The BNDES and the perspectives for the Brazilian Economy

Luciano CoutinhoPresident of the Brazilian Development Bank (BNDES)

March 3rd, 2010

2

Brazil aced the crisis test

The Brazilian economy can grow much faster than the average in

developed countries;

The domestic market will make the expansion in demand

feasible: basic household consumption, housing and durable

goods;

Investments will be driven by four main sectors: oil & gas, electric

power, logistics and residential construction;

Opportunities for intensive strategies in innovation and social and

environmental sustainability;

Main challenges: increase aggregate investment/GDP rate, and

boost competitive progress in the manufacturing industry.

The Brazilian economy can grow much faster than the average in

developed countries;

The domestic market will make the expansion in demand

feasible: basic household consumption, housing and durable

goods;

Investments will be driven by four main sectors: oil & gas, electric

power, logistics and residential construction;

Opportunities for intensive strategies in innovation and social and

environmental sustainability;

Main challenges: increase aggregate investment/GDP rate, and

boost competitive progress in the manufacturing industry.

3

Global Growth

2010 2011 2010 2011USA 2.7 2.4 3.0 2.6Euro Zone 1.0 1.6 1.7 1.6Germany 1.5 1.9 - -France 1.4 1.7 - -UK 1.3 2.7 - -Japan 1.7 2.2 2.1 1.2Mexico 4.0 4.7 4.4 3.5Brazil 4.7 3.7 5.8 4.0China 10.0 9.7 10.0 10.0India 7.7 7.8 8.5 9.0Russia 3.6 3.4 3.7 2.8

GDP Growth Rate (%)IIF ForecastsIMF Forecasts

Source: IMF and IIF.

4

Countries’ share of Brazilian exports

Source: Ministry of Development, Industry and Trade. Elaborated by: MF/SPE

2002 2008

Developing Countries

38%

Developing Countries

52%Developed Countries

62%

Developed Countries

48%

Developing countries have increased their share of Brazilian exports. These countries were less affected by the crisis and they are expected to show higher growth levels in the years to come.

Developing countries have increased their share of Brazilian exports. These countries were less affected by the crisis and they are expected to show higher growth levels in the years to come.

5

GDP may grow 5% p.a. in the 2010-2014 period

Source: IBGE.

GPD: Annual Real Variation (%)GPD: Annual Real Variation (%)

* 2009 and Avg 2010-14: BNDES' Forecasts.

Sources: IBGE and BNDES.

*

2.8 2.5

5.7

3.24.0

6.15.1

0.1

5.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Average1984-93

Average1994-03

2004 2005 2006 2007 2008 2009 Average2010-14

6Source: IBGE, Secex e Funcex.

Brazilian industrial downturn was mainly due to weak external demand ...

104.4

96.8 92.4

80.682.5

69.6

100

65707580859095

100105110

Exports of Manufactured goods

Industrial Production

Retail Sales

Industrial Production, Retail Sales and Exports(index: September 2008=100)

7

Growth Rate Quarter by Quarter (%)

Household consumption resumed growth

0.1

-1.2

0.5

1.11.4

0.9 0.91.4

0.5

1.4 1.41.7

1.0 1.2 1.0

1.6

2.1

0.90.5

2.4

1.4 1.3

-1.2

0.4

2.42.0

3.5

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

1Q 2

003

2Q 2

003

3Q 2

003

4Q 2

003

1Q 2

004

2Q 2

004

3Q 2

004

4Q 2

004

1Q 2

005

2Q 2

005

3Q 2

005

4Q 2

005

1Q 2

006

2Q 2

006

3Q 2

006

4Q 2

006

1Q 2

007

2Q 2

007

3Q 2

007

4Q 2

007

1Q 2

008

2Q 2

008

3Q 2

008

4Q 2

008

1Q 2

009

2Q 2

009

3Q 2

009

Source: IBGE

8Source: IBGE

Unemployment rate down from 10.2% in Jan/05 to 7.2% in Jan/10

Unemployment rate fell...

