BrazilianEconomyOutlook ENG Mar Apr12

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 worlds 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 countrys development strategy is the focus on investments as a way of enhancing its competitiveness. The main objective is to increase Brazils 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.
OUTLOOK
Brazilian Economy
Economic Activity
Ministry of Finance
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
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

Brazils 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
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
Agriculture
Industry
Services
GDP
Household Expenditure
Government Expenditure
Gross Fixed Capital Formation
4.7
3.9
2010 2011 Data: % change from the preceding year

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
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

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
Data: % change * Not all sectors were included in Industry and Services
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
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
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
17
0.5 0 -0.5
11
11
-0.2
11
1 01 c2 Ja n
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
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
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
20 07
09
09
10
10
10
11
11
11 Fe b
Fe b
Ju n
ct
Fe b
ct
Fe b
ct
Fe b
Ju n
ct
Fe b
Ju n
Ju
Ju
O ct
12
19
Ministry of Finance
Capacity utilization remains stable

The level of capacity utilization (NUCI) has remained stable in the first months of 2012. FGVs indicator posted 83.7% in February 2012, the same registered in January. FIESPs 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 So Paulo state only
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

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
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 worlds 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
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
50.0
58.0
65.0
93.0
100.0
107.2
09
05
06
07
10
10 /1
08 /
20 02
20 03
04 /
20 07
05 /
06 /
09 /
20
20
20
20
20
11 /1
/0
/0
/0
9.0
20
23
20
nt
Inv es tm e
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
4.7
Data: % change
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
24
nt
Inv es tm e
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
nt
Inv es tm e
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
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*
* Ministry of Finance estimates

2002
26
nt
Inv es tm e
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 Au 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)
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 Au Superport (RJ) 1.0 Port of Sohar expansion
27
nt
Inv es tm e
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

20.0 20.0
15.0 Petrobras platform ships (ES-RJ-SP) 11.3 Nabucco gas pipeline 10.0 Abadi gas eld

28
nt
Inv es tm e
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 So Luiz do Tapajs (PA) hydroelectric power plant 12.6 Green Power Express transmission 12.0 Yangjiang nuclear plant 10.2 Santo Antnio (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

3.0 Pescadero hydroelectric power plant 2.5 Teles Pires (MT-PA) hydroelectric power plant
29
nt
Inv es tm e
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 OHare 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 So Paulo subway expansion 4.0 Hau river underground railroad 3.8 So Paulo beltway, north section 3.7 Ho Chi Minh City beltway 3.4 Transnordestina railroad (CE-PE-PI)
23.1

30
nt
Inv es tm e
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 Braslia, 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$)
Braslia
Expansion of: passengers terminal, airport patio, departure and boarding areas.
Guarulhos
New terminal building, new taxiway, departure area expansion.
Planned Investments: R$ 3 billion
Viracopos
Terminal building (rst phase) and departure area expansion.
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
31
nt
Inv es tm e
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
nt
Inv es tm e
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
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 Econmica Federal Produced by: Ministry of Finance
33
nt
Inv es tm e
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
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
34
nt
Inv es tm e
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
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
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 worlds 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 Famlia 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.

Ministry of Finance
Income inequality has decreased consistently

Brazils Gini index is the lowest since the 1960s. 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.
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
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

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%.
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%
Data: 12-month moving average * Estimates based on IBGE data (PNAD, PME and Census) PNAD adjusted by the Census and PMEs
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. Its noteworthy the 7.2% growth rate of per capita household income from the 10% poorest.
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
Data: average growth rate (2001-2009) * Estimates based on PNAD (2001 to 2009)
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 Famlia program reduces income inequality

The conditional cash transfer program Bolsa Famlia 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 Famlia Conditional Cash Transfer Program (% of GDP, R$ billion and millions of households)
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
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.
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
Average Income
Gini Index
Poverty

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%
600 500
30.8%
400
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)*
200
150
8.8 45.6
13.3 12.9 55.4 65.9
22.5
55% of the population
100
105.5
50
A and B Classes C Class D and E Classes Data: millions of people * Based on PNAD (IBGE) data
92.9
1993
83.3
1995
96.2
2003
63.6
2011
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

