Boletim Do Banco Central Do Brasil – Annual Report 2010 I the Brazilian Economy

Annual Report 2010

Volume 46

ISSN 1517-7270 CGC 00.038.166/0001-05

Boletim do Banco Central do Brasil Brasília v. 46 Annual 2010 p. 1-235 Report Boletim do Banco Central do Brasil

Published annually by the Banco Central do Brasil/Department of Economics (Depec). The contents and their correspondent statistical tables are under the charge of the following component parts:

The Brazilian Economy – Consultative Group on Domestic Economic Activity (Coace) (E-mail: [email protected]); Money and Credit – Monetary and Banking Division (Dimob) (E-mail: [email protected]); Capital and Financial Markets – Monetary and Banking Division (Dimob) (E-mail: [email protected]); Public Finance – Public Finance Division (Diﬁ n) (E-mail: diﬁ [email protected]); Economic-Financial Relations with the International Community – Balance of Payments Division (Dibap) (E-mail: [email protected]); The International Economy – Consultative Group on Economic Research and Analysis (Copec) (E-mail: [email protected]); International Financial Organizations – Departament of Foreign Debt and External Relations (Derin) (E-mail: [email protected]).

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Statistical Conventions: ... data not available. - nil or non-existence of the event considered. 0 or 0.0 less than half the ﬁ nal digit shown. * preliminary ﬁ gures.

A hiphen (-) between years (1970-75) indicates the years covered, including the beginning and ending years. A bar (/) between years (1970/75) indicates the average of the years covered, including the beginning and ending years, or even crop or agreement year, when mentioned in the text.

Minor discrepancies between constituent ﬁ gures and totals as well as percentage changes are due to rounding.

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Address

Banco Central do Brasil Secre/Comun/Diate SBS – Quadra 3 – Bloco B – Edifício-Sede – 2º subsolo 70074-900 Brasília – DF – Brazil IDDD: +55 0800 9792345 Fax: +55 (61) 3414-2553 Internet: E-mail: [email protected] Summary

Introduction ...... 11

I- The Brazilian Economy ...... 13 Activity level ...... 13 Gross Domestic Product ...... 13 Investments ...... 20 Industrial output indicators ...... 22 Services ...... 25 Central Bank Index of Economic Activity ...... 26 Trade indicators...... 26 Agricultural output indicators ...... 28 Livestock ...... 30 Agricultural policy ...... 30 Productivity ...... 32 Energy ...... 33 Employment indicators ...... 34 Wage and income indicators ...... 34 Price indicators ...... 35 General price indices ...... 35 Consumer price indices ...... 37 Regulated prices ...... 38 Core ...... 40

II- Money and Credit ...... 43 Monetary policy ...... 43 Monetary aggregates ...... 43 Federal public securities and Central Bank open market operations ...... 49 Financial system credit operations ...... 50 National Financial System ...... 55 III- Capital and Financial Markets ...... 59 Real interest rates and market expectations ...... 59 Capital market ...... 60 Financial investments ...... 62

IV- Public Finance ...... 65 Budget, ﬁ scal and tax policy ...... 65 Other economic policy measures ...... 65 Public sector borrowing requirements ...... 66 Federal securities debt ...... 70 Public Sector Net Debt ...... 73 Collection of federal taxes and contributions ...... 77 Social Security System ...... 78 State and municipal ﬁ nances ...... 79

V- Economic-Financial Relations with the International Community ...... 81 Foreign trade policy ...... 81 Exchange policy ...... 84 Exchange movement ...... 87 Balance of payments ...... 89 Trade balance ...... 90 Trade exchanges ...... 111 Services ...... 112 Income ...... 116 Current transfers ...... 120 Financial account ...... 120 International reserves ...... 131 National Treasury External Debt Service ...... 132 Foreign debt ...... 133 Indebtedness indicators ...... 140 External funding operations ...... 142 Brazilian external debt securities ...... 145 International investment position (IIP) ...... 145 The IMF ﬁ nancing and its relationship with Brazil in 2009-2010 ...... 147

VI- The International Economy ...... 151 Economic activity ...... 151 Commodities ...... 156 Monetary policy and inﬂ ation ...... 158 International ﬁ nancial market ...... 163 VII- International Financial Organizations ...... 169 International Monetary Fund ...... 169 Group of the 20 – G-20 ...... 171 Bank for International Settlements – BIS ...... 172 Center for Latin American Monetary Studies – CEMLA ...... 174

VIII- Main Economic Policy Measures ...... 177 Complementary Laws ...... 177 Laws ...... 177 Provisional Measures ...... 179 Decrees ...... 182 Legislative Decrees ...... 186 National Monetary Council Resolutions ...... 187 Resolution of the National Council of Energy Policy ...... 197 Resolutions of the National Council of Export Processing Zones ...... 197 Resolutions of the National Health Surveillance Agency (ANVISA) ...... 197 Resolutions of the Foreign Trade Council (Camex) ...... 197 Circular of the Central Bank of Brazil ...... 206 Circular of the Private Security Authority (Susep) ...... 210 Circulars of the Foreign Trade Secretariat (Secex) ...... 210 Directives of the Ministry of Development, Industry and Foreign Trade (MDIC) ...... 213 Directive of the Ministry of Mines and Energy ...... 214 Directives of the National Treasury Secretariat (STN) ...... 214 Directives of the Foreign Trade Secretariat (Secex) ...... 215 Directive of the Federal Revenue Secretariat of Brazil (RFB) ...... 216 Directive of the National Institute of Metrology, Standardization and Industrial Quality (Inmetro) ...... 216 Joint Directive of the Federal Revenue of Brazil and the Secretariat of Foreign Trade ...... 217 Directive of the Manaus Free Port Authority (SUFRAMA) ...... 217 Normative Instructions of Federal Revenue Secretariat of Brazil (RFB) .....217

Appendix ...... 219

Summary 5 Statistical Tables

Chapter I 1.1 GDP at market price ...... 14 1.2 GDP – Quarterly growth/previous quarter – Seasonally adjusted .... 15 1.3 GDP real change rates – Under the prism of production ...... 15 1.4 GDP real change rates – Under the prism of expenditure ...... 16 1.5 Gross Domestic Product – At current value ...... 17 1.6 Gross capital formation (GCF) ...... 20 1.7 Selected capital goods production ...... 21 1.8 BNDES disbursement ...... 22 1.9 Industrial production ...... 22 1.10 Industrial capacity utilization ...... 25 1.11 Agricultural production – Major crops ...... 29 1.12 Agricultural production, harvested area and average earnings – Major crops ...... 30 1.13 Grain stock – Major crops ...... 31 1.14 Apparent consumption of oil derivatives and fuel alcohol ...... 33 1.15 Electric energy consumption ...... 34 1.16 Formal employment – New jobs openings ...... 35 1.17 Average earnings of occupied people – 2010 ...... 36 1.18 IPCA items share in 2010 ...... 39 1.19 IPCA items share in 2010 ...... 39 1.20 Major items included in the IPCA during 2010 ...... 40 1.21 Consumer prices and core inﬂ ation in 2010 ...... 41

Chapter II 2.1 Collection rate on mandatory reserves ...... 46 2.2 Financial assets ...... 48 2.3 Credit operations ...... 50 2.4 Nonearmarked credit operations ...... 52 2.5 Earmarked credit operations ...... 54 2.6 BNDES disbursements ...... 55

Chapter III 3.1 Nominal income of ﬁ nancial investment – 2010 ...... 64

Chapter IV 4.1 Public sector borrowing requirements ...... 66 4.2 Central government primary result ...... 68 4.3 Gross revenue of National Treasure ...... 68 4.4 National Treasure expenditures ...... 69 4.5 Uses and sources – Consolidated public sector ...... 70 4.6 Federal securities – Portfolio position ...... 71 4.7 Federal public securities ...... 72 4.8 Repo operations – Open market ...... 73 4.9 Public sector net debt growth ...... 74 4.10 Public Sector Net Debt ...... 75 4.11 Gross and net government debt ...... 76 4.12 Gross federal revenues ...... 77 4.13 Income Tax and Industrialized Products Tax ...... 78 4.14 Social Security...... 79 4.15 Payment of the Tax on the Circulation of Merchandise and Services (ICMS) ...... 80 4.16 Federal government onlendings to states and municipalities ...... 80

Chapter V 5.1 Foreign exchange operations ...... 88 5.2 Balance of payments ...... 89 5.3 Trade balance – FOB ...... 90 5.4 Exports price and volume indices ...... 91 5.5 Imports price and volume indices ...... 93 5.6 Exports by aggregate factor – FOB ...... 95 5.7 Exports – FOB – Major primary products ...... 96 5.8 Exports by aggregate factor and by region – FOB ...... 98 5.9 Exports – FOB – Major semimanufactured goods ...... 99 5.10 Exports – FOB – Major manufactured goods ...... 100 5.11 Exports by tecnological intensity – FOB ...... 102 5.12 Imports – FOB ...... 103 5.13 Imports – FOB – Major products ...... 106 5.14 Imports by category of use and by region – FOB ...... 107 5.15 Imports by tecnological intensity – FOB ...... 109 5.16 Brazilian trade by region – FOB ...... 111 5.17 Services ...... 113 5.18 International travel ...... 114 5.19 Transportation ...... 115 5.20 Business, technical and professional services ...... 116 5.21 Income ...... 117 5.22 Current transfers ...... 118 5.23 Balance of current transactions and external fi nancing requirements ...... 119 5.24 Private sector medium and long-term rollover rates ...... 121 5.25 Foreign direct investments ...... 122 5.26 Foreign direct investments infl ows – Equity capital – Distribution by country ...... 123 5.27 Foreign direct investments infl ows – Equity capital – Distribution by sector ...... 124 5.28 Portfolio investments – Liabilities ...... 126 5.29 Other foreign investments ...... 127 5.30 Brazilian direct investments abroad ...... 128 5.31 Brazilian portfolio investments abroad ...... 129 5.32 Other brazilian investments abroad ...... 130 5.33 Statement of international reserves growth ...... 131 5.34 National Treasury – External debt service ...... 132 5.35 National Treasury – External debt sovereign bonds buyback operations ...... 133 5.36 Gross foreign indebtedness ...... 134 5.37 Registered external debt ...... 135/136 5.38 Public registered external debt – Breakdowm of principal by debtor and by guarantor...... 136 5.39 Registered external debt – By debtor ...... 137 5.40 Registered external debt – By creditor ...... 138 5.41 Average maturity term – Registered external debt ...... 139 5.42 Indebtedness indicators ...... 141 5.43 Issues of the Republic ...... 143/144 5.44 Restructured external debt – Bradies, Pre-Bradies and MYDFA ...... 145 5.45 International investment position ...... 147/148 5.46 Brazilian fi nancial position in the IMF ...... 150

Chapter VI 6.1 Major developed countries ...... 153 6.2 China – Demand components and other indicators ...... 157

Graphs

Chapter I 1.1 Gross Fixed Capital Formation ...... 17 1.2 Industrial production ...... 23 1.3 Industrial production – Seasonally adjusted data ...... 23 1.4 Industrial production – By category of use ...... 24 1.5 Industrial capacity utilization ...... 25 1.6 Broad sales volume Index in the Trade Sector ...... 27 1.7 Consumer Conﬁ dence Index ...... 28 1.8 Animal production...... 31 1.9 Median unemployment rate ...... 35 1.10 Level of formal employment ...... 36 1.11 Real average earnings ...... 36 1.12 Consumer price indices ...... 37

Chapter II 2.1 Money supply (M1) – Income velocity ...... 44 2.2 Currency outside banks – Seasonally adjusted at December 2010 prices ...... 44 2.3 Demand deposits – Seasonally adjusted at December 2010 prices ... 44 2.4 Monetary base and money supply (M1) – Average daily balances ...45 2.5 Financial assets – As percentage of GDP ...... 47 2.6 Net ﬁ nancing position of the federal public securities – Daily average...... 49 2.7 Central Bank repo operations – Maturity ...... 49 2.8 Credit by borrower’s economic activity – Financial System ...... 51 2.9 Interest rates of credit operations with nonearmarked resources ...... 53 2.10 Interest rates of credit operations – Individuals ...... 53 2.11 Interest rates of credit operations – Corporations ...... 53 2.12 Spread of credit operations with nonearmarked resources ...... 54 2.13 Default rate of credit operations with nonearmarked resources ...... 54 2.14 Banking System – Participation by segment ...... 57

Chapter III 3.1 Over/Selic rate ...... 59 3.2 Over/Selic rate x dollar x 360-day swap ...... 59 3.3 Yield curve – ID x ﬁ xed rate swap ...... 60 3.4 Over/Selic cumulative 12-month rate ...... 60 3.5 Primary issues ...... 61 3.6 Ibovespa ...... 61 3.7 Ibovespa x Dow Jones x Nasdaq – 2010 ...... 61 3.8 Daily average volume traded in Bovespa – 2010 ...... 62 3.9 Market capitalization – 2010 – Corporation listed in Bovespa ...... 62 3.10 Financial investments – Balances ...... 63 3.11 Nominal income of major ﬁ nancial investments – 2010 ...... 63

Chapter IV 4.1 Public sector borrowing requirements ...... 67 4.2 Federal public securities ...... 71 4.3 Federal securitized debt structure ...... 72 4.4 Social security ...... 79

Chapter V 5.1 Foreign direct investments and external ﬁ nancing requirements ...... 90 5.2 Exports and imports – FOB ...... 90 5.3 Terms of trade index ...... 91 5.4 Quarterly price indices and volume of Brazilian exports ...... 92 5.5 Quarterly price indices and volume of Brazilian imports ...... 94 5.6 Exports by aggregate factor – FOB ...... 95 5.7 Raw material imports x industrial production ...... 103 5.8 Brazilian imports by end use category – FOB (Capital goods x Raw materials) ...... 104 5.9 Brazilian imports by end use category – FOB (Consumer goods/Fuels and lubricants) ...... 108 5.10 International reserves ...... 130 5.11 Average term of registered external debt ...... 140 5.12 Registered external debt composition ...... 140 5.13 Sustainability indicators ...... 142 5.14 Prices of Brazilian securities abroad ...... 146

Chapter VI 6.1 IC-Br index ...... 157 6.2 UK Brent oil – Spot market...... 157 6.3 Offi cial interest rates ...... 159 6.4 USA: Infl ation ...... 160 6.5 Japan: Infl ation ...... 161 6.6 Euro Area: Infl ation ...... 161 6.7 United Kingdom: Infl ation ...... 162 6.8 China: Infl ation ...... 163 6.9 Stock exchanges – USA, Europe and Japan ...... 164 6.10 VIX ...... 164 6.11 Stock exchanges – Emerging markets ...... 165 6.12 Sovereign CDS 5 years ...... 165 6.13 Emerging Markets Bond Index (Embi+) ...... 166 6.14 Yield on treasury bonds ...... 166 6.15 Developed countries – Dollar exchange rates ...... 167 6.16 Emerging markets currencies ...... 167 Introduction

In 2010, the world economy continued its recovery trend initiated in the second half of last year, when the coordinated action of central banks and US (United States) and European governments aiming at stabilizing the ﬁ nancial systems and mitigating effects of an aggravating international crisis started to promote economic recovery.

Major developed countries recorded once again an annual Gross Domestic Product (GDP) growth. It should be noted the asymmetric nature of such growth within these economies, especially, when including the performance of emerging economies.

Although recording lower volatility than in 2009, ﬁ nancial markets reﬂ ected in the period from May to August an increasing concern regarding certain European countries’ sovereign debt and a gloomy prospect in relation to US economic recovery and sustainability of China performance. As of August, a gradual return of optimism about the evolution of US and Chinese economic activity, coupled with a high liquidity level of the global economy has favored the trajectory of major stock exchange indices.

In this context, a deteriorating supply for various agricultural products and a strong demand by some emerging countries created conditions for the signiﬁ cant rise in agricultural commodity prices in the second half of the year, putting widespread pressures on inﬂ ation and on bringing into line the monetary policy process, both in emerging and developed economies.

In 2010, driven by a benign international scenario and a sound domestic demand Brazil’s economy recorded the strongest annual GDP growth since 1986. It should be noted that current expansion cycle presented in the second half of the year, different growth rates of aggregate regarding aggregate supply and demand, with repercussions on import level and inﬂ ation trajectory, especially in the service sector .

In this scenario, the Monetary Policy Committee (Copom), after holding the target for the basic interest rate at 8.75% p.y. in the ﬁ rst two meetings of the year, made three consecutive increases in subsequent meetings and kept the rate at 10.75% p.y. the last three meetings of the year.

Introduction 11 Additionally, the National Monetary Council (CMN) and the Central Bank’s executive board adopted in December a set of macroprudential measures aimed at improving the regulatory instruments in order to ensure the National Financial System (SFN) stability and allow a steady and sustainable development of the credit market. The most important measures were a rise in reserve requirements and capital requirements for individual persons’ credit operations with maturities of more than 24 months.

Regarding the external trade important measures have been introduced to create more favorable conditions to increase competitiveness for Brazilian exports, while throughout the year the exchange policy management aimed at preventing foreign currency liquidity to induce excessive volatility of the real and imbalances in the exchange market.

Brazil’s economic strengthening resulted in a signifi cant rise in demand for imported goods and services, and increased remittances abroad, thus impacting the current account defi cit, which totaled R$47.4 billion in the year. Conversely, the country’s macroeconomic stability, expressed in downward risk expectations and increasing investment returns, favored the US$99.7 billion net infl ow in the capital and fi nancial account. Balance of payments surplus totaled US$49.1 billion in 2010.

In this context, the acceleration recorded in the 2010 consumer price index was particularly inﬂ uenced by market price behavior, especially food, apparel and service sectors. The Extended National Consumer Price Index (IPCA) increased 5.91% in the year, remaining within the target range set by the National Monetary Council (CMN) under the inﬂ ation targeting system.

12 Boletim do Banco Central do Brasil – Annual Report 2010 I The Brazilian Economy

Activity level

In 2010, the Brazilian economy, in a scenario of employment and income recovery, coupled with expanding credit operations and improved business and consumer conﬁ dence levels, registered the strongest annual growth since 1986. In the second half of the year, the current growth cycle showed distinct growth rates for both aggregate supply and demand, thus affecting the level of imports and the inﬂ ation trajectory, particularly in the sector of services.

Gross Domestic Product

According to the Quarterly National Accounts of the Brazilian Institute of Geography and Statistics (IBGE), GDP grew 7.5% in 2010. On the demand side, domestic demand contributed with 10.3%, while the external sector contributed with -2.8%. On the supply side, annual increases occurred in the added value of the three sectors of the economy, reaching 10.1% in the secondary segment, 6.5% in the primary and 5.4% under services.

The agricultural sector performance is consistent with the annual growth of 11.6% of the grain harvest and respective increases of 8.5%, 7.7% and 3.8% in the slaughter of cattle, poultry and pigs in the year. The performance of the industrial sector particularly refl ected increases in the mining segment, 15.7%; construction, 11.6%; and manufacturing, 9.7%. The trajectory of the sector of services in the year was driven primarily by the dynamics of the segments of commerce, 10.7%; transportation, storage and postal services, 8.9%; and fi nancial intermediation, insurance, pension and related services, 10.7%. It should be noted that the performance of the fi rst two segments is related to the output of industrial and agricultural sectors.

Under the prism of demand, investments, in line with the performance of the construction and the absorption of capital goods, grew 21.8% in 2010, while household consumption, reﬂ ecting the growth of wages and credit operations, increased by 7%.

I The Brazilian Economy 13 Table 1.1 – GDP at market price

Year At 2010 Real Implicit At current Population Per capita GDP 1/ prices change deflator prices (million) At 2010 Real At current 1/ (R$ (%) (%) (US$ prices change prices million) million) (R$) (%) (US$)

1980 1 721 711 9.2 92.1 237 772 118.6 14 521 7.0 2 005 1981 1 648 538 -4.3 100.5 258 553 121.2 13 600 -6.3 2 133 1982 1 662 221 0.8 101.0 271 252 123.9 13 417 -1.3 2 190 1983 1 613 518 -2.9 131.5 189 459 126.6 12 748 -5.0 1 497 1984 1 700 648 5.4 201.7 189 744 129.3 13 155 3.2 1 468 1985 1 834 132 7.8 248.5 211 092 132.0 13 897 5.6 1 599 1986 1 971 509 7.5 149.2 257 812 134.7 14 641 5.4 1 915 1987 2 041 103 3.5 206.2 282 357 137.3 14 869 1.6 2 057 1988 2 039 878 -0.1 628.0 305 707 139.8 14 589 -1.9 2 186 1989 2 104 338 3.2 1 304.4 415 916 142.3 14 787 1.4 2 923 1990 2 012 800 -4.3 2 737.0 469 318 146.6 13 731 -7.1 3 202 1991 2 033 532 1.0 416.7 405 679 149.1 13 639 -0.7 2 721 1992 2 022 478 -0.5 969.0 387 295 151.5 13 346 -2.2 2 556 1993 2 122 080 4.9 1 996.1 429 685 154.0 13 781 3.3 2 790 1994 2 246 283 5.9 2 240.2 543 087 156.4 14 360 4.2 3 472 1995 2 341 161 4.2 93.9 770 350 158.9 14 736 2.6 4 849 1996 2 391 508 2.2 17.1 840 268 161.3 14 824 0.6 5 209 1997 2 472 236 3.4 7.6 871 274 163.8 15 095 1.8 5 320 1998 2 473 107 0.0 4.2 843 985 166.3 14 876 -1.5 5 077 1999 2 479 388 0.3 8.5 586 777 168.8 14 692 -1.2 3 477 2000 2 586 153 4.3 6.2 644 984 171.3 15 099 2.8 3 766 2001 2 620 112 1.3 9.0 553 771 173.8 15 075 -0.2 3 186 2002 2 689 757 2.7 10.6 504 359 176.3 15 256 1.2 2 861 2003 2 720 598 1.1 13.7 553 603 178.7 15 221 -0.2 3 097 2004 2 876 007 5.7 8.0 663 782 181.1 15 880 4.3 3 665 2005 2 966 879 3.2 7.2 882 439 183.4 16 179 1.9 4 812 2006 3 084 280 4.0 6.1 1 088 767 185.6 16 621 2.7 5 867 2007 3 272 156 6.1 5.9 1 366 543 187.6 17 438 4.9 7 283 2008 3 441 081 5.2 8.3 1 650 713 189.6 18 148 -2.3 8 706 2009 3 418 896 -0.6 5.7 1 598 397 191.5 17 855 -1.6 8 348 2010 3 674 964 7.5 7.3 2 089 829 193.3 19 016 6.5 10 814

Source: IBGE 1/ Estimates obtained by the Banco Central do Brasil dividing the GDP at current prices by the annual average buying rate of exchange. The negative contribution by the external sector reﬂ ected the expansion of annual imports, 36.2%, and exports, 11.5%, explained by the distinct pace of growth of Brazilian and international economy.