Average unemployment rate (%) - IBGE

10.22005

10.9

2006 9.32007

8.0 2008

2009

6.8

2010

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

9.3

8.2

7.2

9Source: IBGE

…and wages increased

Up to December 09

REAL WAGES - Average for the last 12 monthsR$ Billion

29.56

29.36

28.66

26.68

25.13

23.6121.93

21

22

23

24

25

26

27

28

29

30

Aug-0

4

Dec-0

4

Apr-0

5

Aug-0

5

Dec-0

5

Apr-0

6

Aug-0

6

Dec-0

6

Apr-0

7

Aug-0

7

Dec-0

7

Apr-0

8

Aug-0

8

Dec-0

8

Apr-0

9

Aug-0

9

Dec-0

9

Source: IBGE

10

Investment has been recovering since the second quarter of 2009

Gross fixed investmentPercentage Change From Preceding Quarter (%)

3.5

-0.1 0.4

5.4 5.8 6.5

10.9

-0.9

4.33.2

7.1

-9.9

0.71.8

3.42.2

-1.0

2.0

-11.0

3.04.1

1.0

3.7

2Q 2

004

3Q 2

004

4Q 2

004

1Q 2

005

2Q 2

005

3Q 2

005

4Q 2

005

1Q 2

006

2Q 2

006

3Q 2

006

4Q 2

006

1Q 2

007

2Q 2

007

3Q 2

007

4Q 2

007

1Q 2

008

2Q 2

008

3Q 2

008

4Q 2

008

1Q 2

009

2Q 2

009

3Q 2

009

4Q 2

009*

Source: IBGE and BNDES/APE

*forecasting

11

Credit/GDP ratio grew even after the crisis worsened in Sept/08

Evolution of Credit/GPD ratio (%)

22.0

24.0 24.5

28.1

30.2

34.2

41.3

45.0 44.6

20

25

30

35

40

45

50

2002 2003 2004 2005 2006 2007 2008 2009 2010*

Source: Brazilian Central Bank

*Up to January

12

State-owned banks sustained credit after the crisis

The BNDES alone was responsible for 37% of the increase in credit from Sept/08 to Jan/10

Source: Bacen.

Contribution to Credit Growth (Sept/08-Jan/10)

Contribution to Credit Growth (Sept/08-Jan/10)

Credit Growth(Index September 2008 = 100)

Credit Growth(Index September 2008 = 100)

Private Banks 27%

BNDES37%

Other State-owned Banks 36%

100

109.0113.9

118.3121.2

100

106.9

132.9

150.1

144.6

141.2

138.8

109.5

105.6103.2

103.3

102.4

102.9102.6

90

100

110

120

130

140

150

Sep-0

8

Nov-08

Jan-0

9

Mar

-09

May

-09

Jul-0

9

Sep-0

9

Nov-09

Jan-1

0

Public Banks

Private Banks

13

Impact of anti-cyclical policies on debt

54.1

72.9 France

56.9

76.2 Germany

101.3

117.0 Italy

80.4

115.0 Japan

38.3

75.1 UK

42.3

66.8 US

43.438.8

43.942.0 Brazil

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

2003 2004 2005 2006 2007 2008 2009 2010

ForecastPublic Sector Net Debt (%GDP)

Source: IMF and Brazilian Central Bank.

14

Investment has strong growth path

Source: BNDES. Elaborated by: APE/BNDES

Forecast of Investment Ratio 2009-2012 (% of GDP)

16.4

17.6

19.0

21.2

20.2

18.6

16.9

15.0

16.0

17.0

18.0

19.0

20.0

21.0

22.0

2006 2007 2008 2009 2010 2011 2012

Forecast

15

BNDES was responsible for 37% of total credit increase since Sept/08

BNDES was responsible for 37% of total credit increase since Sept/08

Source: BNDES. *considering the average exchange rate for each year

BNDES Approvals and Disbursements1 (US$ billion)BNDES Approvals and Disbursements1 (US$ billion)

10.913.1 13.6 12.9

19.322.3 23.5

34.1 33.1

50.6 50.5

66.3 68.8

85.2

71.5

88.2

0

10

20

30

40

50

60

70

80

90

2003 2004 2005 2006 2007 2008 2009 2010*

Disbursements Approvals

*last 12 months up to January 2010

16

Source: Ministry of Finance

Permission for banks to issue a new bond, entitled the Financial Letter/Note, to raise long-time funding.