5.70
Data: % of the economically active population

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)*
14 12 10 8 6 4 2 6.2 6.1 5.3 4.7 4.4
9.2
Salvador Recife So Paulo Belo Horizonte Rio de Janeiro Porto Alegre Data: % of the economically active population *12-month moving average
08
08
20 09
09
09
20 10
20 10
20 11
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)
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
Data: %, 12-month moving average * People with some professional qualification training
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 (%)
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
10 0
* 12-month average up to January 2012

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 countrys 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.
Net Generation of Private Sector Jobs (thousands of jobs)
2,500 2,000 1,500
PRIVATE SECTOR JOB CREATION (2003-2011) 12.7 million

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
3.0
1.6
6.3
2003 2011
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
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
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)
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
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
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
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
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
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%
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

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
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
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
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

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
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
10
08
09
00
00
00
01
20
20
20
20
01
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
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
09
10
10
10
11
11
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
ar
Se
De
De
De
De
Ju
Ju
Se
Ju
Se
c2
01
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

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
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
00 9
62
OUTLOOK
Brazilian Economy
Interest Rates and Credit

Ministry of Finance
Ministry of Finance
Credit expansion in line with the countrys 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.

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

15 10 5 0
9.75 3.44
Selic Target Real Ex-Ante Interest Rate Data: % annual * Deflator: 12-month ahead inflation expectations
02
03
01
04
05
06
06
07
08
09
10 20
No v
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
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 Brazils decision to start an interest rate reduction cycle. Market expects an increase in interest rates in 2013.
Term Structure of Interest Rates (% YoY)
13.5 12.5 11.5 10.5 9.5
10.1 9.5 8.9
Jan 2015 Jan 2014 Jan 2013 Data: % change from the preceding year
8.5
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
Ja n
Ju l
Se p
No v
Ja n
Ju l
No v
ay
Se
ar
20
12
10
11
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
45.39
Spread = 35.82
20 0
Lending rate Funding rate

9.57

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.
Banking Spread to Corporations (% YoY)

40 35 30 25 20 15 10
28.55
Spread = 18.79
Lending rate Funding rate

9.76

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
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.
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
Individuals Corporations Data: days

Ju
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.
Banking Credit to Individuals (% accumulated in the period)

25 20 15 10 5
1.3 0.8 1.2
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

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.
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
Data: % accumulated in the period

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.
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)
3.0
2.5
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
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.
Daily Average Credit Disbursements to Businesses (R$ billion, constant prices - February 2012)*
8
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)
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

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.
Delinquency Rates (% of total)

10 8 6
7.6
4.1
4 2 0
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
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
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
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
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%.
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
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

76
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.
Caixa Econmica Federals 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
10.6 13.9
Data: R$ billion * Caixa Econmica Federal Estimates

84.3
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
205.9 201.7 160.9

Real Estate Loans Retail Payroll Data: R$ billion

l2 00 8 l2 00 9 l2 01 l2 01
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

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
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.
Brazilian Financial System: BNDES - Every February of Each Year (% of total credit)
25 20 15
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

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.
Trading Volume on Bovespa (R$ billion)

2,000
1,500
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

96
98.7
99
00
01
02
04
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
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
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
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)
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
-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
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
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
05
07
08
09
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 Transferncias para Estados e Municpios Receita Lquida Total Despesas Primrias Pessoal e encargos Transferncia de Renda s Famlias** Investimentos Custeio com sade e educao Demais despesas de custeio Resultado Primrio sem FSB e Cesso Onerosa Impacto do FSB e da Cesso Onerosa*** Resultado Primrio (acima da linha) Receita Lquida menos Transferncias de Renda s Famlias
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 Famlia 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
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

62.2 5.6 63.0 64.2 65.8 66.8 68.4 7.5 71.0 8.1 71.4
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
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
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
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
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
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
Data: % of total domestic debt

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
Data: R$ billion % of total debt and years

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
45 40 35 30 25 20 15 10 5
37.2 Fixed rate debt
41 (Maximum) 37 (Minimum)
Data: % of total debt

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
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

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
Global 2021
Date Issuance Data: % change from the preceding year

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
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 & Poors

AAA AA+ AA AAA+ A A-
Moodys
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
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
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
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 inows 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
* 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
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
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
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
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
-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
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
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
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 Governments 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

05
06
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
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
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
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 countrys 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
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
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

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
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
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

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
Au g 2 Ja 00 n 2 20 03
20 04
20 06
20 08
20 09
20 10
20 11
Ja n M 20 ar 12 20 12 *
20 0
20 0