The analysis at the margin by utilizing seasonally adjusted data shows a GDP slowdown in the second half of 2010, with respective growth rates of 0.4% and 0.7% in the third and fourth quarters of the year, compared to expansion of 2.2% in the quarter ended in March and 1.6% in the quarter ended in June.

14 Boletim do Banco Central do Brasil – Annual Report 2010 Table 1.2 – GDP – Quarterly growth/previous quarter – Seasonally adjusted Percentage Itemization 2010 I II III IV

GDP at market price 2.2 1.6 0.4 0.7

Crop and livestock sector 2.6 1.4 -1.6 -0.8

Industrial sector 1.7 3.6 -0.6 -0.3

Service sector 1.4 1.1 0.9 1.0

Source: IBGE

GDP grew 2.2% in the ﬁ rst quarter of 2010 as compared with the fourth quarter of the previous year, increasing 9.3% over the same period of 2009. The fourth consecutive GDP growth at the margin, in this type of comparison, reﬂ ected the expansion of agriculture, 2.6%; industry, 1.7%; and services, 1.4%. Regarding the demand components, it is worth mentioning the maintenance of GFCF growth in the period, 4%, while household consumption grew by 1.8% and government consumption decreased by 0.2%. Exports rose 3.4% and imports, in line with domestic demand expansion, 8.1%.

The GDP performance in comparison with the ﬁ rst quarter of 2009 showed the consolidation of domestic demand dynamics, accounting for 12.1 p.p. of the growth rate registered in the period, contrasting with the contribution of -2.9 p.p. of the external sector.

Table 1.3 – GDP real change rates – Under the prism of production Percentage Itemization 2008 2009 2010

GDP 5.2 -0.6 7.5

Crop and livestock sector 6.1 -4.6 6.5

Industrial sector 4.1 -6.4 10.1 Mineral extraction 3.5 -1.1 15.7 Manufacturing 3.0 -8.2 9.7 Building 7.9 -6.3 11.6 Production and distribution of electricity, gas and water supply 4.5 -2.6 7.8

Service sector 4.9 2.2 5.4 Commerce 6.1 -1.8 10.7 Transportation, storage and postal services 7.0 -2.5 8.9 Information services 8.8 3.8 3.8 Financial intermediation, insurance, complementary pension system and related services 12.6 7.1 10.7 Other services 4.3 3.5 3.6 Real estate activities and rent 1.8 1.9 1.7 Public administration, health and education 0.9 3.3 2.3

Source: IBGE

I The Brazilian Economy 15 On the demand side, household consumption, in a scenario of increased real wages, employment and credit, coupled with the maintenance of high consumer confi dence, increased by 8.4% in the period, representing the twenty-sixth positive result in this type of comparison. GFCF, refl ecting the trajectory of business confi dence indicators and the performance of the construction and capital goods segments, increased 28.4% in the period, while the government consumption grew by 2.7%. The negative contribution of the external sector, consistent with the process of strengthening domestic demand and the sluggish global economic activity environment, refl ected expanded exports, 14.7%, and imports, 39.6%.

Regarding the supply components, the yearly GDP performance reﬂ ected the growth under the sectors of industrial production, 15.1%; services, 6.2%; and agriculture, 5.4%.

Table 1.4 – GDP real change rates – Under the prism of expenditure Percentage Itemization 2008 2009 2010

GDP 5.2 -0.6 7.5

Family consumption 5.7 4.2 7.0

Government consumption 3.2 3.9 3.3

Gross Fixed Capital Formation 13.6 -10.3 21.8

Exports of goods and services 0.5 -10.2 11.5

Imports of goods and services 15.4 -11.5 36.2

Source: IBGE

Industrial trajectory was driven by the dynamics of manufacturing, 17.3%, and construction, 15.1%, consistent with the trend of increasingly channeling of resources to the real estate ﬁ nancing and infrastructure works in the framework of the Growth Incentive Program (PAC). The production and distribution of electricity, gas and water increased 8.4% in the period, while the mining activity, reﬂ ecting the performance of the iron ore segment, grew 14.7%.

The agricultural sector rose by 5.4% in the ﬁ rst quarter of 2010 in comparison with the same period of the previous year, emphasizing the performance of cotton, corn and soybeans crops.

The sector of services, refl ecting the strengthening of domestic demand, grew 6.2% in the period, emphasizing the expansion under the segments of commerce, 15.3%, and transportation, storage and postal services, 12.5%, partly refl ecting the trajectory of agricultural and industrial sectors. The segment of services of fi nancial intermediation, insurance, pension and related services grew by 9.6%, followed by the expansion under the segments of other services, 3.4%; information services, 2.9%; administration, health and public education, 2.5%; and real estate activities and rental, 1.6%.

16 Boletim do Banco Central do Brasil – Annual Report 2010 GDP grew 9.2% in the second quarter of 2010 over the same period in 2009. From the perspective of supply, all components registered a positive trajectory in the period. Insofar as the demand is concerned, the dynamics of domestic demand exerted a positive impact of 12.7 p.p., in contrast with the negative contribution of 3.5 p.p. by the external sector.

The analysis of the demand components continues to highlight the importance of domestic demand to the maintenance of the economic growth cycle. Household consumption, boosted by the increase of real wages, improved credit market environment and the persistence of consumer conﬁ dence at high levels, increased 6.4% in the quarter, while the government consumption rose by 5.6%. GFCF, in line with the favorable business conﬁ dence indicators and the trajectory of the construction and capital goods segments increased 28.1% in the period.

Graph 1.1 Gross Fixed Capital Formation 19 25

20 18 15

17 10 5

16 0 % of % of GDP -5

15 Real change -10

14 -15 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

GDP share Real change Source: IBGE

Table 1.5 – Gross Domestic Product – At current value In R$ million Itemization 2007 2008 2009 2010

Gross Domestic Product at market prices 2 661 343 3 031 864 3 185 126 3 674 964

Under the prism of product Crop and livestock sector 127 266 152 273 166 704 180 831 Industrial sector 636 279 719 987 696 610 841 024 Service sector 1 524 311 1 707 849 1 877 417 2 113 788

Under the prism of expenditure Final consumption expenditure 2 133 129 2 398 945 2 661 091 3 004 069 Family consumption 1 594 068 1 786 840 1 966 493 2 226 056 Government consumption 539 061 612 105 694 598 778 013 Gross Capital Formation 487 761 627 158 525 816 707 414 Gross Fixed Capital Formation 464 137 579 531 539 757 677 863 Changes in inventories 23 624 47 627 -13 941 29 551 Exports of goods and services 355 672 414 294 354 236 409 868 Imports of goods and services (-) 315 218 408 534 356 015 446 387

Source: IBGE

I The Brazilian Economy 17 The contribution of the external sector to the GDP performance was still negative. The impact of -3.5 p.p. in the quarter was due to the contributions of exports, 0.8 p.p., and imports, -4.3 p.p., which, reﬂ ecting the persistent domestic economic activity expansion and the sluggish global economic activity, expanded 7.2% and 38.9%, respectively, in the period.

Regarding the supply components, the quarterly GDP performance reﬂ ected the expansion under industrial production, 14.1%; agriculture, 10.4%; and services, 6%. The growth of the agricultural sector reﬂ ected, to a large extent, the expansion of major grain harvests, particularly corn and soybeans.

The industrial performance largely refl ected expansions under construction, 16.6%, consistent with the increased volume of housing fi nancing and the intensifi cation of infrastructure works in the PAC framework, and manufacturing, 14.1%. The production and distribution of electricity, gas and water increased by 10% in the period, while the mining activity, refl ecting the performance of the iron ore segment and the expansion of oil production (crude oil and NLG – natural liquefi ed gas), 6.7%, and gas, 7.3%, increased 16.6%.

The performance of the sector of services, in line with the dynamics of domestic demand, reﬂ ected widespread favorable sectoral results, especially with regard to the sectors of commerce and transportation, and storage and postal services, up, respectively, 12.1% and 11.1% in the quarter. Moreover, it should be highlighted the expansion of ﬁ nancial intermediation, insurance, pension and related services, 10.2%, and information services, 3.5%.

At the margin, the seasonally adjusted GDP grew 1.6% in the second quarter of the year in comparison with the previous quarter. This means the ﬁ fth consecutive increase in this type of comparison, thus ratifying the performance of sectoral antecedent indicators and demonstrating the consolidation of the country’s recovery process. Industry grew 3.6% in the quarter, followed by the agricultural sector, 1.4%; and services, 1.1%. The analysis by demand components reveals recovery in household consumption, which increased 1.1% in the quarter, while government consumption and GFCF rose by 1.8% and 3.9%, respectively. In the period, exports rose 1.2%, and imports, 5.7%, consistent with the growth of domestic demand.

GDP increased 6.7% in the third quarter of 2010 over the same period of the previous year. With regard to supply, the agricultural sector increased by 7% in the period, compared with 10.4% in the quarter ended in June, a result associated with the more modest performance of important grain harvests in the third quarter of the year, such as beans, cassava and orange. The industrial sector grew 8.3%, particularly due to slowdowns in growth rates of manufacturing, from 14.1% to 7.1%, and construction,

18 Boletim do Banco Central do Brasil – Annual Report 2010 from 16.6% to 9.6%. The sector of services expanded 4.9%, consistent with the impact of the agricultural and industrial trajectory on the commerce and transportation sectors.

On the demand viewpoint, GFCF growth rate closed the quarter at 21.2%. Household consumption and government consumption grew 5.9% and 4.1%, respectively, while exports and imports expanded 11.3% and 40.9%, in the order. In this scenario, the contributions of domestic demand and external sector to GDP growth reached 10% p.p. and -3.3% p.p.in the period.

Seasonally adjusted GDP grew 0.4% in comparison with the second quarter, when it had expanded 1.6% in the same type of comparison. The deceleration at the margin reﬂ ected respective decreases of 1.6% and 0.6% under the agricultural and industrial sectors, and an increase of 0.9% in the sector of services, compared to variations of 1.4%, 3.6% and 1.1% in the quarter ended in June. The negative result of the agricultural sector was partly linked to the favorable impact of the soybean crop in the second quarter of the year, while the slowdown in the industrial sector was due to the decline of the manufacturing industry. The analysis of domestic demand components reveals expansion of household consumption, 1.8%, and GFCF, 3.1%, and a decrease of government consumption, 0.1%, while, in the external sector, exports expanded 4.2%, and imports, 7.1%.

In the fourth quarter of 2010, GDP increased by 5% over the same period of the previous year. From the supply point of view, the primary sector grew 1.1% in the period, and the industrial sector, 4.3%, highlighting the enhanced dynamics of the mining industry, 14.8%; and construction, 6.2%. The expansion of the sector of services came to 4.6%, highlighting the growth of 11.4% in the segment of ﬁ nancial intermediation, insurance, pension and related services.

From the prism of demand, the GFCF growth rate closed the quarter at 12.3%. Household and government consumption grew by 7.5% and 1.2%, respectively, while exports and imports rose by 13.5% and 27.2%, in the order. In this scenario, the domestic demand and the external sector contributed with respective 6.6 p.p. and -1.5 p.p. to the GDP growth in the period.

The seasonally adjusted GDP increased 0.7% over the third quarter of the year. The slowdown at the margin reﬂ ected respective decreases of 0.8% and 0.3% under the agricultural and industrial sectors, while the sector of services grew 1%. The analysis of domestic demand components reveals expansion under household consumption, 2.5%, and GFCF, 0.2%, and decline of government consumption, 0.3%, while the external sector showed expansion under exports, 3.6%, and imports, 3.9%.

I The Brazilian Economy 19 Investments

According to the Quarterly National Accounts published by the IBGE, investments, excluding stock variation, increased 21.9% in 2010. It should be noted that the average growth rate of this variable in the 2-year period ended in 2010 was 4.5%, as compared with GDP average expansion of 3.3%, thus indicating the expansion of economic supply capacity in the period.

The quarterly analysis shows that investments increased by 28.4% in the fi rst quarter of 2010 over the same period of 2009. At the margin, seasonally adjusted data reveal an expansion of 4% in comparison with the fourth quarter of 2009. In the second quarter of the year, investments continued to follow an upward trajectory, rising by 28.1% as against the corresponding period of 2009, accumulating growth of 28.2% in the fi rst half of the year as compared with the same period of the previous year. According to seasonally adjusted data, investment grew 3.9% over the fi rst quarter of the year.

In the third quarter of 2010, investments increased 21.2% over the corresponding period in 2009, and 3.1% over the second quarter of the year. After six impressive quarterly results, the indicator surpassed, in the second quarter of 2010, the highest level observed before the world crisis. In the quarter ended in December, seasonally

Table 1.6 – Gross capital formation (GCF) Percentage Year Share in GCF At current prices Gross Fixed Capital Formation (GFCF) Changes in GFCF/GDP GCF/GDP inventories Building Machines and Others equipments

1995 44.5 48.9 8.3 -1.6 18.3 18.0 1996 48.2 43.5 7.3 1.0 16.9 17.0 1997 49.5 43.1 7.0 0.3 17.4 17.4 1998 51.9 40.8 6.9 0.3 17.0 17.0 1999 50.6 37.2 7.8 4.4 15.7 16.4 2000 45.7 39.3 7.1 7.9 16.8 18.2 2001 43.9 43.3 7.3 5.5 17.0 18.0 2002 47.8 44.8 8.5 -1.2 16.4 16.2 2003 42.8 45.3 8.7 3.1 15.3 15.8 2004 41.1 45.0 7.9 6.0 16.1 17.1 2005 41.6 49.0 7.7 1.6 15.9 16.2 2006 39.6 50.6 7.8 1.9 16.4 16.8 2007 36.5 51.5 7.2 4.8 17.4 18.3 2008 33.6 52.4 6.5 7.6 19.1 20.7 2009 40.5 54.3 7.9 -2.7 16.9 16.5 2010 36.2 52.9 6.7 4.2 18.4 19.2

Source: IBGE

20 Boletim do Banco Central do Brasil – Annual Report 2010 adjusted investment data indicated a moderate growth at the margin, expanding by 0.7% as compared to the quarter ended in September.

The sector of construction inputs increased 11.9% in 2010, compared to a decrease of 6.3% in the previous year. This represents the most signifi cant annual variation observed since 1992, consistent with the favorable performance of labor and credit markets, especially in the segment of housing fi nancing, and the impacts of specifi c government programs in the PAC framework.

The segment of capital goods grew 20.8% in 2010, compared to a reduction of 17.4% in the previous year, with emphasis on the performance of the segments of construction, 95.8%; agricultural implements, 33%; transportation equipment, 26.1%; and typically industrialized capital goods, 22.3%. In this segment, the production of goods produced on assembly-lines and on an order basis registered respective variations of 27.5% and -0.5%.

Disbursements of the BNDES system – BNDES (Brazilian Development Bank), the Special Industrial Financing Agency (Finame) and BNDES Participações S.A. (BNDESpar) – totaled R$168.4 billion in 2010, rising 23.5% over the previous year, when annual increase had reached 50%. The analysis by sector reveals that the most signiﬁ cant expansion, 47.7%, involved disbursements to the agricultural segment, accounting for 6% of the total, and the most signiﬁ cant drop, 53%, involved the mining industry, accounting for 0.9%. Disbursements to the segments of commerce and services, and manufacturing industry, accounted for 47.2% and 45.9% of the total, in the order, expanding 20.5% and 28.1%, respectively, in the year.

Table 1.7 – Selected capital goods production

Itemization Percentage change 2008 2009 2010

Capital goods 14.3 -17.4 20.8

Industrial 4.6 -28.1 22.3 Serial 2.7 -31.6 27.5 Non-serial 17.4 -6.6 -0.5 Agricultural 35.1 -28.5 33.0 Agricultural parts 58.8 -38.4 13.9 Building 4.8 -48.5 95.8 Electric energy 12.0 -32.5 -3.8 Transportation 31.3 -8.8 26.1 Mixed 2.5 -14.7 13.4

Source: IBGE

The Long-Term Interest Rate (TJLP), utilized as indexing factor for loans contracted with the BNDES system, remained at 6% p.y. throughout 2010.

I The Brazilian Economy 21 Table 1.8 – BNDES disbursement1/ In R$ million Itemization 2008 2009 2010

Total 90 878 136 356 168 423

By sector

Manufacturing industry 35 710 60 302 77 255

Commerce and service 46 262 65 979 79 528

Crop and livestock 5 594 6 856 10 126

Extraction industry 3 311 3 219 1 514

Source: BNDES 1/ Includes BNDES, Finame and BNDESpar.

Industrial output indicators

Industrial output registered an annual growth of 10.4% in 2010, according to the Monthly Industrial Survey – Physical Production – Brazil (PIM-PF) of IBGE, compared to variations of -7.4% in 2009 and 3.1% in 2008. Industrial growth was a result of increases of 13.4% under mining activities and 10.3% under manufacturing.

The trajectory of industrial production experienced two distinct phases in 2010. In the ﬁ rst quarter, following the recovery that had began in January of the previous year the sector’s output returned to the pre crisis level, accumulating expansion of 5.7% over December 2009. As from April, according to seasonally adjusted data, production started to follow a downward trend, decreasing 2.7% up to December.

The sectoral analysis shows that the production of capital goods rose 20.8% in the year, recovering from the falloff experienced in 2009, 17.4%, with emphasis on the dynamics of the segments of automotive vehicles, 53.5%, and machinery and equipment, 38.9%.

Table 1.9 – Industrial production

Itemization Percentage change 2008 2009 2010

Total 3.1 -7.4 10.4

By category of use Capital goods 14.3 -17.4 20.9 Intermediate goods 1.5 -8.8 11.4 Consumer goods 1.9 -2.7 6.4 Durable 3.8 -6.4 10.3 Semi and nondurable 1.4 -1.5 5.2

Source: IBGE

22 Boletim do Banco Central do Brasil – Annual Report 2010 In this use category, it should be highlighted the negative performances of the segments of electronic material, communication apparatuses and equipment, 17.4%; and other transportation equipment, -4.2%.

The production of intermediate goods grew 11.4% in 2010, a trajectory largely associated to the increased output of automotive vehicles, 27.7%; metallic products, 26.3%; and basic metallurgy, 17.4%. In contrast, the segment of petroleum reﬁ ning and alcohol production registered annual decline of 1.8%, the only negative result in this category.

Graph 1.2 Industrial production 20

0 Percentage change Percentage -5

-10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Total Mineral extraction Manufacturing Source: IBGE

Graph 1.3 Industrial production Seasonally adjusted data 140

130

120

2002 = 2002 = 100 110

100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 Source: IBGE

The segment of durable consumer goods increased 10.3% in 2010, registering output expansion in all activities, especially other transportation equipment, 18.7%; furniture, 14.2%; and machinery and equipment, 9.3%.

The production of semi and nondurable consumer goods, a category less vulnerable to the effects of the international economic crisis, showed a more modest performance in 2010, increasing 5.2% over the previous year. The most signiﬁ cant expansions occurred in the segments of beverages, 10.6%, apparel, 7.2%, and leather and footwear, 6.9%, contrasting with the decrease of 1% in the production of tobacco, the only negative result in this category.

I The Brazilian Economy 23 Amongst the 27 activities surveyed by the IBGE, including the mining industry, twenty-ﬁ ve closed with positive results in the year, highlighting machinery and equipment, 24.3%; automotive vehicles, 24.2%; and metallic products, 23.4%. Conversely, tobacco related activities and other transportation equipment recorded respective annual decreases of 8% and 0.1%. The food production, which accounts for the largest share of general industry production, grew 4.4% in the year.

Graph 1.4 Industrial production – By category of use Seasonally adjusted data 200 180 160 140 120 2002 =100 100 80 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010

Capital goods Durable goods Semi and nondurable goods

Source: IBGE

Industrial production expanded in all of the thirteen federal units surveyed, highlighting the performance of the states of Espírito Santo, 22.3%; Goiás, 17.1%; and Amazonas, 16.3%. In São Paulo, the state that accounts for the largest share of domestic industrial output, manufacturing activity grew 10.1% in 2010.

The Installed Capacity Utilization Level (Nuci) reached 82.8% at the end of 2010, rising 1.1 p.p. in the year, according to statistics released by the National Confederation of Industry (CNI), seasonally adjusted by the Brazilian Central Bank. The Nuci increased 1.2 p.p. in the ﬁ rst four months of the year, reaching 82.9% in April, and decreased by 0.6 p.p. until September, before resuming an upward trend in the ﬁ nal quarter of 2010.

The personnel employed in the industrial sector increased 3.4% in 2010 as compared to the previous year, registering an upward trend until July and relative stability in the remaining months of the year.

The conﬁ dence of industrial businessmen, although registering a downward trend since April, kept at high levels in 2010. The Industrial Conﬁ dence Index (ICI) of the Getulio Vargas Foundation (FGV), after reaching 116.5 points in March, down from 116.9 points in November 2007, fell to 114.5 points in December, 1.1 p.p. higher than the level registered in the same period of 2009. The component current situation reached 116.2 points, while the component related to expectations totaled 112.8 points, for respective variations of 4.3 and -2.1 points as compared to December 2009.

24 Boletim do Banco Central do Brasil – Annual Report 2010 Table 1.10 – Industrial capacity utilization1/ Percentage Itemization 2008 2009 2010

Manufacturing industry 85.2 80.2 84.8 Consumer goods 84.9 82.5 85.4 Capital goods 87.9 75.5 83.4 Building material 88.4 85.3 90.1 Intermediate goods 86.4 80.8 85.8

Source: FGV 1/ Average in the year.