Exemption of PIS/Cofins, IPI and II on computer parts and components acquired for the "One Computer for Every Child Program".

New measures to stimulate the economy in 2010FISCAL INCENTIVES

US$ 1.8 billionFINANCING LINES US$ 77 billionFederal government credit lines for the BNDES

FINANCIAL INCENTIVES

Extension of Tax Exemption on Industrialized Products (IPI) for Capital Goods

Federal government extension of subsidies over the interest rate for financing granted by the BNDES (Capital Goods, exports and innovation)

Temporary suspension of IPI, PIS/Cofins and Import Taxes (II) related to investments in refining and the petrochemical industry

Extension to 2014 of exemption of PIS/Cofins taxes on retail computers

Loans of US$ 8 billion, using federal government funds, for the Merchant Navy Fund

The government continues to stimulate the economy

US$/R$ = 1.80

17

My House, My Life

74,554 88,452 93,844 98,259141,110 143,649 130,289

186,765

275,528

2002 2003 2004 2005 2006 2007 2008 2009

New credits My House, My Life Program

New credits (homes contracted)462,293

18

BNDES ProCopa Programs

Arenas

Up to US$ 2.7 billion to build and remodel stadiums and

urbanization investments in surrounding areas.

Tourism

Up to US$ 556 million to build, remodel, expand and

modernize hotels.

Arenas

Up to US$ 2.7 billion to build and remodel stadiums and

urbanization investments in surrounding areas.

Tourism

Up to US$ 556 million to build, remodel, expand and

modernize hotels.

US$/R$ = 1.80

19

Challenges for infrastructure

Belo Monte Hydroelectric Plant and, afterwards, Tapajós;

Railways, roads and ports;

2014 World Cup;

PAC - Urban Transport;

2016 World Olympics;

High-speed Train (TAV);

Environmentally sustainable projects and concern for

surrounding areas.

Belo Monte Hydroelectric Plant and, afterwards, Tapajós;

Railways, roads and ports;

2014 World Cup;

PAC - Urban Transport;

2016 World Olympics;

High-speed Train (TAV);

Environmentally sustainable projects and concern for

surrounding areas.

20

Investment outlook: positive prospectsInvestment outlook: positive prospects

Sectors Growth 2005-8 2010-13 (%)

Infrastructure 111 152 6.5

Industry 191 271 7.2

Total 302 423 7.0

US$ billion

US$/R$ = 1.80

Source: BNDES Forecast

21

Investment in Industry: Domestic-led sectors have already recovered from the crisis

Investment in Industry: Domestic-led sectors have already recovered from the crisis

Sectors US$ billion Growth

  2005-2008 2010-2013 % year

Oil and Gas 112 171 8.8

Mining 29 25 (3.1)

Steel 15 20 5.7

Petrochemical 5 17 28.9

Vehicles 12 17 7.3

Electronics 8 12 6.7

Pulp & Paper 10 10 0.5

Industry 191 271 7.3

Source: BNDES

22

Sectors US$ billion Growth

 2005-2008 2010-2013 % year

         

Electric Power 38 51 6.4

Telecom 37 37 0.2

Sanitation 12 22 11.7

Railroads 9 16 13.2

Roads 23 33 7.8

Ports 5 14 22.9Infra 111 152 6.5

Investments in Infrastructure were not affected by the crisis

Investments in Infrastructure were not affected by the crisis

Source: BNDES

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Brazil’s Long Term Challenges

Resume and qualify long-term planning (energy, logistics, environment, IT infrastructure, ...);

Promote and stimulate domestic savings in order to provide long-term funds for investment (banks and capital market)

Develop capacity for innovation and competitiveness in the manufacturing industry, and promote global presence of Brazilian companies (vs. significant challenge due to exchange rate appreciation)

Increase opportunities for social mobility (job expansion, development/improvement in education) and reduction of the inequality in income distribution;

Promote innovation and development of renewable energy sources.

24