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
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%
Data: %
Source: Ministry of Finance Produced by: Ministry of Finance
119
OUTLOOK
Brazilian Economy
International Overview
Ministry of Finance
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) Japans 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.
Ministry of Finance
G20: GDP growth in 2011 and 2012 forecast

2.0 0.2 2.3
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
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
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
Argentina
South Africa
Australia
* Bloomberg ** The Economist forecast *** 2012: Central Bank of Brazil Inflation Report (March 2012)
124
Ministry of Finance
Current account balance in 2011 and 2012 forecasts

-2.4 -1.4 -2.8
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
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
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
Argentina
South Africa
Australia
Data: % change from the preceding year * The Economist forecast ** 2012: Central Bank of Brazil Inflation Report (March 2012)
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.
World GDP Growth (%YoY)
6 5 4
3 2 1 0 -1

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
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.
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
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 (%)
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
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.
Unemployment Rates for Selected Countries - February 2012 (% change)

25 20 15
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
4.1
* On December 2011 ** On January 2012

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
Brazil Euro Zone* USA* Data: % * Seasonally adjusted
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
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)
40 30 20 10 0 -10 -20 -30 -40 -50
20.0 19.5
10.2
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
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
Total: 509 bi
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
134
20 12
20 12
20 12
20 1
l2 01
20 1
20 1
20
Au g
20 1 No v
De c
Ap r
Ju n
ar
ay
Ju
Se
ct
20 12
12
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.
Confidence Indexes - USA and Eurozone (points)
120 100 80 60 40 20
94.4
70.2
Economic Sentiment Indicator Eurozone USA Consumer Confidence Index Data: points
Ja n M 20 ar 12 20 12
Ja n
Ja n
Ja n
Ja n
Ju
Ju
Ju
Ju
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
China: CPI Inflation (% YoY on a 12-month basis)

8 7 6 5 4 3 2 1
7.5
3.2
Data: % YoY and % YoY on a 12-month basis * Chinese Government Target

0 -1
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
125.7
60 30
Data: Barrel in US$ at current prices

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.
Commodity Research Bureau (CRB) Index (index number, 1951=100)

1,200 1,000 800 600 400 200
949.4
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)
20 0
20
No v
Au g
Au g
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)
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
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.
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
Data: % * Positive changes mean currency depreciation and negative changes mean currency appreciation
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.
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
Data: %
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 markets 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)
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
Data: basis points

100 150 200 250 300 350 400
50
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.
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
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
Spain
Italy Ireland
Brazil
Portugal
Greece Aug to Mar 2012 Nov 2011
Data: rating
144
OUTLOOK
Brazilian Economy
Special Section Green Economy

Ministry of Finance
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
Ministry of Finance
Brazil: Green Economy at a glance
Special
12% of the Worlds 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 Worlds 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)
(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
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
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
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 Antnio do Jari UHE So Luiz do Tapajs UHE Jamanxim UHE Cachoeira dos Patos UHE Jatob UHE Santo Antnio UHE Jirau UHE So Manoel UHE Teles Pires UHE Rondon II UHE Dardalenos UHEs gua Limpa UHEs Porteiras UHEs Paraso UHE So Domingos UHEs Paranhos UHE Baixo Iguau UHE Cachoeirinha UHE So Joo UHEs Itapiranga UHEs Binacionais (2) UHE Passo So Joo UHE Mau UHE Telmaco Borba UHE So Roque UHE Pai Quer UHE Garibaldi UHE So Jos UHE Tabajara UHE Colider UHE Sinop UHE Toricoejo UHE Mirador UHE Batalha UHE Marab UHE Belo Monte UHE Cachoeira Caldeiro UHE Ferreira Gomes UHE Serra Quebrada UHE Estreito UHE Castelhano UHE Estreito do Parnaba UHE Cachoeira UHE Ribeiro Gonalves UHE Riacho Seco
Special
UHE Formoso UHE Davinpolis UHE Crenaque UHE Resplendor UHE Travesso UHE Pompu UHE Simplcio
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 So Paulo State concentrates the majority of thermal biomass plants.
PAC 2: Alternative Energy Sources (Thermal Biomass and Wind)
Wind Cear Wind Piau N 3 N 1 36 Wind Rio Grande do Norte N 4 16 59 N 1
Special
Thermal Biomass Rio Grande do Norte Thermal Biomass N 1 Tocantins Wind N Pernambuco 3 Thermal Biomass N 1 Alagoas Wind Sergipe Wind Bahia N 3 5 2 N 3 1 1 Wind Rio Grande do Sul Thermal Biomass Minas Gerais Thermal Biomass So Paulo N 5 2 37 N 5 7 1 N 11 40 N 1 1 N 1
Thermal Biomass Mato Grosso
N 1 1
Thermal Biomass Gois
Thermal Biomass Mato Grosso do Sul
Concluded Action In Execution Preparatory Action

