Brazil Towards a Sustainable Growth Path: Stabilization and Consolidation of Structural Reforms

Armnio Fraga
January 2001

Overview

1. Recent Developments 2. Longview I: Macro Reforms 3. Longview II: Structural and Micro Reforms 4. Growth Prospects

1. Recent Developments

Recent Developments

Progress in the structural fiscal reform Inflation stabilization Floating foreign exchange regime Balance of payments improvement Economic growth recovery
4

Fiscal Performance
16 14

Public Sector

12
10 % GDP 8 6 4 2 0 Primary Surplus Jan 96 Jul Jan 97 Jul Jan 98 Jul Jan 99 Jul Jan 00 Nov Nominal Deficit

-2
-4 -6 Jul 95

(+) deficit (-) surplus

Flows in 12 months, based on the GDP reviewed on October 2000

Consumer Prices

25
12-month variation (%) 20 15 10 5

IPCA

0
Jan 96 Jul Jan 97 Jul Jan 98 Jul Jan 99 Jul Jan 00 Jul Nov

Exchange Rate

2.20 2.00 R$/US$ 1.80 1.60 1.40 1.20 Jan 99 Mar May Jul Sep Nov Jan 00 Mar May Jul Sep Dec

Current Account and FDI

40 35 US$ billion 30 25 20 15

10
5 0 Jan 98 Apr Jul Oct Jan 99 Apr Jul Oct Jan 00 Apr Jul Nov

Current account deficit *

/* (+) deficit 12-month variation data

FDI
8

Exports Quantum and Price Index

105 100 95 Price 90 85 80 75 160

150
140 Quantum
9

130

120
110 100 90 80 70

Jan
98

Apr

Jul

Oct

Jan 99

Apr

Jul

Oct

Jan 00

Apr

Jul

Nov

1996 average = 100 Source: Funcex

Price

Quantum

External Debt / Exports

550
500 450 400 350

300
1995 1996 1997 1998 1999

10

2. Longview I: Macro Reforms

11

Longview I: Macro Reforms

Structural fiscal reforms Inflation targeting / floating exchange rate

12

Structural Fiscal Reforms

Privatization State banks reform Public administration reform Social security reform Fiscal Responsibility Law

Fiscal Crime Law

13

Medium-Term Fiscal Scenario

Net Public Sector Debt

52 50 % GDP * 48 46 44 42 40 1998* 43.41

49.68

49.94

49.28 47.60

1999*

2000

2001

2002

/* GDP reviewed on October 2000

14

Public Administration Reform

Efficiency and cost reduction Enhanced public services

Transparency and social control

Managerial reform: the Avana Brasil

15

Social Security Reform

Private workers mandatory regime Public service regime Complementary pension regime

16

Social Security
Social Security Balance - Accumulated in 12 months (R$ billion)
12
10

ALT

8
6 4 2 0 Sep 98 Sep 99 Dec 97 Dec 98 Dec 99 Jun 98 Jun 99 Mar 98 Mar 99 Mar 00 Jun 00

17

/* (+) deficit

Social Security Reform

Private Workers Mandatory Regime Annual Deficit

1.7

ALT

1.5

Previous Scenario

% GDP

1.3

1.1

Post-reform Scenario

0.9

0.7 1999 2002 2005 2008 2011 2014 2017 2020

18

Inflation Targeting
Focus on inflation

Commitment
Transparency

19

3. Longview II: Structural and Micro Reforms

20

Longview II: Structural and Micro Reforms

Education and health Global integration Privatization / competitiveness / regulation Banking reform Capital markets reform

Tax reform
21

Education
Net Ground Schooling Rate
96 % 93 % 91 % 89 % 86 %

97 %

1991

1994

1996

1997

1998

1999

Source: MEC/INEP/SEEC

22

Education
20 19 18

Iliteracy Rate - Brazil 1990-1998

% of population at 15 or more years of age
18.3 17.2 16.4 15.6

17
16 15 14 13 12 1990 1991 1992

14.7

14.7

13.8

1993

1994

1995

1996

1997

1998
23

Source:IPEA, based upon PNAD

Education
Systems Expansion 1995-1999 (enrollment increase %) Basic education High school and technical education 13 % 57 %

