanitation Investments (R$ billion)

Special

Sanitation Projects
Municipalities - more than 50,000 inhabitants Public Investment PAC 1 2007-2009 Municipalities - less than 50,000 inhabitants Public Investment Private Investment TOTAL PAC 1 PAC 2 2011-2014
Metropolitan Regions , Capitals and large cities Medium sized cities Municipalities - less than 50,000 inhabitants

Selected
R$ 19.5 R$ 2.0 R$ 3.6 R$ 25.1 R$ 4.7 R$ 1.0 R$ 3.1 R$ 1.1 R$ 9.9

Contracted
R$ 19.4 R$ 2.0 R$ 3.6 R$ 25.0 R$ 3.4 R$ 0.8 R$ 1.1 R$ 1.1 R$ 6.4
Green Economy | 2012

Data: R$ billion
Source: PAC 2 Report March 2012 Produced by: Ministry of Finance

Private Investment TOTAL PAC 2

165

Ministry of Finance

Private sector engaged in sustainability
The Corporate Sustainability Index (ISE) is a stock index designed to measure the return on a portfolio comprised of companies highly committed to social responsibility and corporate sustainability, and also to promote good practices in the Brazilian corporate environment. In December 2011, the 38 companies that comprise the index have represented 43% of the total market value of the companies listed at the BM&F Bovespa.
Corporate Sustainability Index - ISE (% of total market value and R$ billion)
1,200 1,000 800 600 400 200 0 30 50 60

Special

43
40

Green Economy | 2012

380.2

776.5

1023.1

399.8

771.1

797.9
10

987.7
20

% of total market value ISE Index (R$ billion) Data: % of total market value
Source: BM&F Bovespa Produced by: Ministry of Finance

05

06

07

08

09

20

20

20

20

20

20

20

11

166

OUTLOOK

Brazilian Economy

Appendix Industrial Policy Measures
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

“Brasil Maior” Plan - Recent Measures
Main Guidelines
1. Taxation Measures • Payroll Tax Benefits: includes sectors such as Textiles, Clothing, Leather & Footwear, Furniture, Plastics, Electrical Equipment, Automobile Parts & Pieces, Bus, Naval Industry, Aviation Industry, Capital Goods (Mechanical), Hotels, Information Technology, Call Centers and Design Houses (chips). • IPI Tax Benefits: includes sectors such as Kitchen Stoves, Refrigerators & Freezers, Washing Machines, Furniture, Laminates, Wallpaper, Luminaires & Chandeliers • Tax Benefits on the regime related to modernization of port infrastructure (REPORTO) • National Program for Cancer Care Support • PIS-Cofins payment postponement

Appendix
Green Economy | 2012 168

Ministry of Finance

“Brasil Maior” Plan - Recent Measures
Main Guidelines
2. Domestic Production Stimulus • Government procurement for Machinery and Health Sectors

Appendix

3. Foreign Trade Financing

Green Economy | 2012

4. Trade Defense • Operations to avoid fraud and circumvention

169

Ministry of Finance

“Brasil Maior” Plan - Recent Measures
Main Guidelines
5. Incentives to Information Technology and Communications Sectors

Appendix

6. Credit for Development Measures – PSI 4 • Funding for production, investment and innovation

Green Economy | 2012

7. Automotive Regime (2013-2017) • Incentives to research, development and innovation

170

Ministry of Finance

Tax Stimulus: Production Tax (IPI) Benefits
Description Usual Tax Rate (%)
4

Appendix

Temporary Tax Rate (%)
zero

Tax Bene t

Kitchen stoves

Refrigerators and Freezers

15

5 R$ 271 million from March 26 2012 to June 30 2012

Washing Machines (automatic, semiautomatic)

20

10

Washing Machines (non automatic)

10

zero

Furniture

5

zero R$ 198 million from March 26 2012 to June 30 2012

Green Economy | 2012

Laminates

15

zero

Wallpaper

20

10

R$ 20 million from March 26 2012 to June 30 2012

Luminaires and Chandeliers

5

5

Source: Ministry of Finance Produced by: Ministry of Finance

171

Ministry of Finance

Industrial Policy Payroll Tax Benefits*
Economic Sectors
Textiles Clothing* Leather & Footwear* Furniture Plastics Electrical Equipment Capital Goods - Mechanical Bus Industry Automobile Parts & Pieces Naval Industry Aviation Industry Hotels Information Technology* Call Centers** Design Houses (chips) Total