Graph 1.5 Industrial capacity utilization 86

82 % 80

76 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010

CNI FGV Sources: CNI and FGV

Services

Due to the large and growing participation of the sector of services in the Brazilian GDP, the Getulio Vargas Foundation, in partnership with the Brazilian Central Bank, developed the Service Sector Survey, aiming to anticipate economic trends in that sector. It consists of a monthly survey in which indices are calculated on the basis of responses of the sector’s companies about the current situation and expectations for next months1.

The main research outcome is the Service Conﬁ dence Index (ICS), a summary indicator of the survey, which is the average of the Current Situation Index (CSI) and the Expectations Index (IE-S). The ICS reached an average of 132.5 points in 2010, up from 114.1 points in the previous year. ISA-S and IE-S components closed at, respectively, 119.1 and 146 points. It should be noted that the ICS, after growing by 6.6 points in the year2, reaching 135.5 points in March, followed a downward trajectory until July, when it resumed the growing trend.

1/ See box “Service Sector Survey” on June 2010 Inﬂ ation Report. 2/ This research indicators have not been seasonally adjusted due to the small extent of the series, which started in June 2008.

I The Brazilian Economy 25 Central Bank Index of Economic Activity

The Central Bank Index of Economic Activity – Brazil (IBC-Br), a monthly indicator available from January 2003, encompasses the trajectory of variables deemed as proxies of economic performance3. It is calculated by estimating the output of three sectors of the economy – agriculture, industry and services. The adherence of this indicator to the actual GDP trajectory conﬁ rms its importance for a better understanding of economic activity, thus contributing to anticipate the implementation of economic policy measures.

The IBC-Br increased 7.8% in 2010, as compared to a 0.7% drop in the previous year. IBC-Br trajectory was not uniform throughout the year. This can be illustrated by the growth decline registered between the months of January and December, from 7.9% to 3.7%, as compared with the same period of the previous year. Insofar as the analysis at the margin is concerned, the seasonally adjusted quarterly comparison revealed a slowdown between the ﬁ rst and the third quarters of the year, as shown by respective growth rates of 2.2%, 1.3% and 0.3%. In the ﬁ nal quarter of the year, the activity index increased by 1.1%, but monthly growth rates declined, closing at 0.5%, 0.4% and 0.1%, respectively.

Trade indicators

The retail activity, reﬂ ecting the growing dynamics of the labor and credit markets, continued to follow an upward trend in 2010. According to the Monthly Trade Survey (PMC) released by the IBGE, expanded retail sales increased 12.2% in the year, the second highest annual growth rate since the beginning of the series in 2003. It should be emphasized the performances of the segments of computer equipment and communications materials, 24.1%; furniture and appliances, 18.3%; construction materials, 15.6%; cars, motorcycles, spares and parts, 14.1%; and books, newspapers, magazines and stationery, 12%. With regard to the restricted concept, which excludes the automotive and construction material segments, annual sales expanded 10.9%, the highest growth rate since the beginning of the series in 2001.

Expanded retail sales registered annual expansion in all the ﬁ ve regions of the country. The highest rate occurred in the Central-West, 14.7%; followed by the North, 15.2%; Northeast, 14.8%; South, 12.9%; and Southeast, 12.2%. Additionally, sales increased in all the Federation units, especially in Tocantins, 39.7%; Rondônia, 27.3%; Espírito Santo, 20.3%; Roraima, 19.9%; Mato Grosso, 19.3%; and Paraíba, 19.2%. The lowest growth rate occurred in the Federal District, 7.8%.

3/ See box “Central Bank Index of Economic Activity – Brazil (IBC-Br)” on March 2010 Inﬂ ation Report.

26 Boletim do Banco Central do Brasil – Annual Report 2010 Nominal sales revenues grew 14.5% in 2010, as a result of increases of 10.9% in sales volume and 3.2% in prices. All segments posted revenue increases above the inﬂ ation rate of 5.91%, measured by the IBGE’s IPCA, with emphasis on construction materials, 20.6%; furniture and appliances, 19.7%; textiles, clothes and footwear, 16.6%; books, newspapers, magazines and stationery, 16.2%; and other articles of personal and household use, 16.1%.

Graph 1.6 Broad Sales volume Index in the Trade Sector Seasonally adjusted data 210

200

190

180

170

2003 = 2003 = 100 160

150

140

130 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 Source: IBGE

In 2010, the automotive sector continued the growth trend started in 2004. Sales at car and light vehicle dealerships showed annual increase of 10.6%, according to the National Federation of Automotive Vehicle Distribution (Fenabrave). Meanwhile, automotive sales on the domestic market, released by the National Association of Automotive Vehicle Manufacturers (Anfavea), grew 7.1%.

Real sales of the supermarket sector, a segment that represents approximately 32% of the PMC composition, which have been expanding since 2007, recorded annual growth of 4.2% in 2010, according to the Brazilian Association of Supermarkets (Abras).

The ratio between the number of returned checks and the total checks cleared amounted to an average of 5.6% in 2010, as compared to 6.5% in the previous year. By region, even though highest rates continue to be observed in the Northeast, 8.6%, and in the North, 8.3%, they have fallen by 0.7 p.p. and 1.4 p.p., respectively, as compared to 2009. The average default rate observed in the São Paulo Metropolitan Region (RMSP), measured by the São Paulo Trade Association (ACSP), closed 2010 at 5.2%, as against 6.9% in the previous year.

Indicators of consumer expectations improved signiﬁ cantly in 2010, with emphasis on short-term optimism, reaching the highest levels of the historical series. The National Conﬁ dence Index (INC), elaborated by the Ipsos Public Affairs for the ACSP, grew 15.7% in the year, reaching 163 points in December, the highest value of the series started on April 2005. The indicator improved in all the geographic regions of the

I The Brazilian Economy 27 country, reaching 24.7% in the South, 23.3% in the North/Central-West, 12.6% in the Southeast and 5.1% in the Northeast.

The FGV Consumer Conﬁ dence Index (ICC) grew 11.2% in the year, as a result of increases of 22% in the Current Situation Index (ISA) and 5.2% in the Expectations Index (IE). The index reached 126.2 points in November, a record level of the series started in September 2005.

Similarly to nationwide trend, the Consumer Conﬁ dence Index (ICC), released by the Trade Federation of the State of São Paulo (Fecomercio SP), grew 14.2% in 2010, as a result of expansions of 19.1% in the Current Economic Situation Index (Icea) and 11.2% in the Consumer Expectations Index (IEC), which represents 60% of the overall index.

Agricultural output indicators

The grain harvest, according to the Systematic Survey of Agricultural Production (LSPA), released by the IBGE, reached a record level of 149.5 million tons in 2010, up 11.6% over the previous year. This result, due to variations of -1.3% in the cultivated area and 13.1% in average productivity, was particularly driven by the favorable performance of corn, soybeans and wheat crops, which represent 87.3% of the annual harvest. By region, it is worth mentioning the participation of the following states in the country’s agricultural production: Paraná, 21.6%; Mato Grosso, 19.3%; and Rio Grande do Sul, 16.9%.

Soybean production reached 68.5 million tons, rising 20.2% in the year, as a result of 12.3% growth in average productivity and 7.1% increase of cultivated area. Soybean exports grew 1.8% in the year, as compared to expansion of 16.6% in 2009.

Graph 1.7 Consumer Confidence Index Sep 2005 = 100 155

140

125

110

80 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 ICC Consumer expectations Current economic situation

Source: FGV

28 Boletim do Banco Central do Brasil – Annual Report 2010 The rice harvest totaled 11.3 million tons, for an annual decline of 10.1%, reﬂ ecting reduction in the cultivated area, 6.3%, and average yield, 4.1%, particularly due to excessive rainfall registered in the state of Rio Grande do Sul.

The corn harvest reached 56.1 million tons in 2010. The annual growth of 9.4% refl ected expansion of the average yield, 17.1%, and decrease in the cultivated area, -6.5%. The area reduction was particularly due to the decrease of 15.2% in the cultivated area in the fi rst harvest, which refl ected the discouragement of producers in an environment of depressed prices and high production costs, coupled with adverse weather conditions. On the other hand, the second harvest of the grain was favored by adequate rainfall in major producing regions.

The production of beans totaled 3.2 million tons. The annual drop of 8.5%, reﬂ ecting the impact of adverse weather in both harvest periods, was due to a 16% decrease in the harvested area, in spite of a 9.5% increase in the average yield.

Table 1.11 – Agricultural production – Major crops Millions of tons Products 2009 2010

Grain production 134.0 149.5 Cotton seed 1.8 1.8 Rice (in husk) 12.6 11.3 Beans 3.5 3.2 Corn 51.2 56.1 Soybeans 57.0 68.5 Wheat 5.0 6.0 Others 2.9 2.7

Change in grain production (%) - 8.2 11.6

Other crops Bananas 7.2 7.1 White potatoes 3.4 3.6 Cocoa (beans) 0.2 0.2 Coffee (manufactured) 2.4 2.9 Sugarcane 689.9 729.6 Tobacco (in leaf) 0.9 0.8 Oranges 18.3 19.1 Cassava 26.0 24.8 Tomatoes 4.2 3.7

Source: IBGE

The production of cotton seed totaled 1.8 million tons, the same level recorded in 2009, reﬂ ecting reductions of 1.9% in average yield and increase of 2% in the harvested area.

The wheat crop totaled 6 million tons, for annual growth of 20.1%, reﬂ ecting reductions of 10.9% in the cultivated area and expansion of 34.8% in average productivity.

I The Brazilian Economy 29 Table 1.12 – Agricultural production, harvested area and average earnings – Major crops

Percentage change Products Production Area Average earnings 2009 2010 2009 2010 2009 2010

Grain production -8.2 11.6 0.4 -1.3 -8.6 13.1 Cotton (seed) -26.3 0.1 -24.1 2.0 -3.2 -1.9 Rice (in husk) 4.2 -10.1 1.3 -6.3 3.2 -4.1 Beans 1.8 -8.5 9.7 -16.0 4.2 8.8 Corn -13.2 9.4 -4.5 -6.5 -8.9 17.1 Soybeans -4.9 20.2 3.3 7.1 -6.9 12.3 Wheat -15.7 20.1 2.9 -10.9 -20.0 34.8

Source: IBGE

The coffee crop, in a year of high productivity, totaled 2.9 million tons. The annual growth of 17.6%, favored by adequate weather conditions during the harvest period, was due to respective increases of 1.2% and 16.2% under cultivated area and average yield. The sugar cane harvest reached 729.6 million tons, for annual increase of 5.7%, consequent upon a decrease of 1.1% in average yield and a 6.9% expansion of cultivated area.

Livestock

According to the Quarterly Survey of Animal Slaughter, published by the IBGE, the production of poultry, cattle, and swine totaled, in the order, 10.7 million, 7 million and 3.1 million tons in 2010, registering respective annual growth of 7.6%, 4.7% and 5.1%. Exports of poultry, beef and pork expanded 6%, 2.7% and -12.4%, respectively, in the year.

Agricultural policy

In June, the Ministry of Agriculture, Livestock and Supply (Mapa) announced the 2010/2011 agricultural and livestock plan, which provided R$116 billion for the sector. Of this total, 7.9% higher than in the previous year, 86% were channeled to the commercial agriculture, and 14% to family agriculture.

In the context of commercial agriculture, R$75.6 billion, up 14% as compared to the previous year, would be made available for working capital and marketing. Of this volume, R$60.7 billion would be granted at controlled interest rates, an increase of 12% over the previous plan, and R$14.9 billion at free interest rates, for annual increase of 24.2%.

30 Boletim do Banco Central do Brasil – Annual Report 2010 Table 1.13 – Grain stock – Major crops Thousands of tons Products 2007/2008 2008/2009 2009/2010

Grain production Rice (in husk) Beginning of the year 2 021.7 1 481.3 1 646.9 End of the year 1 481.3 1 646.9 1 407.8 Beans Beginning of the year 81.4 230.0 317.7 End of the year 230.0 317.7 340.7 Corn Beginning of the year 2 540.7 11 312.8 11 405.0 End of the year 11 312.8 11 405.0 11 173.1 Soybeans Beginning of the year 3 675.6 4 540.1 675.0 End of the year 4 540.1 675.0 2 463.2 Wheat Beginning of the year 1 849.9 1 508.7 2 854.7 End of the year 1 508.7 2 854.7 2 418.5

Source: Companhia Nacional de Abastecimento (Conab)

The availability of resources for investments totals R$18 billion, for annual increase of 29%. Of this total, R$2.45 billion refer to Constitutional Funds. The allocation to the Program of Modernization of the Farm Tractor Fleet and Associated Implements and Harvesters (Moderfrota) is estimated at R$1 billion, a decline of 50% in the year, with a maximum term of 8 or 10 years. With regard to the Program for Modernization of Agriculture and Conservation of Natural Resources (Moderagro), funds to be allocated reached are forecast at R$850 million, the same level of the two previous plans, with individual loans limited at R$600 thousand.

Graph 1.8 Animal production 16

12 13.7 11.2 8 7.6 6.3 4 4.7 5.1 0.6

Percentage change Percentage 0 -2.7

-4 -6.1

-8 2008 2009 2010

Source: IBGE Cattle Swine Poultry

Resources allocated to the Incentive Program for Sustainable Agribusiness Production (Produsa) and the Capitalization Program of Agribusiness Cooperatives (Agro-Procap) reached, in the order, R$1 billion and R$2 billion, for annual decrease of 33.3% in the

I The Brazilian Economy 31 ﬁ rst and stability in the second program. It should be noted that, under the Agro-Procap, the individual limit of credit granting is R$50 thousand and the amortization period is up to 6 years, at interest rates of 6.75% p.y. and grace period of 2 years.

Special credit lines established in the previous plan in response to the international ﬁ nancial crisis decreased by 48% in the year, reaching R$6.4 billion. This credit facility is aimed to cooperatives, agribusinesses, agricultural machinery and equipment industry, and alcohol storage.

Also in the framework of main measures for the 2010/2011 harvest, it should be mentioned the National Program for Support of the Medium Rural Producer (Pronamp), with the aim of providing medium-sized farmers with more favorable productive conditions. The total resources for funding and investment operations reached R$5.65 billion, for respective individual limits of R$275 thousand and R$200 thousand.

Productivity

The industrial labor productivity, deﬁ ned as the ratio between the index of physical production and the indicator of the number of hours paid to the personnel employed in the manufacturing sector, both released by the IBGE, grew 6.2% in 2010, compared to variations of -1.9% and 1.1%, respectively, in the previous two years. This trajectory reﬂ ected expansion of 6% in the productivity of the manufacturing industry and 8.9% in the mining industry. Among the sectors surveyed, the largest increases occurred in the wood activities, 21.9%; metallic products, except machinery and equipment, 14.5%; and machinery and equipment, excluding electrical, electronic, precision and communication goods, 13.4%, as against reductions in the segments of textiles, 2.3%, and tobacco, 1.9%.

Industrial labor productivity expanded in all the ten federation units surveyed by the IBGE, especially in Espírito Santo, 14.6%; Minas Gerais, 11.7%; and Paraná, 10.1%.

The average productivity of the agricultural sector, the ratio between grain yield and harvested area, increased 13.1% in the year, a result consistent with the registered growth of 11.6% in domestic production of agricultural fertilizers, according to the National Association for the Fertilizer Dissemination (Anda), Sales of agricultural machinery in the domestic market increased 24.3% in the year, according to Anfavea, registering expansion of 26.9% for sales of wheeled tractors, 22.7% for sales of harvesters, and 2.8% in sales of motorized cultivators.

32 Boletim do Banco Central do Brasil – Annual Report 2010 Energy

Oil production, including liqueﬁ ed natural gas (LNG), grew 5.3% in the year, as compared to 6.9% in 2009, according to the National Petroleum Agency (ANP). The average production closed at 2.137 million barrels/day (mbd), compared to 2.029 mbd in the previous year, registering a record level in December, 2.271 mbd, and the lowest levels in January and September, 2.077 mbd. The production of natural gas increased 8.5% in 2010, reaching an average of 0.395 mbd.

The total oil processed in reﬁ neries increased by 0.4% in 2010, reaching 1.778 mbd. Oil imports fell 9.6% in the year, to 0.350 mbd, while exports rose 20.1%, closing at 0.631 mbd.

Consumption of oil derivatives in the domestic market increased 11.4% in 2010, with emphasis on automotive gasoline, 17.5%; aviation kerosene, 15.1%; diesel oil, 11.2%; and aviation gasoline, 11.3%. On the other hand, consumption of lighting kerosene and fuel oil decreased by 5.9% and 2.0%, respectively. Alcohol consumption decreased by 3% in the year, registering reduction of 8.6% in sales of hydrated alcohol and expansion of 11.4% in sales of anhydrous alcohol.

The consumption of electricity rose 7.9% in 2010, according to the Energy Research Company (EPE), a federal public company under the Ministry of Mines and Energy (MME). This growth was due to greater consumption by the industrial segment, 10.9%; residential, 6.4%; commercial, 5.8%; and other, 4.6%, which includes public lighting, public services and authorities, and the rural sector.

Electricity consumption recorded general expansion in all the ﬁ ve geographic regions of the country, reaching 8.9% in the Southeast, 8.8% in the Northeast, 7.7% in the North, 6.1% in the South, and 5.5% in the Central-West.

Table 1.14 – Apparent consumption of oil derivatives and fuel alcohol Daily average (1,000 b/d) Itemization 2008 2009 2010

Petroleum 1 485 1 481 1 651 Fuel oil 89 86 84 Gasoline 324 328 392 Diesel oil 769 763 848 Liquid gas 211 209 216 Other derivatives 91 95 109

Fuel alcohol 336 393 381 Anhydrous 108 109 122 Hydrated 228 284 259

Source: ANP

I The Brazilian Economy 33 Employment indicators

The labor market showed strong momentum in 2010. In this sense, according to the IBGE Monthly Employment Survey (PME), which covers the six largest metropolitan areas of the country, the average unemployment rate reached 6.7% in the year, compared to 8.1% in 2009, the lowest level of the series started in 2002. The number of employed persons in the regions covered by PME increased by 3.5% in 2010, compared to expansion of 0.7% in the previous year, while the labor force rose by annual rates of 2% and 0.9%, respectively.

The trajectory of labor market formalization continued in 2010, registering increases of 6.8% in the number of registered employees, and 1.3% of self-employed, and a decrease of 1.7% in the segment of nonregistered workers.

The favorable performance of the labor market is conﬁ rmed, in the country as a whole, by the statistics of the General File of Employed and Unemployed Persons (Caged), of the Ministry of Labor and Employment (MTE). In 2010, 2.1 million formal jobs were created, the highest balance of the series started in 1985, and 63% above the average of the last ﬁ ve years. The number of registered workers increased 6.1%, with emphasis on the growth in construction, 13.6%; commerce, 6.4%; and manufacturing, 6.2%.

Table 1.15 – Electric energy consumption1/ GWh Itemization 2008 2009 2010

Total 392 804 388 676 419 573

By sectors Commercial 61 947 65 325 69 105 Residential 94 719 100 751 107 166 Industrial 180 059 166 163 184 256 Other 56 082 56 440 59 046

Source: EPE 1/ Self-producers not included.

Wage and income indicators

The average real income habitually earned by employed persons in the six metropolitan areas covered by PME reached R$1,515.10 in December 2010, rising 3.2% over the previous year. The segments of registered and nonregistered workers showed gains of 10% and 1.5%, respectively. Real overall wages, the product of the average real income habitually earned by the number of employed persons grew 7.4% in the year.

34 Boletim do Banco Central do Brasil – Annual Report 2010 Price indicators

The upward trajectory of consumer price indices in 2010 in comparison with the previous year was particularly due to the behavior of free prices, with emphasis on price increases in the food and clothing sectors, as well as the price of services. The IPCA closed at 5.91% in the year, within the target range stipulated by the National Monetary Council (CMN) in the framework of the inflation targeting system.

Graph 1.9 Median unemployment rate 10

8 %

5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 Source: IBGE

General price indices

The General Price Index – Domestic Supply (IGP-DI), calculated by the FGV, which aggregates the Producer Price Index (IPA), the Consumer Price Index (IPC) and the National Cost of Construction Index (INCC), with respective weights of 60%, 30% and 10%, reported an annual growth of 11.30%, as compared to -1.43% in 2009.

Table 1.16 – Formal employment – New jobs openings 1,000 employees Itemization 2008 2009 2010

Total 1 452.2 995.1 2 136.9

By sectors Manufacturing industry 178.7 10.9 485.0 Commerce 382.2 297.2 519.6 Services 648.3 500.2 864.3 Building 197.9 177.2 254.2 Crop and livestock 18.2 -13.6 -25.9 Public utilities 8.0 5.0 17.9 1/ Others 19.0 18.3 22.0

Source: Ministério do Trabalho e Emprego (MTE) 1/ Includes mineral extraction, public administration and others.

I The Brazilian Economy 35 Graph 1.10 Level of formal employment % Percentage change in 12 months 7

2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010

Annual variations of the three IGP-DI components increased in 2010. The IPA, reﬂ ecting the behavior of wholesale prices in response to price increases of industrial and agricultural products, rose 13.85% in the year, as compared with a decrease of 4.08% in 2009. Prices of industrial and agricultural products grew 10.13% and 25.61%,

Table 1.17 – Average earnings of occupied people – 2010 Percentage change 1/ Itemization Nominal Real

Total 9.2 3.8

Job position Registered 6.8 1.5 Unregistered 15.8 10.0 Self-employed 8.6 3.3

By sector Private sector 8.6 3.3 Public sector 9.7 4.0

Source: IBGE 1/ Deflated by the INPC. Includes the metropolitan regions of Recife, Salvador, Belo Horizonte, Rio de Janeiro, São Paulo and Porto Alegre.

Graph 1.11 Real average earnings 124

122

120

118

2005 = 2005 = 100 116

114

112 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 Source: IBGE

36 Boletim do Banco Central do Brasil – Annual Report 2010 respectively, compared to drops of -4.43% and -3.16% in 2009. The IPC rose 6.24% and the INCC, 7.77%, compared to 3.95% and 3.25% in 2009, in the same order.