College education

28 %

Source: MEC

24

Health
Infant Mortality Rate
(per 1.000 new-born)
47.8

45.2

43.0

41.1

39.6

38.4

37.5

36.7

36.1

1990

1991

1992

1993

1994

1995

1996

1997

1998

25

Evolution of the per capita federal social expenditure

750 700 650 In 1998 R$ 600 550 500 450 400 350 300

Brazil 1980-1998

GSF PER CAPITA

AVERAGE GSF PER CAPITA

26

GDP per capita

GDP per capita * 1962 - 1999
6.000 In 1999 R$

5.000

4.000

3.000

2.000 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 1999

/* GDP reviewed on October 2000 Source: IBGE

27

170

Price variation of the basic basket vis-a-vis variation of the minimal wage Brazil 1994-2000

150

130 In R$

Minimal wage

110

90

Basic basket

70

50

28
Source: PROCON/DIEESE

Proportion of the poor and the indigents over the total population - Brazil 1977-1998
60 51.0

50
% of total population 42.6 40

45.3 41.7

32.7
30 20.7 25.0 28.2 22.1 19.5 13.9 10 9.8

20

0
1977 1980 1983 1986 1989 1992 1995 1998

Indigence Line
Source: PNAD (1977-1998) Preparation: IPEA

Poverty Line
29

Average Import Tariffs

1990 1993 1997 1999

32.2% 16.5% 13.8% 13.8%

30

ISO 9000
6,000

Certificates Issued
5,000 4,000 3,000 2,000 1,000 0 1990 1991 1992 1993 1994 1995 1996 1997

5,285

1998

1999

Source: ABNT (estimated ADTP)

31

Privatization Program
1991 - 2000*
US$ million

Program

Sale Revenue 46,724

26,978 19,746

Debt Transfer 11,326

2,125 9,201

TOTAL 58,050
29,103 28,947

Federal Privatizations
Telecommunications Other

State Privatizations Total

*As of 1st March

26,172 72,896

6,592 17,918

32,764 90,814
32

Infrastructure Investments
2000 - 2003
Sector Total Investment
(US$ billion)

Private Sector

Telecommunications Energy Oil Transportation

45 52 54 23

100 % 86 % 31% 52 %

Total

174

68 %
33

Electric Power Generation

Installed Capacity (GW)
64.5 61.5 59.2 57.3 55.5 54.1

68.0

1994

1995

1996

1997

1998

1999

2000*

* estimated

Source: MME

34

Information Technology
Installed Computers (millions)
6.8 5.6 4.0 2.3

8.3

1995

1996

1997

1998

1999*

* estimated

Source: MME

35

Information Technology
Internet Users (millions)
3.4 2.9

1.8 1.4 0.7 0.2

1995

1997

Jan 98

Jul 98

Dec 98

1999

* estimated

Source: MME

36

Telecommunications
Mobile Phones (millions)
17.5 15.0

9.2 6.0

2.5
0.6 1.3

1994

1995

1996

1997

1998

1999

2000*

*As of May

37

New Regulatory Framework

Regulatory agencies Competition policy Consumer protection Intellectual property rights

Environmental legislation

38

Banking reform

Supervision / regulation Payments System Financial liberalization

39

Banking Spread

70 65 60 % p.y. 55 50 45 40 35 30 Jan 98 Apr Jul Oct Jan 99 Apr Jul Oct Jan 00 Apr Jul Nov

Average banking spread

40

Capital Markets Reform

Corporate Law
Accounting standards Regulation

41

4. Growth prospects

42

Summing up

Openness Deregulation Stabilization Privatization

Competition
Investment Predictability

Efficiency

43

Growth Accounting

Labor force growth

1.5%

Capital accumulation
Productivity (TFP)

2.5%
1 - 3%

44

Brazil Towards a Sustainable Growth Path: Stabilization and Consolidation of Structural Reforms

January 2001

45