Appendix

Before
2.32 % 2.32 % 3.28 % 2.09 % 1.87 % 1.88 % 2.24 % 1.72 % 2.19 % 4.59 % 2.83 % 4.18 % 3.35 % 3.15 % 6.67 % –

After
1.00 % 1.00 % 1.00 % 1.00 % 1.00 % 1.00 % 1.00 % 1.00 % 1.00 % 1.00 % 1.00 % 2.00 % 2.00 % 2.00 % 2.00 % –

Yearly Payroll Tax Benefit (R$ millions)
550 385 632 209 530 372 1.254 77 1.130 145
Green Economy | 2012

225 216 1.171 312 4 7.214

*Announced in April 3rd 2012 ** Included before on terms of Law n.12546/2011
Source: Ministry of Finance Produced by: Ministry of Finance

172

Ministry of Finance

Glossary - Institutions
ABAL ANA ANFAVEA BASA BB BIS BM&F BOVESPA BNB BNDES CNI CONAB ECB EPE Brazilian Aluminum Association National Water Agency National Association of Automobile Manufacturers Bank of the Amazon State Bank of Brazil Bank for International Settlements São Paulo Stock Exchange Bank of the Northeast of Brazil National Bank of Economic and Social Development National Confederation of Industry National Company of Food Supply European Central Bank Energy Research Company EU FGV FIESP FUNAI FUNCEX IBGE IIF IMF INPE IPEA MAPA MCTI MDA European Union Getulio Vargas Foundation Federation of Industries in the State of São Paulo National Indian Foundation Foundation Center for the Study of Foreign Trade Brazilian Institute of Geography and Statistics Institute of International Finance International Monetary Fund National Institute for Space Research Institute for Applied Economic Research Ministry of Agriculture, Livestock and Food Supply Ministry of Science and Technology Ministry of Agrarian Development MDS MMA MME MPOG MTE NASDAQ OECD S&P SFB STN UNCTAD USDA Ministry of Social Development and Fight against Hunger Ministry of Environment Ministry of Mines and Energy Ministry of Planning, Budgeting  and Management Ministry of Labor and Employment National Association of Security Dealers Automated Quotation Organisation for Economic Cooperation and Development Standard & Poor's Green Economy | 2012 Brazilian Forest Service National Treasury Secretariat United Nations Conference on Trade and Development United States Department of Agriculture

173

Ministry of Finance

Glossary - Terms
CDS CRB DPMFi FDI GDP GFCF IGP-M INCC-M IOF IPA-M IPCA IPC-M ISE ISM Credit Default Swap Commodity Research Bureau Domestic Federal Public Securities Debt Foreign Direct Investment Gross Domestic Product Gross Fixed Capital Formation General Price Index Market/ FGV National Construction Cost Index/ FGV Financial Transaction Tax Producer Price Index/ FGV Broad Consumer Price Index / IBGE Consumer Price Index / FGV Corporate Sustainable Index Institute of Supply Management PRONATEC SELIC TR UHE WEO CLT BRICS PAA PAC PDE PME PMI PNAD PRONAF Food Acquisition Program Growth Acceleration Program Ten Year Plan for Energy Expansion Monthly Employment Survey / IBGE Purchasing Managers' Index National Household Sample Survey National Programme for the Strengthening of Family Farming National Program for Access to Technical Education and Employment Green Economy | 2012 Brazilian Benchmark Interest Rate Reference Rate Hydroelectric Power Plant World Economic Outlook/IMF Consolidation of Labor Laws Brazil, Russia, India, China and South Africa 174

Ministry of Finance

President of the Republic: Dilma Vana Rousseff Minister of Finance: Guido Mantega Deputy Minister of Finance: Nelson Barbosa Secretary of Economic Policy: Márcio Holland Chief of Staff: Marcelo Fiche Production and Execution Economic Policy Secretariat Advisory to the Minister of Finance on Economic Affairs Editorial Board Adriano Seabra Cleomar Gomes Fabio Graner José Gilberto Scandiucci Filho Lígia Ourives Technical Support National Treasury Secretariat - STN International Affairs Secretariat - SAIN Secretariat for Economic Monitoring - SEAE Federal Service of Data Processing - SERPRO www.fazenda.gov.br Available at: http://www.fazenda.gov.br/ebp Art Visual Project and Final Art: Viviane Barros Cover: André Nóbrega Layout Development: Alline Luz and Viviane Barros Design Trainee: Letícia Lopes and Weslei Lopes Economics Trainee: Andrea Motta
Green Economy | 2012
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T

Finished in April 11th, 2012 173

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