Consumer price indices

The IPCA, which considers the consumption basket of families with monthly income between 1 and 40 minimum wages, reached 5.91% in 2010, up from 4.31% in the previous year and 5.90% in 2008, registering increase of 3.13% in the regulated prices

Graph 1.12 Consumer price indices 8

% in% 12 months 4

3 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2008 2009 2010

IPCA INPC IPC-Fipe

IPCA 10

2 % in% 12 months 0 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2008 2009 2010

IPCA Tradeables Non tradeables Monitored

IGP-DI and components IPA according to origin

% in 12 months % in 12 months 15 30

10 20

5 10

0 0

-5 -10 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2009 2010 2009 2010

IGP-DI IPA IPA IPA-OG-PI IPC-Br INCC IPA-OG-PA Sources: IBGE, Fipe and FGV

I The Brazilian Economy 37 of goods and services4 and in 7.09% in free prices, compared to 4.74% and 4.13% in 2009, respectively.

The more moderate increase of regulated prices, down from 4.74% to 3.13%, was a consequence of lower increase rates of cooking gas, gasoline, airline tickets, medicine and electricity tariffs, water and sewage, telephone and intercity bus, while the largest free price increases, upward from 4.13% to 7.09%, reﬂ ected the enhanced economic dynamics and the trajectory of food prices, especially beef, milk and dairy products, beans, bakery goods, sugars, eggs and poultry and food out of home.

The variation of the National Consumer Price Index (INPC), calculated by IBGE, reached 6.47% in the year, compared to 4.11% in 2009. This variation, higher than that indicated by the IPCA, is mostly explained by the largest participation of the food and beverage group in the INPC, 30.64%, compared to 23.31% in the IPCA. It should be noted that the INPC is calculated by taking into account the consumption basket of families with monthly income of 1-6 minimum wages, for which the commitment of income on food expenditures is relatively higher.

The Consumer Price Index (IPC), calculated by the Institute of Economic Research Foundation (Fipe)5 also reﬂ ected the accelerated pace of economic activity and the high food price increases, growing 6.40% in 2010, up from 3.65% in the previous year.

Regulated prices

Regulated prices increased 3.13% in 2010, accounting for only 0.92 p.p. of the total IPCA variation in the year. The largest variations occurred for the urban bus items, 7.53%; health insurance, 6.87%; mail, 6.35%; intercity bus, 4.78%; and water and sewage fees, 3.38%; medicines, 3.36%; electricity, 3.05%; and gasoline, 1.67%. Conversely, the items of licensing and road toll dropped, respectively, by 9.53% and 5.82%.

It should be highlighted that the price increase of health insurance plans, ranging from 5.10% in Porto Alegre to 7.17%, in Brasília, exerted an impact of 0.24 p.p. over the IPCA, while the rise of urban bus fares, especially in the city of São Paulo, 17.39%, and Rio de Janeiro, 9.09%, contributed with 0.29 p.p. to the annual IPCA variation. The increase of intercity bus fare accounted for 0.06 p.p. of the IPCA, emphasizing the fare increases in Belém, 17.44%; and Salvador, 7.99%. Additionally, the readjustment of electricity tariffs was observed in nine of the eleven regions covered by the IPCA,

4/ Regulated prices are those not directly or indirectly determined by the federal, state or municipal governments. In some cases, adjustments are determined by contracts between producers/suppliers and relevant regulatory agencies, as in the case of electricity and ﬁ xed telephony. 5/ For families with income level between one and twenty times the minimum wage in the city of São Paulo.

38 Boletim do Banco Central do Brasil – Annual Report 2010 particularly in Belém, 17.58%; Curitiba, 13.60%; and Salvador, 7.16%, contrasting with the decrease of 9.16% registered in Recife.

Table 1.18 – IPCA items share in 2010 Percentage change Groups IPCA 1/ Weight Accumulated Accumulated Accumulated Index 2/ change in change in share share 2009 2010 in 2010

IPCA 100.00 4.31 5.91 5.91 100.00

Meals away from home 7.93 7.75 9.82 0.78 13.18 Meats 2.24 -5.34 29.66 0.66 11.24 Domestic services 3.47 8.74 11.81 0.41 6.93 Educational institutions 5.00 5.94 6.64 0.33 5.62 Milk and dairy products 2.00 -0.45 11.42 0.23 3.87 Cars 2.43 -3.60 -1.04 -0.03 -0.43 TV sets and the like 0.57 0.29 -12.25 -0.07 -1.19 Non-processed food 1.97 13.55 -5.51 -0.11 -1.84

Source: IBGE 1/ Average weight in 2010. 2/ It is obtained by dividing the accumulated share in the year by the accumulated change in the year.

Table 1.19 – IPCA items share in 2010 Percentage change Groups IPCA 1/ Weight Accumulated Accumulated Accumulated Index 2/ change in change in share share 2009 2010 in 2010

IPCA 100.00 4.31 5.91 5.91 100.00

Foodstuffs and beverages 22.83 3.17 10.39 2.37 40.13 Housing 13.24 5.68 4.98 0.66 11.16 Housing products 4.17 3.05 3.51 0.15 2.48 Apparel 6.73 6.11 7.51 0.51 8.55 Transportation 19.11 2.37 2.41 0.46 7.80 Health and personal care 10.82 5.37 5.06 0.55 9.27 Personal outlays 10.29 8.03 7.37 0.76 12.83 Education 7.20 6.11 6.21 0.45 7.57 Communication 5.62 1.07 0.86 0.05 0.82

Source: IBGE 1/ Average weight in 2010. 2/ It is obtained by dividing the accumulated share in the year by the accumulated change in the year.

I The Brazilian Economy 39 Core

Similarly to the trajectory of the headline index, the variations of the three IPCA core indices calculated by the Central Bank showed acceleration in 2010.

The smoothed trimmed average means increased 5.63% in 2010, up from 4.38% in the previous year, while the double weighted core6 increased 5.62% and 4.73% respectively. The variation of the core by exclusion, which excludes price changes of ten items7 of the subgroup of household food items and household fuels and vehicles, reached 5.45%, compared to 4.73% in 2009.

The change in the IPC core, calculated by the FGV by using the method of smoothed trimmed means, rose from 3.70% in 2009 to 5.18% in 2010, below the 6.24% IPC index.

Table 1.20 – Major items included in the IPCA during 2010 Percentage change Itemization IPCA 1/ Weight Accumulated Accumulated Accumulated change in change in share in 2009 2010 2010

Index (A) 100.00 4.31 5.91 5.91

Non-monitored prices 70.64 4.13 7.09 4.99 Monitored prices 29.36 4.74 3.13 0.92

Selected monitored items Urban transportation 3.84 5.34 7.53 0.29 Health care 3.46 6.39 6.87 0.24 Electric energy 3.23 4.69 3.05 0.10 Medicine 2.85 5.85 3.36 0.10 Gasoline 4.01 2.06 1.67 0.07 Interstate bus rates 1.20 6.19 4.78 0.06 Water and sewage fees 1.62 4.94 3.38 0.05 Phone fees 3.28 0.91 0.82 0.03 Domestic gas 1.20 13.74 2.10 0.03 Air ticket 0.33 31.89 3.15 0.01

Source: IBGE 1/ Average weight in 2010.

6/ This core is calculated by reweighing the original weights – based on the participation of each item in the IPCA basket – by their degrees of relative volatility, thus reducing their importance to the behavior of the more volatile components. 7/ The ten items are: tubers, roots and legumes; cereals, leguminous and oilseeds; greeneries and vegetables; fruits; meats; ﬁ sh; sugar and derivatives; milk and derivatives; poultry and eggs; and oils and fats.

40 Boletim do Banco Central do Brasil – Annual Report 2010 Table 1.21 – Consumer prices and core inflation in 2010 Percentage change Itemization 2009 2010 1 H 2 H In the year

IPCA 4.31 3.09 2.74 5.91

Exclusion 4.73 3.07 2.31 5.45 Smoothed trimmed means 4.38 2.88 2.67 5.63 Double-weighted 4.73 2.78 2.76 5.62

IPC-Br 3.95 3.64 2.51 6.24 Core IPC-Br 3.70 2.64 2.47 5.18

Source: IBGE and FGV

I The Brazilian Economy 41 II Money and Credit

Monetary policy

The IPCA, released by the IBGE, grew 5.91% in the year, remaining in the 2.5% to 6.5% range set for 2010 by the CMN, under the inﬂ ation targeting system. It should be noted that it was the seventh consecutive year that inﬂ ation remained within the range set by the CMN.

According to a preset schedule, the Central Bank’s Monetary Policy Committee (Copom) held eight regular meetings in the year. In the ﬁ rst two, the basic interest rate target was maintained at 8.75%, the lowest rate in the series begun in 1999; in the following three meetings, Copom decided to increase rates, which, altogether, totaled 200 b.p.; and at the last three meetings, it maintained the target at 10.75% p.y.

In addition to the 2010 Copom decisions, the CMN and the Central Bank’s executive board adopted in December, a set of macro-prudential measures aimed at improving regulatory instruments to ensure the SFN stability and enable the continued sustainable credit market development. The most important measures were the increase in reserve requirements and in capital requirements for loans to individuals with maturities of over 24 months.

At the last Copom meeting in 2010, the Copom considered risk balance less favorable towards achieving a benign inﬂ ation outlook. However, it prevailed among Committee members the understanding that additional time was needed to better assess the effects on price dynamics of macroprudential measures adopted in December, and of higher interest rates that occurred during the ﬁ rst semester.

Monetary aggregates

The average daily balance of restricted money supply (M1) totaled R$279.6 billion in December, noting that the 16.3% annual growth was a result of, respective 15.8% and 16.7% in average balances of currency outside banks and cash deposits. Deﬂ ated by the IPCA, in real terms M1 grew 9.8% this year, conditioned by the evolution of

II Money and Credit 43 nominal output and direct income transfer programs from the federal government. The M1 income velocity, deﬁ ned as the ratio between the GDP at current value and the aggregate average balance, has remained relatively stable during the year.

Graph 2.1 Money supply (M1) – Income velocity1/ 16

12 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2008 2009 2010 1/ Defined as the ratio between twelve-month accumulated GDP data current values and the average balance of the monetary aggregate.

Graph 2.2 Currency outside banks – Seasonally adjusted at December 2010 prices1/ 110

106

102

94 R$ billion R$ 90

82 Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2008 2009 2010 1/ Price index: IPCA.

Graph 2.3 Demand deposits – Seasonally adjusted at December 2010 prices1/ 150

145

140

135

130 R$ billion R$

125

120 Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2008 2009 2010 1/ Price index: IPCA.

44 Boletim do Banco Central do Brasil – Annual Report 2010 In December, the monetary base amounted to R$197.4 billion average daily balance, registering a 17.9% annual increase, due to a 15.5% growth in the average balance of currency issued and 25.7% in relation to banking reserves, reﬂ ecting the impact of this increase in the rate of reserve requirements on demand deposits, in July 2010.

Graph 2.4 Monetary base and money supply (M1) Average daily balances

Monetary base Money supply (M1) 200 300 180 270 160 240 140 210 120 180 100 150

R$ billion R$ 80 120 60 billion R$ 90 40 60 20 30 0 0 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2009 2010 2009 2010 Currency outside banks Currency issued Banking reserves Demand deposits

Monetary base Money supply (M1) 30 30 30 35 25 25 25 30 20 20 25 20 15 15 20 10 15 10 15 5 5 10 0 0 10 Monthly % Monthly % change 5 -5 % Monthly change -5 5 -10 0 -10 0 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2009 2010 2009 2010 Percentage change accumulated in 12 Monthly percentage change months

Considering the end-of-period balance, the restricted monetary base totaled R$206.9 billion in 2010, a R$40.8 billion increase in the year. National Treasury securities net redemption worth R$249.5 billion, and R$75.6 billion net purchases carried out by the Central Bank in the foreign exchange interbank market were the main monetary expansion factors. On the contraction side, reserve requirements fl ow was the most important, with a R$235.5 billion impact in the year, due mainly to increased rates relating to time deposits and additional requirements for cash and time resources. Similarly, operations in the single National Treasury, excluding securities transactions, determined a R$51.2 billion drop, partly associated to a R$600.7 billion tax infl ow. Other headings involved in the Central Bank relationship with the fi nancial system resulted in a R$2.4 billion increase.

The expanded monetary base, including the restricted basis, compulsory cash deposits, and federal government securities outside the Central Bank, registered in the Selic

II Money and Credit 45 Table 2.1 – Collection rate on mandatory reserves Percentage 1/ Period Demand Time Savings deposits Credit Leasing FIF FIF FIF 1/ 1/ deposits deposits Rural Other operations Companies Short-term 30 days 60 days modalities ID Resources

Prior to Real Plan 50 - 15 15 - - - - - 2/ 2/ 1994 Jun 100 20 20 20 - - - - - 2/ Aug " 30 30 30 - - - - - 2/ Oct " " " " 15 - - - - 2/ Dec 90 27 " " " - - - - 2/ 1995 Apr " 30 " " " - - - - 2/ May " " " " 12 - - - - 2/ Jun " " " " 10 - - - - Jul 83 " " " " - 35 10 5 Aug " 20 15 15 8 - 40 5 0 Sep " " " " 5 - " " " Nov " " " " 0 - " " " 1996 Aug 82 " " " " - 42 " " Sep 81 " " " " - 44 " " Oct 80 " " " " - 46 " " Nov 79 " " " " - 48 " " Dec 78 " " " " - 50 " " 1997 Jan 75 " " " " - " " " 1999 Mar " 30 " " " - " " " May " 25 " " " - " " " Jul " 20 " " " - " " " Aug " " " " " - 0 0 " Sep " 10 " " " - " " " Oct 65 0 " " " - " " " 2000 Mar 55 " " " " - " " " Jun 45 " " " " - " " " 2001 Sep " 10 " " " - " " " 2002 Jun " 15 " " " - " " " Jul " " 20 20 " - " " " 2003 Feb 60 " " " " - " " " Aug 45 " " " " - " " " 3/ 2008 May " " " " " 5 " " " 3/ Jul " " " " " 10 " " " 3/ Sep " " " " " 15 " " " Oct 42 " " " " " " " " Nov " " 15 " " " " " " 4/ 2009 Jan " " " " " 0 " " " Sep " 13.5 " " " " " " " 2010 Mar " 15 " " " " " " " Jun 43 " 16 " " " " " " Dec " 20 " " " " " " "

1/ As of August/2002, a new additional requirement on demand resources (3%), time deposits (3%) and savings deposits (5%) became effective. As of October/2002, rates for additional requirements on demand resources, time deposits and savings deposits moved to 8%, 8% and 10%, in that order. As of October/2008, rates for additional requirements on demand resources and time deposits moved to 5%. As of January/2009, the rate for add additonal requirement on time deposits moved to 4%. As of March/2010, the rates for additional requirements on demand resources and time deposits moved to 8%. As of december/2010, the rates for additional requirements on demand resources and time deposits rose to 12%. 2/ From June/1994 to June/1995 the 100% and the 90% rates refer to in addittional collection in relation to the base-period which was calculated between June 23 and 30, 1994. As of July 1995, the levying of compulsory deposits refers only to the arithmetic median of daily balances in each calculation period. 3/ It also includes 100% of the data base growth, if positive, as defined on 1.31.2008. 4/ The interfinancial deposits carried by the leasing companies were included in the calculation basis for reserve requirements on time deposits.

46 Boletim do Banco Central do Brasil – Annual Report 2010 system, totaled R$2.4 trillion, a 16.7% increase in the year, with emphasis on the impact on updating the federal debt held by the market and the Central Bank purchases in the foreign exchange interbank market.

With the objective of suiting the ﬁ nancial system liquidity, measures adopted in 2008 during the international ﬁ nancial crisis were reversed. Accordingly, in February 2010, under Circular no. 3,485, the rate of reserve requirements on time deposits was increased from 13,5% to 15% and its compliance demanded exclusively in currency. The rates related to additional requirements on demand and time deposit were increased to 8%, remaining at 10% the rate for savings deposits. The compliance started being demanded exclusively in currency. Both reserve requirement and additional requirement discounts were grouped according to the size of the institution.

Circular no. 3,513, dated 12.3.2010 and rates for reserve requirements on time deposits were increased from 15% to 20%. Relief limits were increased from R$2 billion to R$3 billion to ﬁ nancial institutions with less than R$2 billion reference worth and from R$1.5 billion to R$2.5 billion for those with assets exceeding R$2 billion and less than R$5 billion. Deduction ceiling of amounts related to the acquisition of assets and interﬁ nancial deposits was reduced from 45% to 36%, and Financial Notes issues were exempted from reserve requirements. On the same date, Circular no. 3,514, dated 12.3.2010, increased the rate for additional requirements on demand and time deposits from 8% to 12%. Deduction limits were increased from R$2 billion to R$2.5 billion for institutions with reference worth of less than R$2 billion, and from R$1.5 billion to R$2 billion for those with assets between R$2 billion and R$5 billion.

In addition, through Resolution no. 3,931, dated 12.3.2010, the CMN increased the guarantee ceiling for deposits and loans protected by the Credit Guarantee Fund (FGC), from R$60 thousand to R$70 thousand. It also deﬁ ned the gradual reduction of the funding limit on Time Deposits obtained with FGC Time Deposit with Special Guarantee (DPGE), by 20 p.p. per year as of 2012 so this modality will be ceased in 2016.

Graph 2.5 Financial assets – As percentage of GDP1/ M2 M3 and M4 42 90

40 85 80 38 75 % % 36 70 34 65

32 60

30 55 Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2008 2009 2010 M2 M3 M4 1/ Central Bank estimates for GDP of the last 12 months at prices of the month indicated.

II Money and Credit 47 Money supply according to the M2 concept expanded by 16.7% in the year totaling R$1.4 trillion. Among its components, corporate bonds balance increased by 17.4%, refl ecting R$2.5 billion net infl ows of time deposits, following a R$38.2 billion net redemption in 2009, and savings deposits increased by 18.8%, with R$38.7 billion net infl ows, 27.2% higher than in the previous year.

The M3 aggregate rose to R$2.5 trillion, 15.5% in the year, driven by 20% growth in investment funds quotas. Net inﬂ ows totaled R$89.4 billion, against R$109.9 billion in 2009. M4 corresponding to M3 plus public securities of non-ﬁ nancial institutions, grew 16.7% in the year totaling R$3 trillion.

The projections quarterly set in the monetary program for the major monetary aggregates were strictly enforced in 2010.

Table 2.2 – Financial assets End-of-period balance R$ billion Period M1 M2 M3 M4

2009 Jan 196.1 1 054.3 1 905.7 2 233.9 Feb 194.4 1 060.2 1 920.4 2 251.5 Mar 192.3 1 058.0 1 933.8 2 272.8 Apr 194.5 1 062.1 1 958.2 2 288.6 May 195.8 1 074.9 1 989.1 2 322.5 Jun 202.2 1 095.1 2 009.8 2 342.3 Jul 198.2 1 098.6 2 037.7 2 393.2 Aug 202.6 1 104.7 2 072.4 2 432.4 Sep 209.6 1 121.2 2 115.6 2 482.0 Oct 209.7 1 117.0 2 130.9 2 516.6 Nov 220.5 1 132.0 2 160.9 2 551.4 Dec 248.1 1 164.9 2 203.8 2 602.3

2010 Jan 227.5 1 146.4 2 195.0 2 596.4 Feb 225.1 1 150.0 2 202.4 2 619.9 Mar 229.3 1 162.6 2 233.6 2 661.1 Apr 228.7 1 158.5 2 227.2 2 655.5 May 231.2 1 172.3 2 253.8 2 693.1 Jun 234.7 1 191.2 2 283.6 2 739.8 Jul 235.8 1 202.0 2 321.9 2 776.4 Aug 242.7 1 226.5 2 370.4 2 838.4 Sep 248.7 1 255.4 2 427.5 2 942.8 Oct 249.7 1 266.5 2 465.8 3 004.5 Nov 258.5 1 300.3 2 496.3 3 038.2 Dec 280.1 1 347.3 2 535.9 3 055.3

48 Boletim do Banco Central do Brasil – Annual Report 2010 Federal public securities and Central Bank open market operations

National Treasury primary operations with federal public securities turned in R$44.3 billion net redemptions in 2010, corresponding to R$452.6 billion redemption and R$408.3 billion placements. Swap deals carried out to lengthen the schedule of debt maturity, totaled R$29.7 billion, with R$5.2 billion in anticipated redemptions.

Graph 2.6 Net financing position of the federal public securities – Daily average R$ billion 550 500 450 400 350 300 250 200 150 100 50 Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2008 2009 2010

The average daily balance of repo operations closed at R$341.7 billion in December, falling 23.6% over the same period in 2009. This result reﬂ ected the rise in the reserve requirement rate and National Treasury Single Account transactions, mainly conditioned by the primary surplus and Central Bank foreign currency purchases.

Graph 2.7 Central Bank repo operations – Maturity Aveage daily balances R$ billion 360 320 280 240 200 160 120 80 40 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 Up to 2 weeks Above 2 weeks and below 3 months 6 months

As far as schedules are concerned, the share of two-week to three-month operations decreased from 70% in 2009 to 40% in 2010, while six-month operations increased from 17% to 40%. Very short-term operations ended the year with 20% participation.

II Money and Credit 49 Financial system credit operations

Financial system credit operations resumed its growth pace in 2010, after overcoming the global ﬁ nancial crisis effects. Such recovery reﬂ ected the upturn in domestic demand, assisted by the favorable conditions in the labor market and businesses and consumers positive expectations.

Such expansion was more signiﬁ cant in earmarked credit, driven by the BNDES funding, especially for infrastructure projects and the acquisition of machines and equipment by small and medium-size companies machinery. Likewise, it is worth mentioning the trajectory of housing credit.

Table 2.3 – Credit operations R$ billion Itemization 2008 2009 2010 % growth 2009 2010

Total 1 227.3 1 414.3 1 705.8 15.2 20.6 Nonearmarked 871.2 954.5 1 116.0 9.6 16.9 Earmarked 356.1 459.8 589.8 29.1 28.3

% participation: Total/ GDP 40.5 44.4 46.4 Nonearmarked/GDP 28.7 30.0 30.4 Earmarked/GDP 11.7 14.4 16.0

Regarding operations with nonearmarked resources, in the segment of individuals, it is worth noting the upturn in ﬁ nancial modalities of vehicle acquisition and payroll-deducted loans. In the case of, corporations, with an outstanding participation of small and medium-size companies, there was an evolution of credits with domestic resources, in contrast with a drop in those credits backed by external resources.

