Brazil: Sustainable Growth, income distribution and

social inclusion

MiamiMiamiMinister Paulo BernardoMinister Paulo Bernardo

April 6th, 2008April 6th, 2008

Brazil is consolidating a mass consuption market and promoting the ressurgence of a new middle class

Faster growth and lower unemployment have

fueled higher consumer spending and investment.

Unemployment rate fell from 13% in 2002 to

7,4% in 2007

Investment rate increased from 15,3% to 17,3%

of GDP in four years

In 2007, sales expanded by 10%.

2006

2007

GDP 3,8 5,4

Family consuption

4,6 6,5

Government consuption

2,8 3,1

Investment

10,0 13,4

Exports 4,7 6,6

Imports (-) 18,3 20,7

19 consecutive quarters of Growth

Source: IBGE

100

105

110

115

120

125

2003

.II

2003

.IV

2004

.II

2004

.IV

2005

.II

2005

.IV

2006

.II

2006

.IV

2007

.II

2007

.IV

Index number (2003.II =100)

GDP Components – annual growth rate %

Source: IBGE

4,53,6

4,6

10

6,5

13,4

0

2

4

6

8

10

12

14

2005 2006 2007

Family Consumption Investment

In this new cycle, growth has its pillars in sustainable domestic demand

5,1

21,3

5,7

23,1

6,7

23,5

8,8

27,2

9,9

29,9

11,7

34

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007

individuals total

Credit level increased

Source: Central Bank

Credit - % of GDP

200

225

250

275

300

325

350

375

400

425

1995 1997 1999 2001 2003 2005 2007

29,9% in 9 years

37,2% in 5 years

Recovering the purchase power of the minimum wage

Source: DIEESE

2006 R$ Increase in

real terms

80

85

90

95

100

105

110

115

120

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Employment Wage Bill

The recovery of Wage Bill

Source: DIEESE

2000 = 100

Index number

The result is an impressive growth on sales and consumption ...

Sale of Electronic and IT goods => 25,8% increase

in 2007

Production of capital goods => 18,5% in 2007.

Automotive Industry => 100% Sale increase in 4

years

Sale of Durable Goods => 33% increase in 4 years

Production of Cement => 20,7% increase in 5 years

Real Estate Expansion

Source: SBPE

-

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

180.000

set01

mar02

set02

mar03

set03

mar04

set04

mar05

set05

mar06

set06

mar07

set07

-

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

Housing – Real Estante Financing

Unity

R$ millions

17,413,7

25,1

2,9

36,5

43,3

-10

0

10

20

30

40

50

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

475 484

554

600635

694

400

450

500

550

600

650

700

750

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Since 2003, the largest corporations are improving their results

500largest corporations - Profit (US$ Bi)

500 largest corporations - Revenue (US$ Bi)

Source: Exame Magazine

Investment is the backbone of the Sustainable Cycle

Source: IBGE

15,3

15,916,1

16,5

17,3

14,5

15,5

16,5

17,5

2003 2004 2005 2006 2007

% of GDP

Industrial Production and Investment

Source: IBGE

-5%

0%

5%

10%

15%

20%

25%

30%

fev/06 mai/06 ago/06 nov/06 fev/07 mai/07 ago/07 nov/07

Capital Goods

Industry

Accumulated Growth

base: jan/06

29,9

10,2

Fostering Sustainable Growth allows Brazil to face

the social challenge ...

Source: FGV/PNAD/IBGE

Growth is Reducing Poverty and Income Inequality ...

28,4 28,027,6

26,7

28,2

22,8

19,3

18

20

22

24

26

28

30

1999 2000 2001 2002 2003 2004 2005 2006

%

0,567

0,5600,558

0,553

0,545

0,5350,532

0,528

0,500

0,510

0,520

0,530

0,540

0,550

0,560

0,570

0,580

1998 1999 2001 2002 2003 2004 2005 2006

% of population under poverty line

Gini Index

... and reducing unemployment

7

8

9

10

11

12

13

Source: IBGE

7,4%

%

BOLSA FAMÍLIA – “An anti-poverty program invnted in Latin America is winning converts worldwide – The Economist” (february 2008)

11 millions families now receive the benefit.

The program has also helped to push the rate

of economic growth in the poorest regions above

the national average.

Strong impact on food consumption and school

enrollment

Social inclusion: 25% of the population are enrolled on conditional cash transfer programs

Sound Fundamentals and Economic Growth for the

Rise in Investments

44,53

45,54

48,43

50,47

46,9946,47

44,72

42,83

52,35

41

44

47

50

53

1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Central Bank

Sustained commitments to sound Sustained commitments to sound fiscal policies yields its results.fiscal policies yields its results.

Public Sector Net Debt (% of GDP)Public Sector Net Debt (% of GDP)

0

10

20

30

40

50

60

70

80

90

100

Exchange index

Fixed Rate

Price index

Selic

Debt has a different profile...

Source: Central Bank

27

30

33

36

Duration

%

months

0

2

4

6

8

10

12

14

16

18

jun/0

2

sep/

02

dec/0

2

mar

/03

jun/0

3

sep/

03

dec/0

3

mar

/04

jun/0

4

sep/

04

dec/0

4

mar

/05

jun/0

5

sep/

05

dec/0

5

mar

/06

jun/0

6

set/0

6

dez/0

6

mar

/07

jun/0

7

set/0

7

dez/0

7

mar

/08

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

21%

24%

27%

30%

Consumer Price Index Selic

... and inflation is under control

target

External Sector – Reduction of the External Vulnerabilities

Brazil is now much less vulnerable to international

turbulences it was in the past, because:

Foreign direct investment is strong;

Several consecutive years of aggressive export expansion;

Diversification of markets (INSERIR DADOS NOS COMETÁRIOS)

Increase in international reserves;

Better external indebtedness indicators;

-20

0

20

40

60

80

100

120

140

160

180

trade balance

imports

exports

Brazil has been running a sound trade Balance Surplus

Source: Ministry of Industry and Commerce

US$ billion

10,8

18,9

28,9 28,6

32,8

22,5

16,6

10,1

18,115,1

18,8

34,6

0

5

10

15

20

25

30

35

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

Increase in Foreign Direct Investment

Source: Central Bank

Lula

Privatization

New Challenges Ahead

The Brazilian Agenda

Tax Reform

Infrastructure

PAC

New Industrial Policy

Efficiency in Public Management