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
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
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 Governments 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
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
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-CropLivestock Production Forestry Biological nitrogen fixation Animal waste treatment Targets until 2020 8 million ha 15 million ha
Special
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
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
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
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
* 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
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
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
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
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
Data: R$ billion
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
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
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
Ministry of Finance

Main Guidelines
2. Domestic Production Stimulus Government procurement for Machinery and Health Sectors
Appendix
3. Foreign Trade Financing
4. Trade Defense Operations to avoid fraud and circumvention
169
Ministry of Finance

Main Guidelines
5. Incentives to Information Technology and Communications Sectors
Appendix
6. Credit for Development Measures PSI 4 Funding for production, investment and innovation
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
zero R$ 198 million from March 26 2012 to June 30 2012
Laminates
15
zero
Wallpaper
20
10
R$ 20 million from March 26 2012 to June 30 2012
Luminaires and Chandeliers
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
225 216 1.171 312 4 7.214
*Announced in April 3rd 2012 ** Included before on terms of Law n.12546/2011

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 So 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 So 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 ofPlanning, 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: Mrcio 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 Jos Gilberto Scandiucci Filho Lgia 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: Andr Nbrega Layout Development: Alline Luz and Viviane Barros Design Trainee: Letcia Lopes and Weslei Lopes Economics Trainee: Andrea Motta
Ministry of Finance
Finished in April 11th, 2012 173

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BrazilianEconomyOutlook ENG Mar Apr12

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

Edition | April | 2012

Sustainable Development and Growth

Green Economy | 2012 8

Brazilian Economy Picks Up Speed in 2012

Robust growth in coming years

GDP Growth Rate (% YoY)

Green Economy | 2012

7.5 2.7 4.5 5.5 6.0

Data: % change from the preceding year * Ministry of Finance forecasts

Focus on supply and demand

Growth: Supply and Demand (% YoY)

Gross Fixed Capital Formation

2010 2011 Data: % change from the preceding year

Domestic demand relevance

Decomposition of GDP Growth - Demand Side (% YoY)

Net Foreign Demand Domestic Demand GDP

Green Economy | 2012

6.9 6.9 -1.7

Data: % change from the preceding year

Brazilian economic growth in more detail

Green Economy | 2012

Stability in the beginning of the year...

Green Economy | 2012

Data: index number, seasonally adjusted (2002=100)

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

... along with expected recovery along the year

Green Economy | 2012

Retail sales continues to grow on a monthly basis

Retail Sales Volume (% on a 12 month-basis)

Retail Sales Volume (% MoM)

Green Economy | 2012

Overall industry inventories decreasing

Overall Industry Excessive Inventories (% of survey respondents)

Data: % of respondents that inventory is excessive, seasonally adjusted

Industrial sector increases production

Green Economy | 2012

Data: index number, seasonally adjusted (2002=100)

Capacity utilization remains stable

Installed Capacity Utilization Level (%)

83.7 81.9 81.9

Green Economy | 2012

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

Confidence in the Brazilian economy keeps strong

103.0 Optimistic Pessimistic

Source: FGV Produced by: Ministry of Finance

New record for the Brazilian harvest in 2011

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

Green Economy | 2012

Data: millions of tons

Source: Conab Produced by: Ministry of Finance

Harvest Plan fosters agricultural dynamism

5.4 27.2 39.5

Green Economy | 2012

Investment as the main growth component

Green Economy | 2012

Balanced combination of the investment components

Green Economy | 2012 25

Increasing investment shakes up the domestic economy

Investment Gross Fixed Capital Formation (% of GDP)

* Ministry of Finance estimates

Brazil stands out in port investments

Nine Major Projects of Ports in the World* (US$ billion)

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