The entire stock of credit granted by the ﬁ nancial system with earmarked and nonearmarked resources totaled R$1,706 billion in December 2010, rising 20.6% in the year, compared to 15.2% annual expansion in 2009, and 31.1% in 2008, contributing a 46.4% growth in the credit/GDP ratio, against 44.4% in 2009, and 40.5% in 2008. The participation of public banks in total credit stood at 41.8% at the end of 2010, while those of national and foreign private institutions reached 40.8% and 17.4% respectively.

The balance of credit to the private sector, including both earmarked and nonearmarked resources totaled R$1.638 billion, a 20.9% rise in the year. Broken down by economic activity, the volume directed towards industry grew 18.5%, totaling R$361.1 billion, particularly reﬂ ecting demand in the automotive, food and energy sectors. The stock in the segment of other services totaled R$292.4 billion, increasing 18.1% in the year,

50 Boletim do Banco Central do Brasil – Annual Report 2010 with emphasis on the upswing in the transportation, energy and real estate segments. Trade operations rose 26.7% reaching R$172.6 billion, notably to car dealerships, department stores and food stores new contracts.

Figure 2.8 Credit by borrower's economic activity – Financial System Share % 35 32.7 32.2

21.5 25 21.2 17.5 20 17.1

15 9.6 10.1 8.1 7.9 10 6.5 7.3 4.2 4.0 5

0 Public sector Industry Housing Rural Commerce Individuals Other services 2009 2010

Housing credit, which includes credit to individual persons, maintained a rapid growth pace, and increased 51.1% in the year, reaching R$138.8 billion. Cumulative disbursements from savings accounts funds rose 55.5%, going to R$33.4 billion, of which 87.3% were granted under the rules of the Housing Financing System (SFH) and 12.7% at market interest rates. Of the total disbursement, 58.3% were allocated to new and used property acquisition and the remaining balance to housing starts.

The rural credit portfolio totaled R$123.9 billion in December. The 10.4% annual increase was primarily driven by demand on resources for agricultural investment, which registered a 50.3% relative share of total rural lending, with emphasis on BNDES disbursements. The share of agricultural costing modalities and agricultural marketing remained respectively at 40.4% and 9.3% of total rural credit.

Financial system credit operations for the public sector totaled R$67.8 billion, increasing 15% in the year. This performance particularly resulted from a 27.7% boost in ﬁ nancing balance on loans contracted by the state and local governments, reaching R$33.2 billion, with emphasis on sanitation and transportation infrastructure operations funded by the Employment Compensation Fund (FGTS) and the BNDES. The balance of banking credit to the federal level reached R$34.6 billion, reﬂ ecting a 4.9% expansion, associated with new oil and gas area contracts.

Loans based on nonearmarked funds totaled R$1.116 billion in December, rising 16.9% in the year, and accounting for 65.4% of total ﬁ nancial system credit, compared to 67.5% in 2009. The portfolio of individual persons increased 19.2% amounting to R$560 billion, with emphasis on 49.1% and 24.7% increase in the modalities of auto loans, and personal credit. At the same time, the segment of corporations grew 14.7%, totaling R$556 billion, with emphasis on 22.9% increase on working capital loans.

II Money and Credit 51 Loans backed by foreign funds fell 11% in the year, reﬂ ecting mainly the decrease in Advance on Exchange Contracts (ACC) operations.

Table 2.4 – Nonearmarked credit operations R$ billion Itemization 2008 2009 2010 % growth Dec Dec Dec 2009 2010

Total 871.2 954.5 1 116.0 9.6 16.9 Corporations 476.9 484.7 556.0 1.6 14.7 1/ Reference credit 391.5 397.8 462.7 1.6 16.3 Domestic funding 300.7 342.9 413.9 14.0 20.7 External funding 90.8 54.9 48.9 -39.5 -11.0 2/ Leasing 55.3 49.1 41.1 -11.1 -16.3 2/ Rural 3.8 4.0 3.1 7.7 -24.0 2/ Others 26.3 33.7 49.1 28.0 45.6 Individuals 394.3 469.9 560.0 19.2 19.2 1/ Reference credit 277.6 323.8 417.3 16.6 28.9 Credit unions 16.9 21.1 25.3 24.5 19.7 Leasing 56.7 63.2 45.6 11.4 -27.8 Others 43.1 61.8 71.8 43.6 16.2

1/ Interest rate reference credit, defined according to Circular no. 2,957, dated 12.30.1999. 2/ Operations backed by domestic resources.

Average interest rate in the modalities comprising reference credit reached 35% in December 2010. This annual 0.7 p.p. increase resulted from a 2.4 p.p. variation in the corporate entity segment, mostly 18.8 p.p. from increases in guaranteed account, 3.1 p.p. in discount bills, and -2.1 p.p. in individual persons, which recorded 27.9% and 40.6% respective rates in the period.

Banking spreads reached 23.5% in December, dropping 0.9 p.p. in 2010. There was a 3.1 p.p. reduction in the segment of individual persons and a 0.5 p.p. increase in that of legal entities that recorded respective spreads of 28.5 p.p. and 17 p.p. in that period.

Average maturity of the reference credit portfolio reached 476 days in December. The 93-day annual increase resulted from 113 days and 59 days respective rises in corporate entity and individual person segments. In the former case, it should be noted the 155-day expansion on working capital operations. In the latter case, individual persons recorded average maturities of 399 days and 562 days in the same order. It is worth mentioning the average maturity of individual person portfolio – a record in the series initiated in June 2000 reﬂ ected, among other factors, an increased share of real estate ﬁ nancing and vehicle acquisition.

52 Boletim do Banco Central do Brasil – Annual Report 2010 Graph 2.9 Interest rates of credit operations with nonearmarked resources

% p.y. 30

20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 Corporations Total

Graph 2.10 Interest rates of credit operations – Individuals

50 % p.y. 45

35 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010

Graph 2.11 Interest rates of credit operations – Corporations 50

% p.y. 20

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 Preset rate Postset Floating

Reference credit default rates followed a declining trend since February and reached 4.5% in December 2010, dropping 1 p.p. in the year. There were 2 p.p. and 0.3 p.p. respective reductions in the segments of individual and corporate entities, which recorded 5.7% and 3.5% rates respectively in December 2010.

II Money and Credit 53 Graph 2.12 Spread of credit operations with nonearmarked resources 32

% p.y. 26

22 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010

Loans with earmarked resources grew 28.03% in 2010, totaling R$589.8 billion in December, compared to annual increases of 29.1% in 2009 and 29.4% in 2008. The highlights were the 26.4% growth in BNDES operations, which totaled R$357.8 billion and represented 60.7% of such loans. Housing credit operations with FGTS, savings funds and rural credit experienced annual increases of 50.4% and 9.8% respectively.

Graph 2.13 Default rate of credit operations with nonearmarked resources1/ % 10

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 Total Corporations Individuals 1/ Portifolio’s percentage share in arrears of more than 15 days.

Table 2.5 – Earmarket credit operations R$ billion Itemization 2008 2009 2010 % growth 2009 2010

Total 356.1 459.8 589.8 29.1 28.3 BNDES 209.3 283.0 357.8 35.3 26.4 Direct 107.8 158.1 178.0 46.7 12.6 On lendings 101.5 124.9 179.8 23.1 43.9 Rural 78.3 78.7 86.8 0.5 10.3 Banks and agencies 73.3 74.6 81.9 1.8 9.8 Credit unions 5.0 4.1 4.9 -17.9 19.7 Housing 59.7 87.4 131.4 46.3 50.4 Others 8.8 10.7 13.8 20.7 29.1

54 Boletim do Banco Central do Brasil – Annual Report 2010 BNDES disbursements reached R$168.4 billion in 2010, a 23.5% rise in the year. Loans for the industrial sector, driven by the Investment Support Program (ISP), increased 24% to R$78.8 billion, mostly from coke, oil and fuel, food products and chemical ﬁ nancing operations. Trade and services sector disbursements totaled R$79.5 billion, rising 20.5% in the year, with emphasis on land transportation, trade and real estate activities. New ﬁ nancing to micro, small and medium-size businesses expanded 90.9% to R$45.7 billion, representing 27.1% of total expenditures, compared to 17.5% in 2009. Credits targeted to the farm sector grew 47.7% to R$10.1 billion.

Financial system provisions closed at R$94.7 billion in December 2010, registering a 2.9% annual decline and accounting for 5.6% of the total loan portfolio, 6.9% over that of 2009 year end. Such development was consistent with the default rate trajectory regarding the ﬁ nancial system total loans, which dropped 1.1 p.p. in the year, standing at 3.2%.

Table 2.6 – BNDES disbursements R$ million Itemization 2009 2010 Growth (%)

Total 136 356.1 168 422.6 23.5 Industry 63 521.1 78 768.4 24.0 Food products 8 034.0 12 292.7 53.0 Chemical 2 175.0 3 798.2 74.6 Vehicle, towing truch and wagon 5 922.5 5 790.4 -2.2 1/ Other transport equipment 2 899.3 4 410.8 52.1 Petroleum and alcohol refining 23 238.4 28 712.3 23.6 Commerce/Services 65 979.3 79 527.9 20.5 Land transport 23 737.1 28 473.5 20.0 Construccion 6 550.4 6 650.2 1.5 Telecommunications 3 834.9 2 103.9 -45.1 Electricity and gas 14 716.5 13 878.5 -5.7 Farming 6 855.7 10 126.3 47.7

Source: BNDES 1/ It includes aircraft industry.

National Financial System

Given the monetary stability framework, credit operations were dominant, in the ﬁ nancial intermediation result, in relation to Treasuryoperations. In this context, search for funding sources with a time frame consistent with lengthening the maturity of lending operations. At the same time, macroprudential measures were taken, aiming at improving existing regulatory instruments and thus contributing to the ﬁ nancial system sustainable development.

II Money and Credit 55 The share of credit operations in total banking system assets declined from 35.6% at the end of 2009 to 34.9% in December 2010. The share of treasury operations turned in the steepest decline, from 40.5% to 37.5%, resulting from decreases in participation in securities from 21.4% to 21.1%, and interbank liquidity investments and foreign exchange transactions, from 19.1% to 15.8%. Government securities representativeness in securities portfolio continued decreasing, falling from 60.2% to 56.1% in the year.

Growth in credit operations during the year resulted in signiﬁ cant expansion of ﬁ nancial intermediation revenues. Share of credit revenues increased from 57.4% in 2009 to 58.6% in December 2010, while securities revenues decreased from 40.5% to 34.9% under the same basis of comparison.

Following the 2009 trend, the participation of traditional forms of funding decreased in 2010. Total deposits share – cash, time and savings – increased from 33.7% at the end of 2009 to 31.5% in December 2010, while the joint participation of foreign exchange transactions and interbank liquidity borrowings (repo operations and interbank deposits) grew from 38.8% to 39.1% during the same period.

In order to provide fi nancial institutions with legally secure instrument for medium and long-term funding, Resolution no. 3,836, published in February, ruled on fi nancial bills issuance. They are debt claim promising cash payment, nominal, freely negotiable and transferable, issued by multiple, commercial, savings, and investment banks, fi nancial companies, real estate credit companies, and mortgage companies, with minimum 24 months maturity, not permitting total or partial early redemption. In December, BNDES, the main source of long-term fi nancing to the productive sector, was authorized to issue fi nancial bills.

This new funding instrument allows better matching of maturities between fi nancial institutions’ assets and liabilities, since their periodic payment of income must comply with a 180-day minimum time frame. Up to December 2010 R$26.2 billion were raised through this fi nancial instrument. In December, fi nancial bills issuance became exempt from reserve requirements, which increased its appeal when compared to traditional bank deposit certifi cates (CDB).

Under Circular no. 3,498, dated 6.28.2010, announced in June, in the prudential regulation framework, capital requirement calculation for market risk was changed in order to apply Basle index, aiming at promoting additional capital formation to accommodate losses in ﬁ nancial market volatility periods. This change is equivalent to a required capital base increase, which is the BIS index ratio denominator, so as to protect ﬁ nancial institutions’ assets against interest rates, equities, foreign exchange and commodities variations. Other banks, under the Basle Committee are taking such measure which will become simultaneously effective as of 2012.

56 Boletim do Banco Central do Brasil – Annual Report 2010 In addition, Circular no. 3,515, of December 3, determined a capital requirement increase applicable to individual persons’ loans and leases with over 24 months contractual maturities. With thisaim, such the Risk Weighting Factor (FPR) of such operations contracted as of December 6, 2010, went up from 100% to 150%, meaning that for their capital requirement will increase from the current 11% to 16.5% of such transactions value, effective as of July 2011. This increase does not apply to the following operations: i) 36-month term payroll-deducted loans; ii) rural credit; iii) housing credit; iv) vehicles fi nancing or auto leasing with maturities between 24 and 36 months, in amounts not exceeding 80% of their value; v) vehicle fi nancing or leasing between 36 and 48 months, in amounts not exceeding 70% of their value; vi) vehicle fi nancing or auto leasing with maturities between 48 and 60 months, with contracts not exceeding 60% of their value; vii) cargo vehicles fi nancing or leasing; and viii) fi nancing with resources coming from Federal Government onlendings of special funds and programs. Graph 2.14 Banking System – Participation by segment1/

Total assets Total loans 50 50

40 40

30 30

20 20

10 10 Participation (%) 0 Participation (%) 0 2007 2008 2009 2010 2007 2008 2009 2010 Public institutions Public institutions National private institutions National private institutions Foreign institutions Foreign institutions

Total deposits Net worth 60 50

50 40 40 30 30 20 20 10 10 Participation (%) Participation (%) 0 0 2007 2008 2009 2010 2007 2008 2009 2010 Public institutions Public institutions National private institutions National private institutions Foreign institutions Foreign institutions

1/ Consider only banking institutions, not consolidated by conglomerates.

II Money and Credit 57 III Capital and Financial Markets

Real interest rates and market expectations

The Selic rate target was maintained at 8.75% p.y. during the fi rst quarter of 2010. In response to infl ationary pressures, associated in the external framework to commodity price increases, and internally to the growth unbalance between domestic absorption and supply expansion capacity, Copom increased 200 basis points in the Selic rate target, moving it to 10.75% p.y. during the second and third quarters of the year. The 2010 accumulated effective Selic rate closed at 9.8%, while real accumulated Selic rate, IPCA defl ated, reached 3.7%. In terms of expectations, ex-ante real interest rate, calculated

Graph 3.1 Over/Selic rate 14

11 % p.y.

8 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010

Graph 3.2 Over/Selic rate x dollar x 360-day swap

13 2.50

12 2.30

11 2.10

10 1.90

9 1.70 Dollar (R$/US$)

8 1.50 1.4 2.23 4.15 6.8 7.28 9.17 11.10 12.31 2010

Selic 360-day swap Dollar Over/Selic rate/360 days swap (% p.y.) (% swap days rate/360 Over/Selic

III Capital and Financial Markets 59 by the Central Bank for one-year period, based on a survey with private analysts, rose from 5.1% p.y. at the end of 2009 to 6.2% p.y. at the end of 2010.

Derivatives market, ID x 360-day ﬁ xed rate swap recorded increasing interest rates on futures market during the ﬁ rst half of the year, reaching 11.9% p.y. on June 18. After showing volatility throughout the second half of the year, contracts were traded at 12.03% p.y. at the end of 2010, 157 basis points higher than in late 2009.

Graph 3.3 Yield curve – ID x fixed rate swap

12.0 11.5 11.0 10.5 10.0 % p.y. 9.5 9.0 8.5 30 60 90 120 150 180 210 240 270 300 330 360 Term in days 1st quarter 2nd quarter 3rd quarter 4th quarter

Graph 3.4 Over/Selic cumulative 12-month rate 25

% p.y. 10

0 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2005 2006 2007 2008 2009 2010 Nominal Real (IPCA)

Capital market

Primary securities, debentures and promissory notes offerings recorded in the Securities and Exchange Commission (CVM) totaled R$160.8 billion in 2010, 341% above the previous year. This result was conditioned mainly by Petrobras public offerings, which reached R$120.2 billion. Primary issues stock totaled R$145.2 billion and debentures R$15.6 billion, against R$15.9 billion and R$11.1 billion respectively in 2009.

60 Boletim do Banco Central do Brasil – Annual Report 2010 Graph 3.5 Primary issues 160

140

120

100

60 R$ billion R$ 40

0 Stocks Debentures Commercial papers

2007 2008 2009 2010 Source: CVM

São Paulo Stock Exchange Index (Ibovespa) rose 1% in 2010, reaching 69,304 points at the last closing of the year, noting that the indicator, after indicating volatility in the ﬁ rst half of the year, stood at 72,657 points on November 8. In US dollar terms, Ibovespa appreciated 5.6% in 2010. The Dow Jones and National Association of Securities Dealers Automated Quotation (Nasdaq) posted respective 11% and 16.9% gains on the same basis of comparison.

Graph 3.6 Ibovespa

75 000

70 000

65 000 Points

60 000

55 000 1.4 3.5 5.5 7.2 8.31 10.29 12.30 2010 Source: Broadcast

Graph 3.7 Ibovespa x Dow Jones x Nasdaq – 2010 120 115 110 105 100 95 90 Index =100 Dec/2009 Index 85 80 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Ibovespa (US$) Dow Jones Nasdaq Source: Broadcast

III Capital and Financial Markets 61 Graph 3.8 Daily average volume traded in Bovespa – 2010 8 000

7 000

6 000

5 000

4 000 R$ million R$ 3 000

2 000

1 000

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

Source: Bovespa

Market value of the São Paulo Stock Exchange (Bovespa) listed companies rose 10.1% in 2010, reaching R$2.6 trillion in December, compared to R$2.3 trillion a year earlier. Bovespa average daily trading volume rose 22.4% in the year totaling R$6.4 billion.

Graph 3.9 Market capitalization – 2010 2 700 Corporations listed in Bovespa

2 500

2 300

2 100 R$ billion R$ 1 900

1 700

1 500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: Bovespa

Financial investments

Investment funds, time and savings deposits consolidated balance totaled R$2.3 trillion in December 2010, increasing 16.4% in the year. Investment funds, including ﬁ xed income funds, multimarket, referenced, short-term and currency exchange grew 19.1%, to R$1.3 billion, registering an R$89.4 billion net inﬂ ow. Government securities share in funds consolidated portfolio kept declining, standing at 46.9% in December 2009, compared to 49.4% in December 2009.

Equity funds accumulated average return of 8.6% in the year and recorded a 13.4% growth in its consolidated net worth, which totaled R$195.3 billion at 2010 year-end.

62 Boletim do Banco Central do Brasil – Annual Report 2010 Graph 3.10 Financial investments – Balances

FIF Time deposits

1 280 595

1 240 585

1 200 575

1 160 565 R$ billion R$ 1 120 billion R$ 555

1 080 545

1 040 535

1 000 525 Jan FebMar AprMayJun Jul AugSep Oct NovDec JanFebMar AprMayJun Jul AugSep OctNovDec

Savings 380 370 360 350 340 R$ billion R$ 330 320 310 300 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Extra-market investment funds balance, responsible for managing resources owned by the indirect federal government agencies, reached R$39.3 billion, rising 2.8% in the year and recorded net redemptions of R$407 million.

The balance of savings deposit totaled R$378.8 billion, for an annual increase of 18.7% and R$38.7 billion net inﬂ ow. Return rate on savings account maturing the ﬁ rst day of the month stood at 6.9% p.y., the same level as 2009. Time deposit balance

Graph 3.11 % Nominal income of major financial investments – 2010 35 30 25 20 15 10 5 0 -5 -10 FIF Stock funds Savings Interbank Gold US dollar Ibovespa Certificate of commercial Deposit Source: Banco Central do Brasil and Broadcast

III Capital and Financial Markets 63 Table 3.1 – Nominal income of financial investment – 2010

Itemization Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010

FIF 0.65 0.72 0.79 0.55 0.66 0.73 1.01 0.91 1.02 0.06 0.79 1.36 9.65 Savings 0.50 0.50 0.58 0.50 0.55 0.56 0.62 0.59 0.57 0.55 0.53 0.64 6.90 Stock funds -1.68 0.77 3.32 -2.85 -3.60 -2.56 7.22 -2.01 2.92 1.73 -1.28 7.03 8.57 CDB 0.64 0.58 0.74 0.62 0.70 0.72 0.83 0.85 0.81 0.77 0.77 0.88 9.29 Gold 6.45 -1.20 4.28 1.47 4.35 2.92 -3.91 3.58 0.75 7.67 6.25 -3.53 32.26 US dollar commercial 7.67 -3.40 -1.66 -2.83 4.98 -0.84 -2.46 -0.07 -3.52 0.42 0.86 -2.91 -4.31 Ibovespa -4.65 1.68 5.82 -4.04 -6.64 -3.34 10.80 -3.51 6.58 1.79 -4.20 2.36 1.04

Source: Banco Central do Brasil, CVM, Bovespa and BM&F totaled R$617.1 billion, registering an annual increase of 9.5% and R$2.5 billion net inﬂ ow. Average gross return on such deposits reached 9.3%, corresponding to approximately 95% of Selic effective rate in the year.

64 Boletim do Banco Central do Brasil – Annual Report 2010 IV Public Finance

Budget, ﬁ scal and tax policy

The Budget Guidelines Law (LDO), which based the development of the Federal Government Budget for 2010 (Law no. 12,017, of August 12, 2009), established a primary surplus target for the consolidated public sector equivalent to 3.3% of the GDP for the year, of which 2.15% over the Fiscal Budget and Social Security, 0.2% in the sphere of Federal and State-Owned Enterprises, and 0.95% in the context of regional governments. The LDO also determined that the surplus could be reduced to R$22.5 billion, to meet the expenditure under the Growth Acceleration Program (PAC), and that this value could be increased spending “amounts to be paid” and the excess of the primary surplus target that appeared in 2009.

