MINISTÉRIO DA FAZENDASecretaria do Tesouro Nacional

55thth Annual OECD/World Bank Annual OECD/World BankBond Market ForumBond Market Forum

Comments on the Monday Morning SessionComments on the Monday Morning SessionEMERGING MARKET DEBTEMERGING MARKET DEBT

demand & supply factors in 2003 and aheaddemand & supply factors in 2003 and ahead

Joaquim Vieira LevyJoaquim Vieira Levy Secretário do Tesouro Nacional Secretário do Tesouro Nacional

Washington, June 2003Washington, June 2003

Brazil: Understanding Debt Dynamics Brazil: Understanding Debt Dynamics

-Debt management is closely linked to the overall fiscal stance and prospects. Fiscal relaxation in the mid 1990s proved to be costly, despite the improvements in debt management occurred since and the relative depth of Brazilian financial markets.

surplus

deficit

Public Sector Fiscal ResultsActual and Alternative Debt –GDP Path

Alternative path: 3,5% of GDP surplus throughout the second half of the 1990s

-15

-10

-5

0

5

10

Dec/95

Dec/96

Dec/97

Sep/98

Dec/98

Dec/99

Dec/00

Dec/01

Dec/02

Mar/03% o

f GDP

Nominal Nominal Interest Primary

Cornerstone of Fiscal Strategy:Cornerstone of Fiscal Strategy:Reduce the Debt/GDP ratioReduce the Debt/GDP ratio

55,90

53,88

51,85

49,71

47,47

44,51

41,43

38,22

34,89

55,9054,54

52,48

50,41

48,24

45,97

42,98

39,86

36,62

33,25

60,95

59,06

57,15

55,13

53,02

50,19

47,24

44,17

40,97

30,00

35,00

40,00

45,00

50,00

55,00

60,00

65,00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cambio337 Cambio320 Cambio370 Cambio400

40%40%

By late March 2003 it was already close to 54%By late March 2003 it was already close to 54%

60%60%

20062006 20102010

…What about foreign debt? …What about foreign debt?

-Changes in market sentiment throughout 2002 created significant turbulence, despite the nimble response of the economy to the changing environment. A BOP swing of about 3 points of GDP was achieved without a recession.

-Successful sovereign issuance, with CAC. C-bond price doubling.

Current Account Deficit

-10000

0

10000

20000

30000

40000

1994

1995

1996

1997

1998

1999

2000

2001

2002

Current Account Deficit Trade Balance

TAXA ACEITA NOS LEILÕES (LTN)

26,8%

24,5%

27,9%28,1%

27,2%

27,0%

25,3%

26,8%

24,8%25,3%

25,7%

24,2%

24,1% 24,3%

25,9%

23%

24%

25%

26%

27%

28%

29%

6/3/03 13/3/03 20/3/03 27/3/03 3/4/03 10/4/03 17/4/03 24/4/03 1/5/03

Taxa

(a.a.

)

LTN para 10/01/03

LTN para 01/07/04

LTN para 01/07/2004

Domestic debt

Return of Fixed-rate instruments

decline in premia in floating rate instruments

Plumbing & Relations in BrazilPlumbing & Relations in Brazil

Clear Public Policies – Curbing Debt/GDP ratio – Clear Public Policies – Curbing Debt/GDP ratio – Continued improvement of regulationsContinued improvement of regulations

Timely, comprehensive, accurate dataTimely, comprehensive, accurate data

Well “filled” yield curve and clear programWell “filled” yield curve and clear program

Access to Officials; good relation with domestic Access to Officials; good relation with domestic investors (e.g., mutual & pension funds)investors (e.g., mutual & pension funds)

Non-deal Road ShowsNon-deal Road Shows

Further Improving the Quality of DebtFurther Improving the Quality of Debt

No non-sense reformsNo non-sense reforms

Fiscal and Fiscal and Monetary Monetary

ResponsibilityResponsibility

Fiscal and Monetary Fiscal and Monetary Targets, Abiding to Targets, Abiding to

contracts, LRFcontracts, LRF

Social Social Security Security ReformReform

Tax Reform, Tax Reform, Capital Markets, Capital Markets,

Chapter 11Chapter 11

Affordable Affordable Safety NetSafety Net Enterpreneur Enterpreneur

shipship