The maximum rebate expenses supported by the PAC was increased to R$29.8 billion, by means of Law no. 12,182, of December 29, 2009. In addition, Law no. 12,377 of December 30, 2010, authorized special treatment for the Eletrobras Group, excluding it from the calculation of income tax in the public sector. Consequently, the primary surplus target for 2010 was reduced from 3.3% to 3.1% of the GDP.

Regarding measures in the sphere of taxation, the unburdening of IPI was extended for six months, with a zero rate, for capital goods, tractors and trucks, by the Decree no. 7,222; of June 29, 2010, and, for one year, and the one related to the construction products, by the Decree no. 7,394 of December 15, 2010. The IOF tax rate levied on the settlement of foreign currency infl ows into the country, by foreign investors in the fi nancial market (fi xed income), was raised from 2% to 4% through the issuance of the Decree no. 7,323; of April 10, 2010, and 6% by the Decree no. 7,330; of October 18, 2010.

Other economic policy measures

The Brazilian Congress approved, in 2010, four bills submitted by the Executive Branch concerning the regulatory framework of oil exploration in the sub-salt layer. The three ordinary laws that derived from them change the system of exploitation of

IV Public Finance 65 the production of oil reserves, of granting for production sharing, and grant the status of single operating company to Petrobras, with minimum 30% stake in the consortium hired; create a social fund to be used in ﬁ ghting poverty and the development of education and other government measures; establish the Brazilian Company for the Management of Petroleum and Natural Gas S.A. – Sub-Salt Petroleum S.A. (PPSA), which will be responsible for managing the sharing contracts; and leave for Petrobras the ﬁ nancial activities of exploitation and prospecting of oil and natural gas at the site.

The President vetoed the article that established sharing of revenue from royalties according to the same criteria used for the State and Municipal Revenue Sharing Fund.

Public sector borrowing requirements

In 2010, the consolidated public sector registered a primary surplus of R$101.7 billion. The annual increase of 0.73 p.p. of GDP reﬂ ected the high scores of the Central Government and state enterprises, and the decline in the surplus registered in the state enterprises.

The increase in the Central Government primary surplus reached 0.81 p.p. of the GDP, led to an increase of 0.62 p.p. marked on the Federal Government surplus and a reduction of 0.18 p.p. in the Social Security deﬁ cit.

Central Government revenues, showing an annual increase of 27.1% of revenues of the National Treasury (1.82 p.p. of GDP) totaled R$919.8 billion, highlighting Table 4.1 – Public sector borrowing requirements

Itemization 2006 2007 1/ 1/ R$ million % of GDP R$ million % of GDP

Nominal 86 010 3.6 74 460 2.8 2/ Central government 74 475 3.1 59 607 2.2 States 13 740 0.6 10 335 0.4 Local governments 2 867 0.1 2 369 0.1 State enterprises -5 072 -0.2 2 150 0.1

Primary -75 915 -3.2 -88 078 -3.3 2/ Central government -51 352 -2.2 -59 439 -2.2 State governments -16 370 -0.7 -25 998 -1.0 Local governments -3 345 -0.1 -3 936 -0.1 State enterprises -4 849 -0.2 1 295 0.0

Nominal interest 161 925 6.8 162 538 6.1 2/ Central government 125 827 5.3 119 046 4.5 State governments 30 110 1.3 36 333 1.4 Local governments 6 212 0.3 6 305 0.2 State enterprises -223 -0.0 855 0.0

(continues)

66 Boletim do Banco Central do Brasil – Annual Report 2010 Table 4.1 – Public sector borrowing requirements (concluded)

Itemization 2008 2009 2010 1/ 1/ 1/ R$ million % of GDP R$ million % of GDP R$ million % of GDP

Nominal 61 927 2.0 106 242 3.3 93 673 2.5 2/ Central government 24 891 0.8 107 363 3.4 45 785 1.2 States 29 715 1.0 -3 317 -0.1 40 442 1.1 Local governments 5 494 0.2 1 236 0.0 7 309 0.2 State enterprises 1 827 0.1 960 0.0 137 0.0

Primary -103 584 -3.4 -64 769 -2.0 -101 696 -2.8 2/ Central government -71 308 -2.4 -42 443 -1.3 -78 723 -2.1 State governments -25 931 -0.9 -17 957 -0.6 -16 961 -0.5 Local governments -4 644 -0.2 -3 045 -0.1 -3 674 -0.1 State enterprises -1 701 -0.1 -1 323 -0.0 -2 338 -0.1

Nominal interest 165 511 5.5 171 011 5.4 195 369 5.3 2/ Central government 96 199 3.2 149 806 4.7 124 509 3.4 State governments 55 646 1.8 14 639 0.5 57 403 1.6 Local governments 10 138 0.3 4 281 0.1 10 983 0.3 State enterprises 3 528 0.1 2 284 0.1 2 474.7 0.1

1/ Current prices. 2/ Federal Government, Central Bank and National Social Security Institute.

Graph 4.1 Public sector borrowing requirements Total primary in (%) of GDP current prices 4

-1 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 the impact caused by the inﬂ ow of R$74.8 billion, unmatched in the previous ﬁ scal year, of revenues from transfer of rights with compensation to oil exploration in the sub-salt layer. Similarly, the effects of the expansion of the economy contributed to the collection of major taxes, the removal of incentives introduced to mitigate the effects of the economic crisis, and the rate rise of the IOF-exchange.

The Central Government spending amounted to R$700.1 billion, rising 22.4% in the year and now it represents 19.05% of the GDP, compared to 17.96% in 2009. Of this total,

IV Public Finance 67 Table 4.2 – Central government primary result R$ million Itemization 2008 2009 2010 Change % (a) (b) (c) (b)/(a) (c)/(b)

Total revenues 716 658 739 304 919 772 3.2 24.4

National Treasury 551 343 555 054 705 297 0.7 27.1 Gross Revenue(-) 564 731 569 844 719 530 0.9 26.3 Reimbursements 13 388 14 790 14 234 10.5 -3.8 Social security 163 355 182 008 211 968 11.4 16.5 Central Bank 1 959 2 242 2 508 14.4 11.8 Transfers to states and municipalities 133 076 127 684 140 678 -4.1 10.2 Total net revenue 583 582 611 620 779 094 4.8 27.4

Total expenditures 497 901 572 185 700 129 14.9 22.4

National Treasury 295 907 344 437 442 243 16.4 28.4 Social security 199 562 224 876 254 859 12.7 13.3 Central Bank 2 431 2 872 3 027 18.1 5.4 1/ Brazil Sovereing Fund 14 244 0 0 - -

2/ Central government result 71 438 39 436 78 966 -44.8 100.2 National Treasury 108 117 82 933 122 376 -23.3 47.6 Social security -36 207 -42 868 -42 891 18.4 0.1 Central Bank -472 -630 -519 33.4 -17.6

Primary result/GDP – % 2.4 1.2 2.2 - -

Source: Ministério da Fazenda/STN 1/ It refers to National Treasury deficit. 2/ (+) = surplus; (-) = deficit.

R$442.2 billion accounted for expenditure of the Treasury, R$254.9 billion for Social Security costs, and R$3 billion for the primary expenditures under the responsibility of the Central Bank.

Table 4.3 – Gross revenue of National Treasure R$ million Itemization 2008 2009 2010 Change % (a) (b) (c) (b)/(a) (c)/(b)

Total revenues 564 733 569 846 719 531 0.9 26.3

Taxes and contributions 484 701 470 684 546 285 -2.9 16.1 Other revenues 80 032 99 162 173 246 23.9 74.7 1/ Financial compensations 25 032 19 412 24 421 -22.5 25.8 Dirctly collected 22 470 23 534 27 363 4.7 16.3 Federal government dividends 13 364 26 683 22 414 99.7 -16.0 Grants 6 080 3 091 1 158 -49.2 -62.5 Assignment for consideration in oil prospection - - 74 808 - - Others 13 086 26 442 23 082 102.1 -12.7

Source: Ministério da Fazenda/STN 1/ Revenues from oil and natural gas output.

68 Boletim do Banco Central do Brasil – Annual Report 2010 Table 4.4 – National Treasure expenditures R$ million Itemization 2008 2009 2010 Change % (a) (b) (c) (b)/(a) (c)/(b)

Total expenditures 295 907 344 657 442 243 16.5 28.3

Personnel and social charges 130 829 151 653 166 487 15.9 9.8 Current and capital 164 036 191 825 274 514 16.9 43.1 Worker Support Fund 21 027 27 433 30 311 30.5 10.5 Economic subsidies and subventions 5 980 5 411 7 845 -9.5 45.0 Social security benefits 16 036 18 946 22 234 18.1 17.4 Petrobras capitalization - - 42 928 - - Other current and capital expenditures 120 993 140 035 171 196 15.7 22.3 Other current expenditures 92 724 105 898 124 090 14.2 17.2 Investiment 28 269 34 137 47 106 20.8 38.0 National Treasury's onlendings to Bacen 1 042 1 179 1 242 13.1 5.3

Source: Ministério da Fazenda/STN

Expenditures on personnel and social charges – currently working employees, retirees and pensioners – reached R$166.5 billion, 4.55% of GDP, against R$151.7 billion, 4.76% of GDP in 2009.

The current and capital expenditures totaled R$274.5 billion. It should be noted the annual growth of 43.1% was inﬂ uenced by Petrobras capitalization of R$42.9 billion. Excluding this operation, growth is reduced to 20.7%.

Investment expenditures reached R$47.1 billion, 38% higher than the spending in 2009. Expenditures with the Worker Support Fund (FAT) and welfare beneﬁ ts Social Assistance Law/Lifetime Monthly Income (Loas/RMV), inﬂ uenced by the minimum wage increase, totaled respectively, R$30.3 billion and R$22.2 billion, registering respective increases of 10.5% and 17.4%.

Nominal interest rate, appropriated on an accrual basis, accounted for 5.32% of GDP in 2010, falling in line with the trajectory of the average Selic rate, 0.05 p.p. of the GDP over the year. The nominal defi cit of the public sector totaled 2. 55% of GDP, compared to 3.34% of GDP in 2009. The fi nancing of this result occurred, following a similar pattern to the one observed in the previous year, through expansions of net banking debt, of securities debt, and other sources of domestic fi nancing, which include the monetary base, neutralized, in part, by the reduction recorded in the net external fi nancing.

IV Public Finance 69 Federal securities debt

The federal securities debt outside the Central Bank, estimated by the portfolio position, reached R$1,603.9 billion, 43.6% of the GDP at the end of 2010, compared to R$1,398.4 billion, 43.9% of the GDP in 2009. The annual decline reﬂ ected the net issues of R$36.8 billion, interest incorporation of R$169.1 billion, and the impact of R$0.4 billion due to the appreciation of the real against the dollar.

Table 4.5 – Uses and sources – Consolidated public sector

Itemization 2008 2009 2010 R$ million % of GDP R$ million % of GDP R$ million % of GDP

Uses 61 927 2.0 106 242 3.3 93 673 2.5 Primary -103 584 -3.4 -64 769 -2.0 -101 696 -2.8 Internal interest 167 957 5.5 171 177 5.4 194 475 5.3 Real interest 60 310 2.0 181 577 5.7 23 976 0.7 Monetary updating 107 647 3.6 -10 400 -0.3 170 499 4.6 External interest -2 446 -0.1 -167 -0.0 894 0.0

Sources 61 927 2.0 106 242 3.3 93 673 2.5 Internal borrowing 87 240 2.9 161 541 5.1 178 530 4.9 Securities debt 171 111 5.6 265 483 8.3 35 185 1.0 Banking debt -87 099 -2.9 -123 218 -3.9 100 867 2.7 Renegotiation ------State government ------Local government ------State enterprises ------Others 3 228 0.1 19 276 0.6 42 478 1.2 Relationship TN/Bacen 767 - - - - - External borrowing -26 080 -0.9 -55 299 -1.7 -84 857 -2.3

1/ GDP flows in 12 months 3 031 864 3 185 125 3 674 964

1/ GDP at current prices.

The securities under the National Treasury responsibility totaled R$2,307.1 billion in December 2010, of which R$703.2 billion is held by the Central Bank and R$1,603.9 billion is held by the market.

Regarding the distribution of securities by the indexing factor, the participation of ﬁ xed-rate securities rose from 33.7% of the total in December 2009 to 37.9% in December 2010, mainly due to net issuances of National Treasury Bills (LTN) and capitalized interest. The share of bonds indexed to the Selic rate, reﬂ ecting net redemptions of Treasury Financing Bills (LFT), decreased from 35.8% to 32.5%, while the share of bonds tied to the exchange rate went from 0.7% to 0.6% as a result of appreciation of the real. The share of securities indexed to the Reference Rate (TR) decreased from 1.2% to 0.8%, and the share of securities tied to price indices, went from 28.6% to

70 Boletim do Banco Central do Brasil – Annual Report 2010 Table 4.6 – Federal securities – Portfolio position

Balances in R$ million Itemization 2006 2007 2008 2009 2010

National Treasury liabilities 1 390 694 1 583 871 1 759 134 2 036 231 2 307 143

Central Bank portfolio 297 198 359 001 494 311 637 815 703 203 LTN 164 989 158 748 131 149 132 191 112 341 LFT 72 737 78 955 187 346 242 856 271 074 NTN 59 472 121 298 175 817 262 768 319 788 Securitized credits 0 0 0 0 0

Outside the Central Bank 1 093 495 1 224 871 1 264 823 1 398 415 1 603 940 LTN 346 984 325 149 239 143 247 270 354 731 LFT 412 034 409 024 453 131 500 224 521 705 BTN 39 27 30 18 13 NTN 296 598 451 132 538 380 621 479 701 128 CTN/CFT-A/CFT-B/CFT-C/CFT-D/CFT-E 14 532 13 903 14 306 12 851 13 141 Securitized credits 17 793 20 777 15 089 12 058 9 096 Agrarian debt 1 302 0 0 0 0 TDA 4 213 4 859 4 743 4 516 4 125 CDP 0 0 0 0 0

Central Bank liabilities 0 0 0 0 0 LBC ----- BBC/BBCA ----- NBCE - - - - - NBCF ----- NBCA -----

Outside the Central Bank – Total 1 093 495 1 224 871 1 264 823 1 398 415 1 603 940

In % of GDP 45.1 43.7 40.6 43.8 41.7

28.1%, reﬂ ecting net redemptions of National Treasury Note-Series B (NTN-B) and National Treasury Note-Series C (NTN-C).

Due to the strategy adopted to match the dollar amounts bought and sold, the Central Bank swap operations had zero exposure in 2010.

The Annual Financing Plan (PAF) of the federal public debt in 2010 deﬁ ned the following minimum and maximum limits to be met by the end of the year for the share of indexing factors in the total debt: ﬁ xed-rate securities, 31% and 37%; tied to price indices, 24% and 28%; tied to the over/Selic rate, 30% and 34%; linked to the exchange rate, 5% and 8%. In December, these percentages reached, respectively, 37.9%, 28.1%, 32.5% and 0.6%.

IV Public Finance 71 Graph 4.2 Federal public securities Participation by indexing factor

100

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Preset Over/Selic Price Indices Foreign exchange Others

Graph 4.3 Federal securitized debt structure Share – Portfolio position 40

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Foreign exchange Preset

Repo operations carried out in the open market, representing short and very short-term loans, reached R$288.7 billion in December, compared to R$454.7 billion in the same month in 2009, registering the net purchases of securities of R$202.1 billion, and interest capitalization of R$36.1 billion.

Table 4.7 – Federal public securities Percentage share by indexator – Portfolio position Index numbers 2005 2006 2007 2008 2009 2010

Total – R$ million 979 662 1 093 495 1 224 871 1 264 823 1 398 415 1 603 940

Foreign exchange 2.7 1.3 0.9 1.1 0.7 0.6 Reference Rate (TR) 2.1 2.2 2.1 1.6 1.2 0.8 IGP-M 7.0 6.4 5.8 5.1 4.6 4.5 Over/Selic 51.8 37.8 33.4 35.8 35.8 32.5 Preset 27.9 36.1 37.3 32.2 33.7 37.9 Long-term Interest Rate (TJLP) 0.0 0.0 0.0 0.0 0.0 0.0 IGP-DI 1.1 0.9 0.7 0.6 0.4 0.3 INPC 0.0 0.0 0.0 0.0 0.0 0.0 IPCA 7.4 15.3 19.8 23.6 23.6 23.3 Others 0.0 0.0 0.0 0.0 0.0 0.0

Total 100.0 100.0 100.0 100.0 100.0 100.0

72 Boletim do Banco Central do Brasil – Annual Report 2010 Table 4.8 – Repo operations – Open market Balances and percentage share R$ million Period Up to 1 month More than 1 month Total Balance % Balance % Balance

2003 Dec 43 742 78.5 11 975 21.5 55 717 2004 Dec 7 797 16.5 39 410 83.5 47 207 2005 Dec -24 430 -106.9 47 286 206.9 22 856 2006 Dec 5 800 9.7 54 231 90.3 60 030

2007 Mar 41 656 39.3 64 281 60.7 105 937 Jun 10 198 7.5 126 562 92.5 136 760 Sep 7 561 4.3 168 525 95.7 176 086 Dec -1 460 -0.9 167 274 100.9 165 813

2008 Mar 37 349 18.2 167 643 81.8 204 991 Jun 42 818 18.4 190 311 81.6 233 129 Sep 87 261 30.9 195 107 69.1 282 368 Dec 88 303 29.4 212 188 70.6 300 491

2009 Mar 124 877 33.7 246 066 66.3 370 943 Jun 68 826 17.8 316 797 82.2 385 624 Sep 60 179 14.0 369 497 86.0 429 676 Dec 31 846 7.4 396 029 92.6 427 874

2010 Mar 92 320 22.8 312 448 77.2 404 767 Jun 25 958 7.4 324 771 92.6 350 729 Sep 36 861 9.8 340 827 90.2 377 688 Dec 2 033 0.8 257 215 99.2 259 248

The amortization schedule of securities debt in the market, excluding ﬁ nancing operations, which refers to December 2010, showed that 21.3% of the debt matured in 2011, 18.8% in 2012, and 59.9%, from January 2013. The maturity structure for bonds maturing in 12 months, 21.3%, stood 2.7 p.p. below the limit set by 2010 PAF, of 24%. The average maturity of the debt in December closed at 40.3 months, 0.5 month below the limit set in the 2010 PAF, which set the range of 40.8 and 44.4 months.

Public Sector Net Debt

The Public Sector Net Debt (PSND) totaled R$1,475.8 billion in 2010, 40.2% of GDP, compared with 42.8% of GDP in 2009. This movement reﬂ ected the contributions of annual GDP growth, -5.7 p.p., and the annual accumulated primary surplus, -2.8 p.p. of GDP, partially neutralized by the impact of nominal interest rate appropriation, 5.3 p.p. of GDP; the exchange rate appreciation of 4.3% in the year, 0.5 p.p. of the GDP, and the recognition of debt, 0.1 p.p. of the GDP.

IV Public Finance 73 Table 4.9 – Public sector net debt growth

Itemization 2007 2008 R$ million % of GDP R$ million % of GDP

Total net debt – Balance 1 211 762 45.5 1 168 238 38.5

Net debt – Growth accumulated in the year 91 710 -1.7 -43 524 -7.0

1/ Conditioning factors (flows accumulated in the year): 91 710 3.4 -43 524 -1.4 Public sector borrowing requirements 74 460 2.8 61 927 2.0 Primary -88 078 -3.3 -103 584 -3.4 Nominal interest 162 538 6.1 165 511 5.5 2/ Exchange adjustment 21 396 0.8 -78 426 -2.6 Domestic securities debt indexed to exchange rate -2 432 -0.1 3 180 0.1 External debt 23 828 0.9 -81 606 -2.7 3/ External debt adjustment – Others -2 252 -0.1 -26 394 -0.9 Acknowledgement of debt -630 -0.0 135 0.0 Privatizations -1 265 -0.0 - 767 -0.0

4/ GDP Growfh effect – Debt -5.2 -5.6

GDP accumulated in 12 months – Valued 2 661 343 3 031 864

(continues)

Table 4.9 – Public sector net debt growth (concluded)

Itemization 2009 2010 R$ million % of GDP R$ million % of GDP

Total net debt – Balance 1 362 711 42.8 1 475 820 40.2

Net debt – Growth accumulated in the year 194 472 4.3 113 109 -2.6

1/ Conditioning factors (flows accumulated in the year): 194 472 6.1 113 109 3.1 Public sector borrowing requirements 106 242 3.3 93 673 2.5 Primary -64 769 -2.0 -101 696 -2.8 Nominal interest 171 011 5.4 195 369 5.3 2/ Exchange adjustment 80 886 2.5 17 677 0.5 Domestic securities debt indexed to exchange rate -3 414 -0.1 1 513 0.0 External debt 84 300 2.6 16 163 0.4 3/ External debt adjustment – Others 10 907 0.3 1 533 0.0 Acknowledgement of debt -345 -0.0 2969 0.1 Privatizations -3 217 -0.1 -2742 -0.1

4/ GDP Growth effect – Debt -1.9 -5.7

GDP in R$ million 3 185 126 3 674 964

1/ Net accumulated debt growth as percentage of GDP when considering all factors taken together GDP, divided by the current GDP accumulated in the last 12 month period valuated, calculated by the formula: (∑CondictioningFactors/GDPAccumulatedIn12Months)*100. Not reflecting debt growth as percentage of GDP. 2/ Indicates the sum of the monthly impacts up to the reference month. 3/ Includes adjustment of rate between the basket of currencies composing international reserves and the external debt as well as other adjustments in the external area. 4/ It takes into account the change in the ratio debt/GDP due to growth observed in GDP, calculated by the formula: Dt-1/(PIB present month/PIB base month)-Dt-1.

74 Boletim do Banco Central do Brasil – Annual Report 2010 The outstanding factors of growth in PSND composition in 2010 were the increase of the creditor amount linked to TJLP, in line with the federal government assets growth with the BNDES, compensated by growth in federal government’ securities debt, and growth in the share of ﬁ xed-rate debt. The average maturity of government securities, the most signiﬁ cant part of the PSND, increased from 40.48 months to 40.57 months in the year.

The General Government Gross Debt (GGGD), represented by the debits of the Federal Government, Social Welfare and regional governments, amounted to R$2,011.5 billion in 2010, representing 54.7% of the GDP. The annual reduction of 7.2 p.p. of GDP reﬂ ected the impact of growth in nominal GDP, 8.3 p.p., and net redemptions, 4.9 p.p., offset in part offset by the effect of nominal interest appropriation, 5.9 p.p. and debt recognition and parity adjustment of the currency basket comprising the net external debt, 0.1 p.p. each.

Table 4.10 – Public sector net debt

Itemization 2008 2009 2010 R$ million % of GDP R$ million % of GDP R$ million % of GDP

Fiscal net debt (G=E-F) 1 024 353 33.8 1 130 595 35.5 1 224 268 33.3 Internal debt methodological adjustment (F) 119 997 4.0 116 583 3.7 118 096 3.2 Fiscal net debt with exchange devaluation (E=A-B-C-D) 1 144 350 37.7 1 247 178 39.2 1 342 365 36.5 External debt methodological adjustment (D) -15 479 -0.5 79 727 2.5 97 424 2.7 Asset adjustment (C) 108 884 3.6 108 539 3.4 111 508 3.0 Privatization adjustment (B) -69 517 -2.3 -72 734 -2.3 -75 476 -2.1

Total net debt (A) 1 168 238 38.5 1 362 711 42.8 1 475 820 40.2 Federal government 760 249 25.1 971 724 30.5 1 044 518 28.4 Central Bank -31 922 -1.1 -39 189 -1.2 -43 401 -1.2 State governments 359 575 11.9 350 339 11.0 387 503 10.5 Local governments 55 379 1.8 56 066 1.8 63 264 1.7 State enterprises 24 958 0.8 23 771 0.7 23 937 0.7

Internal net debt 1 500 678 49.5 1 655 242 52.0 1 835 512 49.9 Federal government 633 793 20.9 876 731 27.5 957 322 26.0 Central Bank 451 188 14.9 368 999 11.6 430 187 11.7 State governments 343 521 11.3 335 899 10.5 368 599 10.0 Local governments 52 879 1.7 54 059 1.7 60 274 1.6 State enterprises 19298 0.6 19 554 0.6 19 131 0.5

Foreign net debt -332 440 -11.0 -292 532 -9.2 -359 692 -9.8 Federal government 126 456 4.2 94 993 3.0 87 196 2.4 Central Bank -483 110 -15.9 -408 188 -12.8 -473 588 -12.9 State governments 16 054 0.5 14 440 0.5 18 904 0.5 Local governments 2 500 0.1 2 007 0.1 2 989 0.1 State enterprises 5 660 0.2 4 217 0.1 4 806 0.1

GDP in R$ million 3 031 864 3 185 126 3 674 964

IV Public Finance 75 Collection of federal taxes and contributions

The collection of federal taxes and contributions, including contributions that make up the General Social Security System (RGPS), totaled R$805.7 billion in 2010, registering a real growth of 9.9% in the year, considered the IPCA as a deﬂ ator. This performance, driven by the impact of favorable trajectory of the Brazilian economy over the IPI

Table 4.11 – Gross and net government debt1/

Itemization 2008 2009 2010 R$ million % of GDP R$ million % of GDP R$ million % of GDP

Public sector net debt (A=B+K+L) 1 168 238 38.5 1 362 711 42.8 1 475 820 40.2 General government net debt (B=C+F+I+J) 1 175 203 38.8 1 378 129 43.3 1 495 285 40.7 General government gross debt (C=D+E) 1 740 888 57.4 1 973 424 62.0 2 011 522 54.7 Internal debt (D) 1 595 878 52.6 1 861 984 58.5 1 904 779 51.8 Foreign debt (E) 145 010 4.8 111 440 3.5 109 397 3.0 Federal government 126 456 4.2 94 993 3.0 87 503 2.4 State government 16 054 0.5 14 440 0.5 18 904 0.5 Local government 2 500 0.1 2 007 0.1 2 989 0.1

General government assets (F=G+H) -563 425 -18.6 -830 612 -26.1 -979 408 -26.7 Domestic assets (G) -563 425 -18.6 -830 612 -26.1 -979 100 -26.6 General government available assets -292 507 -9.6 -445 177 -14.0 -451 320 -12.3 Social security system investments -1 307 -0.0 -58 -0.0 -1 579 -0.0 Tax collected (not transferred) -1 639 -0.1 -1 767 -0.1 -2 035 -0.1 Demand deposits -8 351 -0.3 -7 746 -0.2 -7 517 -0.2 Federal government available assets in Central Bank -255 217 -8.4 -406 354 -12.8 -404 516 -11.0 Investment in the banking system (states) -25 993 -0.9 -29 252 -0.9 -35 673 -1.0 Credits with official financial institutions -43 087 -1.4 -144 787 -4.5 -256 602 -7.0 Hybrid capital and debt instruments -7 633 -0.3 -15 550 -0.5 -19 879 -0.5 Credits with BNDES -35 454 -1.2 -129 237 -4.1 -236 723 -6.4 Investment in funds -61 700 -2.0 -73 851 -2.3 -95 910 -2.6 Credits with public enterprises -18 977 -0.6 -16 518 -0.5 -15 274 -0.4 Other federal government's credits -10 974 -0.4 -10 249 -0.3 -13 634 -0.4 Worker assistance fund (FAT) -136 181 -4.5 -140 030 -4.4 -146 360 -4.0 Foreign credits (H) 0 0.0 0 0.0 -307 -0.0 Federal government 0 0.0 0 0.0 -307 -0.0 State government ------Local government ------

Central Bank available portfolio (I) 169 156 5.6 183 105 5.7 414 537 11.3

Exchange Equalization (J) -171 416 -5.7 52 212 1.6 48 634 1.3

Central Bank net debt (K) -31 922 -1.1 -39 189 -1.2 -43 401 -1.2

Public enterprises net debt (L) 24 958 0.8 23 771 0.7 23 937 0.7

GDP in R$ million 3 031 864 3 185 126 3 674 964

1/ Includes federal, state and local government debt, with other economic agents, including the Central Bank.

76 Boletim do Banco Central do Brasil – Annual Report 2010 infl ow, the income tax on labor income, the Social Integration Program/Civil Service Asset Formation Program (PIS/Pasep), of Cofi ns and social security contributions, refl ected the following changes in the tax structure: i) increase in the IOF rate levied on exchange operations settlements in the case of fund infl ows into the country, carried out by a foreign investor for investment in fi nancial and capital markets; ii) as of March 31, 2010, terminate the temporary reduction in IPI rates levied on motor vehicles; iii) increase by 6.58% the average effective rate of import duty, emphasizing the additional impact of this increase derived from the annual growth of imports; iv) increase the rates of Contribution on Intervention in the Economic Domain (Cide) – fuels levied on gasoline and diesel, as from triggering events of June 2009, combined with compensations carried out in 2009; and extraordinary revenue of R$4 billion of the PIS/Pasep in December 2010, due to judicial deposits made by fi nancial institution.

Table 4.12 – Gross federal revenues R$ million Itemization 2008 2009 2010 Change % (a) (b) (c) (b)/(a) (c)/(b)

Income Tax (IR) 191 755 191 598 208 201 -0.1 8.7 Industrialized Products Tax (IPI) 39 466 30 752 39 991 -22.1 30.0 Import Tax (II) 17 235 16 092 21 119 -6.6 31.2 Financial Operations Tax (IOF) 20 342 19 244 26 601 -5.4 38.2 Contribution to the Financing

of the Social Security (Cofins) 120 800 117 887 139 690 -2.4 18.5 Social Contrib. on the Profits of Legal Entities (CSLL) 43 972 44 238 45 928 0.6 3.8 Contribution to PIS/Pasep 31 598 31 755 40 548 0.5 27.7 Provisional Contribution on

Financial Transactions (CPMF) 1 150 286 119 -75.1 -58.4 Contribution on Intervention in the

Economic Domain (Cide) 5 985 4 827 7 738 -19.3 60.3 Other taxes 32 895 40 873 42 164 24.3 3.2 Subtotal 505 198 497 552 572 099 -1.5 15.0

Social security revenue 180 476 200 737 233 609 11.2 16.4

Total 685 674 698 289 805 708 1.8 15.4

Source: Ministério da Fazenda/Receita Federal do Brasil

Tax infl ows regarding the Corporate Income Tax (IRPJ) and Social Contribution on Net Corporate Profi t (CSLL) registered annual increases of 5.4% and 3.8%, respectively. These results, below the average of the collection of federal taxes and contributions, refl ected in particular the impact of global crisis on corporate profi ts in 2009.

IV Public Finance 77 Table 4.13 – Income Tax and Industrialized Products Tax R$ million Itemization 2008 2009 2010 Change % (a) (b) (c) (b)/(a) (c)/(b)

Income Tax (IR) 191 755 191 598 208 201 -0.1 8.7 Individuals 14 987 14 840 17 252 -1.0 16.3 Corporate entities 84 726 84 519 89 101 -0.2 5.4 Financial institutions 12 635 13 610 13 118 7.7 -3.6 Other companies 72 091 70 909 75 983 -1.6 7.2 Withholdings 92 042 92 239 101 848 0.2 10.4 Labor earnings 51 610 52 179 59 823 1.1 14.6 Capital earnings 24 853 22 926 24 185 -7.8 5.5 Remittances abroad 9 565 10 657 11 297 11.4 6.0 Other earnings 6 014 6 477 6 542 7.7 1.0 Industrialized Products Tax (IPI) 39 465 30 752 39 991 -22.1 30.0 Tobaco 3 210 3 312 3 705 3.2 11.9 Beverages 2 437 2 291 2 419 -6.0 5.6 Automotive vehicles 6 001 2 054 5 672 -65.8 176.1 Other taxes 17 415 14 685 16 874 -15.7 14.9 Linked imports 10 402 8 410 11 321 -19.2 34.6

Source: Ministério da Fazenda/Receita Federal do Brasil

Social Security System

The RGPS registered a deﬁ cit of R$42.9 billion in 2010, the same level of the previous year, representing 1.17% of the GDP, compared to 1.35% of the GDP in 2009. Revenues totaled R$212 billion, rising 16.5% in the period, a result associated, in particular, with the impact of higher salaries on the payroll contributions.

The benefi t expenses totaled R$254.9 billion. The annual increase of 13.3% refl ected, fundamentally, the increases indicated in the average value of benefi ts paid by the Social Welfare, 8.8%, due to the minimum wage increase and benefi ts increase with values above the minimum wage; on the average amount monthly benefi ts paid, 3.2% and the payment of mandatory judicial payments and judicial decisions, 11.1%.

State and municipal ﬁ nances

The collection of the Tax on the Circulation of Mechandises and Services (ICMS) totaled R$269.5 billion in 2010, registering a real growth of 12.1% in the year, considering the IPCA as a deﬂ ator, with emphasis on the dynamism of the electrical, telephone, and fuels and beverages sectors. The steepest increases occurred in Pernambuco, 16.6%; Goiás, 15.8%; Minas Gerais, 15.9%; and Santa Catarina, 15.7%, while the collection in the state of São Paulo, representing 34.2% of the total, grew 12% in the period.

78 Boletim do Banco Central do Brasil – Annual Report 2010 Transfers from the Union to the states and municipalities totaled R$140.7 billion, an increase of 10.2% in the year, highlighting growth of 26.9% in royalty’s payments.

Table 4.14 – Social Security R$ million Itemization 2008 2009 2010 Change % (a) (b) (c) (b)/(a) (c)/(b)

Net inflow 163 355 182 008 211 968 11.4 16.5 Gross inflow 180 891 201 172 234 252 11.2 16.4 Social security contribution 167 758 183 110 212 558 9.2 16.1 Other revenues 13 133 18 062 21 694 37.5 20.1 Refund 545 555 740 1.8 33.3 Transfers to third parties 16 991 18 609 21 544 9.5 15.8

Social security benefits 199 562 224 876 254 859 12.7 13.3

Primary result -36 207 -42 868 -42 891 ......

Source: Ministério da Previdência e Assistência Social

Graph 4.4 Social security Primary flows in (%) of GDP current prices 8

4 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Tax revenue Social benefits

IV Public Finance 79 Table 4.15 – Payment of the Tax on the Circulation of Merchandise and Services (ICMS) R$ million Itemization 2008 2009 2010 Change % (a) (b) (c) (b)/(a) (c)/(b)

São Paulo 76 322 78 507 92 317 2.9 17.6 Rio de Janeiro 17 836 19 100 23 002 7.1 20.4 Minas Gerais 23 214 22 349 27 188 -3.7 21.7 Rio Grande do Sul 14 825 15 087 17 265 1.8 14.4 Paraná 11 767 12 336 13 773 4.8 11.7 Bahia 10 239 10 143 12 143 -0.9 19.7 Santa Catarina 7 944 8 528 10 366 7.4 21.6 Goiás 6 143 6 717 8 170 9.3 21.6 Pernambuco 6 209 6 866 8 411 10.6 22.5 Espírito Santo 7 001 6 670 6 965 -4.7 4.4 Other states 41 669 42 975 50 330 3.1 17.1

Total 223 168 229 278 269 930 2.7 17.7

Source: Ministério da Fazenda/Confaz

Table 4.16 – Federal government onlendings to states and municipalities R$ million Itemization 2008 2009 2010 Change % (a) (b) (c) (b)/(a) (c)/(b)

Constitutional onlendings (IPI, IR and others) 101 881 97 561 105 745 -4.2 8.4 Export Compensation Fund 1 640 1 950 1 950 18.9 0.0 Cide transfers 1 579 962 1 776 -39.1 84.6 Others 27 976 27 211 31 207 -2.7 14.7 Financial assistance 3 576 3 818 3 266 6.8 -14.5 ITR/IOF 173 237 366 37.0 54.4 Royalties 15 800 12 199 15 481 -22.8 26.9 Education allowance 0 5 755 6 554 - 13.9 Fundeb 3 200 5 070 5 353 58.4 5.6 1/ Others 5 227 132 187 -97.5 41.7

Total 133 076 127 684 140 678 -4.1 10.2

Source: Ministério da Fazenda/Secretaria do Tesouro Nacional 1/ Contribution of education benefit, fund for the maintainance and development of the basic education and enhancement of the teaching career (Fundef), petrol royalties and other onlendings.

80 Boletim do Banco Central do Brasil – Annual Report 2010 V Economic-Financial Relations with the International Community

Foreign trade policy

Within the appreciation context of the real and relatively modest global economy recovery, on May 5 the Brazilian government introduced important foreign trade policy measures to create favorable conditions for increased Brazilian exports competitiveness, emphasizing: i) greater agility in federal tax credits return: it states that companies that have exported at least 30% of sales results in the past two years, within 30 days of request will receive 50% of the accumulated PIS/Pasep, Contribution to Social Security Financing (Cofi ns) and IPI in such operations. Exporter must be in business at least for 4 years, be taxed on actual profi ts, use electronic invoice, and hold a record of refused reimbursement requests not exceeding 15% of total requested in the past two years. In the Directive no. 348, of June 16, Ministry of Finance established reimbursement procedure on credits as of debts verifi ed as of April 1, 2010, and in Normative Instruction no.1.060, of 3 August, Brazilian Federal Revenue regulated the matter; ii) export revenues exclusion from total revenues for classifi cation under Integrated System of Tax and Contribution Payments for Micro and Small Businesses (SIMPLES): exemption being equal to R$2.4 million per year limit set for domestic revenue. It is noteworthy that micro and small enterprises account for 1.2% of export value and 48.3% of the number of exporting companies; iii) drawback exemption in the internal market created by Provisional Measure no. 497, of July 27, 2010, converted into Law no. 12.350, of December 20, provides that national inputs used in exports in the period t-1 can be purchased at period t, at zero ICMS rate; iv) within six months abolishes the 40% tax reduction on imported auto parts; v) creation of the Foreign Trade Guarantee Fund (FGCE), managed by BNDES, allowing greater fl exibility in guarantees, covering commercial risk, and payments based on risks taken; vi) setting up of Brazil Export Credit Agency (EXIM Brazil), an integral BNDES subsidiary, a foreign trade agency to provide greater speed and effective support to exports post-shipment operations, by transferring external trade operations to the EXIM Brazil; and

V Economic-Financial Relations with the International Community 81 vii) reducing consumer goods export fi nancing cost by extending to such products National Treasury interest rates equalization on pre-shipment export fi nancing, previously restricted to capital goods. This measure was regulated by Resolution no. 3,851, of April 29, and subsequently amended by Resolution no. 3,910, of September 30, extending the contract deadline from December 31, 2010 to March 31, 2011. Resources for such fi nancing, amounting to R$7 billion, were provided by the BNDES.

In July, BNDES created a line of credit called Automatic EXIM, a post-shipment buyer’s credit for South American countries, with three to ﬁ ve years maturities. Post-shipment cash disbursements in reais are made to exporters in Brazil, the relevance of such credit line being the concentration of Brazilian capital goods exports to countries of the region.

In the year, BNDES disbursements tied to foreign trade operations, including services, totaled US$11.2 billion, against US$8.3 billion in 2009, accounting for 5.6% of Brazilian exports. For industry it disbursed US$9.9 billion, encompassing 1.081 operations, mostly in transportation equipments (manufacturing and assembling of motor vehicles, boats, aircraft and railway equipments), responding for 310 operations and US$3.7 billion, followed by the mechanical sector, with 279 operations and US$1.8 billion. The trade and services sector absorbed disbursements of US$1.3 billion, in 183 transactions, and agriculture US$30 million in ﬁ ve transactions. BNDES foreign trade disbursements increased 34.9% in the year, given a 32% annual exports growth.

In 2010, the Export Financing Program (Proex) operations totaled US$4,043.6 million, US$504.9 million related to the ﬁ nancing and US$3,538.7 million to interest rate equalization.

In ﬁ nancings there was a reduction from 1,509 to 1,478 transactions and from 400 to 371 in relation to exporters. In 2010, the main economic sectors using Proex-Financing were agribusiness, 57%, followed by textile, leather and footwear, 26%; and machinery and equipment, 11%. The main economic destination blocs or regions under this Proex facility were Cuba, 37%; EU, 25%; Apec, 18%.

Securities issued backed by interest rate equalization totaled US$118.3 million, compared with US$157.8 million in 2009. In the year, 2.657 operations were performed by 31 exporters, compared to 2,513 in 2008, involving 35 companies. A sectoral analysis shows that transportation responds for 46% of export value, including Brazilian Aviation Company (Embraer) sales abroad, followed by machinery and equipment, 36%, and services 18%. Main export Proex-Equalization destinations were the European Union, 37%; African countries, 20%; North American Free Trade Agreement (Nafta) and Latin American Integration Association (Aladi) countries, 13% each; Southern Common Market (Mercosur), 8%. Larger companies accounted for 57% of exports value, compared to 86% in 2009.

82 Boletim do Banco Central do Brasil – Annual Report 2010 As far as trade defense measures are concerned, noteworthy is the Foreign Trade Chamber Resolution no. 63, of August 17, approval and Ministry of Development, Industry and Foreign Trade (MDIC) Directive no. 18 and 21, of August 18 and October 25 respectively, regulating anti-dumping or countervailing measures against omission practices also called bypass or triangulation.

Still on trade defense measures, Resolution no. 43, June 17, Foreign Trade Chamber, regulated the Brazil – United States agreement, suspending until 2012 assets and intellectual property retaliation. As part of negotiated compensations, a US$147.3 million annual fund was created to support domestic cotton growers, handled by a management council comprised by three private sector and three Brazilian government representatives. The World Trade Organization (WTO) authorized retaliation resulted from US failure to comply with its cotton panels determination and its appealing body.

Also in the context of trade defense, by year end, 68 anti-dumping measures were in force. Out of which one on price and other safeguards respecting 44 products of 20 countries or bloc of countries, with emphasis on China, US and India. This year, four anti-dumping measures were applied against China on footwear, synthetic ﬁ ber blankets and ballpoint pens, and one against the United States and Mexico on polyvinyl chloride resin.

On December 28, the Foreign Trade Council (Camex) Resolution no. 92; of December 27, 2010, increased import duty rate from 20% to 35% on 14 types of ﬁ nished toys, up to December 31, 2011, which mostly affected Chinese manufactured toys, which responded for approximately 80% of such imports.

In December, at the close of the Brazilian pro tempore presidency at Foz de Iguazu, Mercosur Common Market Council Decision no. 56/10 set the ten-year schedule to eliminate exceptions to the common external tariffs so as to consolidate the block as a customs union. Another step in this direction, set forth by Decision no. 57/10 was the revision of Capital Goods and Information System and Telecommunication Goods Common Regime on Imports, to come into force as of January 1, 2013, for Argentina and Brazil, and as of January 1, 2015; for Paraguay and Uruguay. The ex-tariff regime allows import duty reduction for capital goods, information system and telecommunications goods not produced in Mercosur countries.

In May 2010, free trade agreement negotiations between Mercosur and the EU were resumed. Mercosur partners require deﬁ nitions on European agricultural subsidies, while the EU is concerned with Mercosur industrial opening. Noteworthy is the fact that this negotiating process in a sense reproduces the difﬁ culties that blocked the completion of the WTO Doha Round since the end of 2008.

V Economic-Financial Relations with the International Community 83 In the Brazilian legislative level, Decree no. 7,159, of April 27, 2010, enacted Free Trade Agreement between Mercosur and Israel, signed in Montevideo on December 18, 2007. By Decree no. 217, of April 7, the Framework Agreement between Mercosur and the Arab Republic of Egypt was approved, and signed in Puerto Iguazu, Argentina, on July 7, 2004.

Among foreign trade operations facilitating measures, Foreign Trade Bureau Directive no. 10, of May 25, 2010, consolidated foreign trade operations standards and procedures. Siscomex Export Web (Novoex) was designed to replace Siscomex Export module, with direct Internet access without any additional software required on users computers. The system allows user to save Exports Registrations (ERs) and Credit Registration (CRs). CRs register both private and public export ﬁ nancings. With new features, Novoex enables the use of previously recorded information for future and ERs allotting. It also provides a more interactive interface, greater visibility of the process both by the exporter and the consenting party, and allows previous ER simulation. Novoex is running as of November 17 combined with the old system, which will cease to operate in January 2011, as set forth by Foreign Trade Secretariat Directive no. 29, of December 8, 2010.

Another regulatory change pertaining to preference facility resulting from a trade agreement was introduced by MDIC Foreign Trade Secretariat Directive no. 33, published on December 28, 2010. Such measure provided for more stringent criteria on certiﬁ cate of origin, a document certifying the origin of the goods and ensuring it was produced based on previously established criteria. Such measure further provides institutions to adopt an on line system to process such document with digital signatures, to be implemented as of July 1, 2011.

On June 29, 2010, National Board on Export Processing Zones (CZPE) Resolution no. 8 established procedures to declare forfeiture of the act creating Export Processing Zone (ZPE). Up to October 1994, there were ten approved ZPEs with July 1, 2010; deadline to evidence the setting up of managing companies and infrastructure works. In 2010 a decree was published creating the following ZPEs: Aracruz (ES), Suape (PE), Macaíba (RN), Assu (RN), Pecém (CE), Fernandópolis (SP), Bataguassu (MS), Boa Vista (RR), Aracruz (ES), Parnaíba (PI), Senador Guimard (AC), Barra dos Coqueiros (SE).

Exchange policy

Through the year, foreign exchange policy aimed at preventing foreign currency liquidity to produce excessive volatility and imbalances in the exchange market. Within this background the Central Bank maintained a policy of strengthening international reserves, buying US$42 billion net total in the year.

84 Boletim do Banco Central do Brasil – Annual Report 2010 Fixed income foreign capital operations IOF rate was increased from 2% to 4% on October 4, 2010, by Decree no. 7,323, and 4% to 6% on October 18, by Decree no. 7,330. Additionally, IOF rate on the margin requirements for foreign investment on stock exchanges, commodities and futures was increased from 0.38% to 6%, thus requiring the implementation of such measure to all futures market operations.

Furthermore, National Monetary Council Resolution no. 3,914, of October 19, precluded securities rental, trade and lending, equity and gold as a ﬁ nancial asset held by ﬁ nancial institutions and others authorized to operate by the Banco Central do Brasil to non-resident investor.

CMN Resolution no. 3,912 and 3,915, of October 7 and 28, 2010; respectively, required foreign exchange contract to be drawn on all internal migration of funds in reais, coming from equity investments by non-resident investor carried out on a stock or futures and commodities exchange, including those earmarked for initial or additional margin requirements. Thus the possibility of non-resident investor to make foreign investment in the equities market was eliminated by a 2% IOF rate charge, subsequently redirected to the ﬁ xed income market, charging a 6% rate.

So as to match foreign exchange market supply and demand, CMN Resolution no. 3,911, of October 6, 2010, was issued increasing National Treasury deadline from 750 days to 1,500 days to buy dollars in the market to service the Federal Public External Debt (DPFe). National Treasury continued on its strategy of acquiring foreign currency for external debt interest and principal payment, amounting to US$9.3 billion settlements. Additionally, in order to extend maturities, reduce costs, and increase sovereign debt yield curve points, Global 41 and BRL 28 were respectively reopened in September and October, totaling US$550 million and US$655 million each and amounting to US$655 million.

Currency swap agreement with the Federal Reserve (Fed), established by CMN Resolution no. 3,631, of October 30, 2008, twice extended, and closed on February 1, 2010.

CMN Resolution no. 3,833, of January 28, introduced the mandatory registration of hedge operations carried out with fi nancial institutions or on foreign exchanges abroad. Such registration by fi nancial institutions and others authorized to operate by the Banco Central do Brasil is carried through a system administered by registration and fi nancial assets settlement institutions authorized by the Central Bank or the Securities and Exchange Commission. Such institution must hold documents on hedge operations records. Due to operating system adequacy need of all parties involved in registering such operations, the ruling became effective as of March 15, 2010.

V Economic-Financial Relations with the International Community 85 Banco Central do Brasil Circular no. 3,506, of September 23, 2010, introduced a new methodology for calculating the System of Exchange Rate Control and Information (Ptax) and its implementation schedule. Ptax calculation will be carried through four daily visits to accredited foreign exchange dealers and each query results will be deﬁ ned by their respective average price, excluding the two highest and two lowest values reported. PTAX rate resulting from the simple arithmetic average of such visits will be released around 13:00 hours. Ratiﬁ cation of the new methodology will be January 21, 2011, and previous methodology will be replaced on July 1, 2011.

National Monetary Council Resolution no. 3,854, of May 27, 2010, set forth a mandatory quarterly tax return afﬁ davit for individual and legal persons holding over US$100 million total overseas assets. Such statement reference dates are: March 31, June 30, and September 30 of each year. Individual and legal persons holding over US$100 million total overseas assets on December 31 of each year are also required to submit an annual declaration of Brazilian capital abroad.

Resolution no. 3,844, of March 24, 2010, consolidated general provisions on foreign capital in the country concerning registration of direct investment ﬂ ows, foreign credits, royalties, technology transfers and leases abroad.

Banco Central do Brasil Circular no. 3,491, of March 24, 2010, regulated the above referred matter. Provisions therein were included in the International Exchange and Capital Market Regulations (RMCCI), under speciﬁ c title and chapters, to organize and systematize the existing regulatory framework.

Main innovations were: i) fi nancial transfers to and from abroad, in national or foreign currency, under CMN Resolution no. 3,844 on foreign capital fl ows, became subject to Brazilian foreign exchange market general rules. Therefore, in compliance with the principles of legality, economic fundamentals, and documents support; ii) Central Bank specifi c authorization or previous manifestation was abolished; and iii) agents involved were exempted from providing information to the Central Bank obtainable through other sources and/or internal mechanisms.

In addition, CMN changed rules on Depositary Receipts (DR) transfers abroad, and provided by CMN Resolution no. 3,845, of March 24, 2010, companies resident in the Country issuing and/or offering DR to maintain its results abroad. However, this rule does not apply to fi nancial institutions DR, which are subject to specifi c rules. For the purpose of foreign investment record updating at the Central Bank, such transfers amount not entered the country within fi ve days automatically is considered by the national custodian as held abroad. Should the foreign investor chose redemption and registration of DR under a new type of investment, for example, foreign direct investment or fi xed

86 Boletim do Banco Central do Brasil – Annual Report 2010 income, change is conditional upon simultaneous foreign exchange operation, pursuant to Banco Central do Brasil Circular no. 3,492, of March 24, 2010.

Continuing the Brazilian foreign exchange market enhancing process, Banco Central do Brasil Circular no. 3,493, of March 24, 2010, updated RMCCI, and following changes are noteworthy: i) elimination of simultaneous exchange contracts requirement in premiums and indemnities linked to international reinsurance payment, when carried through foreign currency account held by the insurer; ii) authorization to Brazilian non-bank fi nancial institutions authorized to deal in foreign exchange to maintain more than one foreign currency account in the same Brazilian city, thus increasing competition in international transfer negotiation carried by such agents, benefi ting both senders and recipients of foreign currency funds; iii) dispensing specifi c registration form for foreign exchange transactions, given that general rules to prevent and combat money laundering already require it; iv) permission to foreign exchange facilities of institution authorized to operate in the foreign exchange market to perform the same operations allowed to its agencies, thus expanding the supply of banking services; v) creating a specifi c section to process payment orders from abroad made in reais; and vi) extending settlement term on National Treasury Secretariat contracts from 360 days to up to 750 days as from such contracting date, so as to match the terms of Treasury operations with those of foreign exchange transactions carried out in the interbank market.

Brazilian Federal Revenue Normative Instruction no. 1,092, of December 2, 2010; set forth provision on Information Statement of Financial Operations (Dimof), following Normative Instruction no. 811, of January 28, 2008, on foreign exchange transactions data required regarding foreign currency purchase, exchange into domestic currency, and foreign exchange transfers abroad.

Exchange movement

In a high international liquidity scenario, where emerging economies kept absorbing signifi cant foreign capital infl ows, the Brazilian foreign exchange market recorded net infl ows of US $24.4 billion in 2010, against US$28.7 billion in the previous year.

Trade segment registered a US$1.7 billion deﬁ cit against a US$9.9 billion surplus a year earlier, due to 22.1% and 32.3% respective increases in exports and imports contracts, which respectively totaled US$176.6 billion and US$178.2 billion respectively. Financial sector, in contrast, yielded a US$26 billion net inﬂ ow against US$18.8 billion in 2009, resulting from 12.5% and 11% respective increases in foreign currency purchase and sales contracts.

V Economic-Financial Relations with the International Community 87 Table 5.1 – Foreign exchange operations US$ million Period Commercial Financial Balance Exports Imports Balance Purchases Sales Balance

Total Advances Payment Other on export in (A) (B) (C) contracts advance = (A)+(B)

2008 187 984 46 110 45 305 96 569 140 084 47 900 421 240 470 123 -48 883 -983

2009 Jan 10 261 2 392 1 515 6 354 9 729 532 18 397 21 947 -3 550 -3 018 Feb 10 482 2 625 1 902 5 954 7 611 2 871 16 382 18 412 -2 030 841 Mar 12 202 3 232 2 863 6 107 9 098 3 104 22 022 25 923 -3 901 -797 Apr 13 801 2 400 4 115 7 285 8 884 4 917 21 267 24 754 -3 487 1 430 May 12 390 2 746 4 532 5 112 10 838 1 551 27 538 25 955 1 583 3 134 Jun 11 975 2 960 2 939 6 076 12 123 -148 34 999 33 776 1 223 1 076 Jul 9 886 2 107 2 320 5 459 12 719 -2 833 33 881 29 778 4 103 1 270 Aug 12 867 2 459 3 238 7 170 11 529 1 339 25 830 24 212 1 618 2 957 Sep 9 819 2 477 2 112 5 231 13 044 -3 225 32 186 27 597 4 590 1 365 Oct 14 304 2 596 2 444 9 265 12 812 1 492 39 705 26 599 13 106 14 598 Nov 13 148 2 485 3 677 6 986 11 689 1 458 24 863 22 432 2 432 3 890 Dec 13 532 2 895 4 195 6 442 14 666 -1 135 39 186 36 065 3 120 1 986 Year 144 666 31 374 35 851 77 441 134 742 9 924 336 257 317 450 18 808 28 732

2010 Jan 10 723 3 332 1 481 5 910 10 863 -140 23 083 21 868 1 215 1 075 Feb 10 085 2 684 2 541 4 860 12 371 -2 285 23 765 21 879 1 886 -399 Mar 16 221 3 202 3 658 9 361 13 826 2 394 27 829 28 109 -280 2 114 Apr 12 750 3 035 2 684 7 031 13 389 -639 27 897 25 010 2 887 2 248 May 16 301 3 355 4 070 8 876 13 631 2 671 30 494 30 560 -66 2 605 Jun 13 961 3 025 3 892 7 043 14 749 -788 24 959 28 450 -3 491 -4 279 Jul 13 984 2 774 4 335 6 875 14 762 -777 28 655 27 166 1 490 712 Aug 14 984 3 250 3 162 8 572 16 868 -1 884 27 502 26 299 1 203 -680 Sep 14 741 2 622 3 984 8 136 17 730 -2 989 49 171 32 456 16 716 13 726 Oct 17 195 3 408 3 500 10 288 15 418 1 777 34 550 29 409 5 141 6 917 Nov 17 338 3 603 3 424 10 311 16 836 502 27 332 25 609 1 722 2 225 Dec 18 306 3 328 4 438 10 540 17 797 509 53 118 55 536 -2 418 -1 910 Year 176 590 37 618 41 169 97 802 178 240 -1 650 378 355 352 351 26 004 24 354

Central Bank performance in the foreign exchange market resulted in net purchases of US$42 billion, from US$36.5 billion in 2009, of which US$41.4 billion in the spot market and US$535 million returns on foreign currencies loans.

Banks’ foreign exchange position went from US$3.4 billion purchased at the end of 2009, to US$16.8 billion sold at the end of 2010.

The real recorded a 4.31% nominal appreciation against the US dollar in 2010, with a Ptax sale price of R$1.6662/US$ . Real effective exchange rate index, deﬂ ated by the Broad Producer Price Index – Domestic Supply (IPA-DI) and by the IPCA, recorded 11% and 7.7% respective appreciation in the year.

88 Boletim do Banco Central do Brasil – Annual Report 2010 Balance of payments

The consolidation of the Brazilian economic recovery process in 2010 resulted in increased demand for imported goods and services, and increased net remittances of income abroad, with an impact on current account deﬁ cit, which totaled a record US$47.4 billion in the year. Conversely, the country’s macroeconomic stability

Table 5.2 – Balance of payments US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Trade balance (FOB) 13 909 11 381 25 290 7 884 12 337 20 221 Exports 69 952 83 043 152 995 89 187 112 728 201 915 Imports 56 043 71 662 127 705 81 303 100 391 181 694 Services -8 115 -11 130 -19 245 -13 512 -17 295 -30 807 Credit 12 731 14 997 27 728 14 864 16 957 31 821 Debit 20 846 26 128 46 974 28 376 34 252 62 628 Income -14 635 -19 050 -33 684 -19 731 -19 835 -39 567 Credit 4 689 4 137 8 826 3 124 4 229 7 353 Debit 19 324 23 186 42 510 22 855 24 064 46 919 Current unilateral transfers (net) 1 664 1 673 3 338 1 512 1 276 2 788 Credit 2 303 2 432 4 736 2 344 2 316 4 661 Debit -639 -759 -1 398 -833 -1 040 -1 873 Current account -7 177 -17 125 -24 302 -23 847 -23 518 -47 365 Capital and financial account 18 691 52 610 71 301 42 950 56 712 99 662 1/ Capital account 581 548 1 129 494 625 1 119 Financial account 18 110 52 062 70 172 42 456 56 087 98 543 Direct investment (net) 14 464 21 569 36 033 3 215 33 704 36 919 Abroad 1 798 8 286 10 084 -8 881 -2 638 -11 519 Equity capital -1 190 -3 355 -4 545 -12 110 -14 673 -26 782 Intercompany loans 2 988 11 641 14 629 3 229 12 035 15 263 In the reporting country 12 665 13 283 25 949 12 096 36 342 48 438 Equity capital 7 718 12 188 19 906 12 256 27 860 40 117 Intercompany loans 4 948 1 095 6 042 -160 8 481 8 321 Portfolio investments 1 397 48 886 50 283 22 790 40 221 63 011 Assets -866 4 990 4 125 -375 -4 408 -4 784 Equity securities -524 3 106 2 582 896 5 315 6 211 Debt securities -342 1 884 1 542 -1 271 -9 724 -10 995 Liabilities 2 263 43 896 46 159 23 166 44 629 67 795 Equity securities 3 030 34 041 37 071 9 737 27 948 37 684 Debt securities -768 9 855 9 087 13 429 16 682 30 111 Financial derivatives 212 -56 156 -17 -95 -112 Assets 294 29 322 74 59 133 Liabilities -81 -85 -166 -91 -154 -245 2/ Other investments 2 037 -18 337 -16 300 16 468 -17 743 -1 274 Assets -12 361 -18 015 -30 376 -12 079 -30 496 -42 575 Liabilities 14 399 -323 14 076 28 547 12 753 41 301 Errors and omissions -96 -251 -347 -2 437 -760 -3 197 Overall balance 11 417 35 234 46 651 16 666 32 434 49 101

Memo: Current account/GDP (%) -1.15 -1.76 -1.52 -2.32 -2.21 -2.27 3/ Medium and long term amortizations 12 310 17 811 30 121 15 964 17 880 33 844

1/ Includes migrants' transfers. 2/ Includes trade credits, loans, currency and deposits, other assets and liabilities and exceptional financing. 3/ Includes medium- and long-term trade credit repayments, medium- and long-term loan repayments, redemptions of medium and long-term debt instruments issued abroad. Excludes Monetary Authority loan repayments and intercompany loan repayments.

V Economic-Financial Relations with the International Community 89 Graph 5.1 Foreign direct investments and external financing requirements In 12 months 2 1 0 -1 % -2 -3 -4 -5 -6 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2007 2008 2009 2010 Current account balance/GDP External financing requirements/GDP External financing requirements = current account deficit - net foreign direct investments

expressed in downward risk expectations and increasing investment returns, favored a US$99.7 billion net inﬂ ow in the capital and ﬁ nancial account. The balance of payments surplus totaled US$49.1 billion in 2010.

Table 5.3 – Trade balance – FOB US$ million Year Exports Imports Balance Trade flow

2009 152 995 127 722 25 272 280 717

2010 201 915 181 649 20 267 383 564

% change 32.0 42.2 -19.8 36.6

Source: MDIC/Secex

Graph 5.2 Exports and imports – FOB Last 12 months (% change)1/ 60 45 30 15 0 -15 -30 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2006 2007 2008 2009 2010

Exports Imports Source: MDIC/Secex 1/ From the same period of the previous year.

Trade balance

Trade balance registered a US$20.3 billion surplus in 2010, the tenth consecutive positive result. The 19.8% drop over the previous year reﬂ ected respective 42.2% and 32% imports and exports annual increases, which respectively totaled US$181.6 billion

90 Boletim do Banco Central do Brasil – Annual Report 2010 and US$201.9 billion. In the ﬁ nal months of the year, this dynamics showed signs of change, when the pace of growth in imports decelerated. After 2009 retraction, trade ﬂ ow went up 36.6% in 2010.

Graph 5.3 Terms of trade index 2006 = 100 130

122

114

106

90 II Q IV Q II Q IV Q II Q IV Q II Q IV Q II Q IV Q II Q IV Q II Q IV Q 2004 2005 2006 2007 2008 2009 2010 Source: Funcex

Trade terms maintained the 2009 expansion trend, reaching through the year, consecutive records. This performance and increased volume of traded goods drove up foreign trade ﬂ ow acceleration in 2010.

Table 5.4 – Exports price and volume indices Change from the previous year (%) Itemization 2009 2010 Price Volume Price Volume

Total -13.4 -10.7 20.5 9.5

Primary products -17.5 2.9 30.4 11.4

Semimanufactured goods -20.3 -5.0 29.0 6.6

Manufactured goods -5.8 -22.8 8.5 8.9

Source: Funcex Exports annual growth, reﬂ ecting 20.5% price rises and 9.5% volume increase, led to generalized expansion in sales in all aggregate factor categories, reaching 44.7%, 37.1% and 17 7% in commodities, semi-manufactured, and manufactured goods, respectively.

Commodities shipment increase reﬂ ected in 30.4% and 11.4% rises in price and volume. Regarding prices, highlights were annual increases in iron ore, 86.7%; oil, 44.8%; copper ore, 45.9%; raw coffee, 26.1%; and pork meat, 25.9%. Exported quantity evolution was particularly associated to the expansion in corn grain, 38.5%; oil, 21.4%; iron ore, 16.4%; and soybean meal, 11.1%; contrasting with decreases in the tobacco leaves and pork meat.

Semi-manufactured products showed 29% price growth, 6.6% volume growth, and signiﬁ cant price increases stemmed from 479.8% raw sugar cane, consistent with supply

V Economic-Financial Relations with the International Community 91 Graph 5.4 Quarterly price indices and volume of Brazilian exports 2006 = 100

Extration of metalic minerals Price Food and beverages Volume Price 180 170 340 155.0

162 152 294 140.0

144 134 248 125.0

126 116 202 110.0

108 98 156 95.0

90 80 110 80.0 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2008 2009 2010 2008 2009 2010

Price Agriculture and livestock Volume Basic metallurgy Price Volume 200 200 172 97 187 173 157 92 174 146 142 87 161 119 127 82 148 92 112 77 135 65 97 72 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2008 2009 2010 2008 2009 2010

Motor vehicles, trailers and bodies Extration of oil Price Volume Price Volume 133 100 215 205

129 88 183 175

125 76 151 145

121 64 119 115

117 52 87 85

113 40 55 55 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2008 2009 2010 2008 2009 2010

Chemicals Price Volume Price Machines and equipment Volume 147 121 140 111 139 114 135 100

131 107 130 89

123 100 125 78

115 93 120 67

107 86 115 56 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2008 2009 2010 2008 2009 2010

Volume index Price index constraints in India, the leading world producer of such commodity; cellulose, 40.2%; hides and skins, 34.7%; and semi-ﬁ nished iron or steel products, 32.3%. As for volume exported, highlights were the expansion in annual sales of raw sugar cane, 16.3%; semi-ﬁ nished iron or steel products, 12.5%; and ferroalloys, 28.8 %; and decreases in soybean oil, 19.5%; unwrought aluminum, 27.2%; and wood sawn or chipped, 48.9%.

92 Boletim do Banco Central do Brasil – Annual Report 2010 Manufactured products sales abroad refl ected 8.5% price increase and 8.9% volume increase. There were signifi cant increases in the prices of refi ned sugar, 29.9%; fuel oil, 24.8%; ethylene polymers, propylene and styrene, 36.3%; and hydrocarbons and their derivatives, 50.9%. As for quantities the most important were passenger cars, 33.8%; auto parts, 30.2%; freight vehicles, 59%; motor vehicles engine parts, 78.5%. These are opposed to decreases recorded quantities exported of ethylene polymers, propylene and styrene, 15.1%; ethyl alcohol, 42.6%; wire rod, 19.7%; and orange juice, 19.1%.

Exports in eight major sectors, According to the Foreign Trade Studies Center Foundation (Funcex), exports in eight major sectors responded for 78.3% of total exports in 2010. During the year, price expansions were seen on all such segments, especially those relating to metallic minerals, 77.4%; oil, 46.7%; and basic metallurgy, 18.6%. Among quantity increases, the noteworthy are those relating to motor vehicles, trailers and body works, 41%; machinery and equipment, 27.3%; and metallic minerals, 21.7%.

Table 5.5 – Imports price and volume indices Change from the previous year (%) Itemization 2009 2010 Price Volume Price Volume

Total -11.3 -16.9 3.9 37.0

Capital goods -1.8 -15.7 -3.7 43.3

Intermediate goods -8.6 -20.9 2.6 36.6

Durable consumer goods -1.2 -6.7 3.6 52.9

Nondurable consumer goods -1.1 2.0 10.4 18.0

Fuels and lubricants -36.0 -14.2 22.3 21.6

Source: MDIC (elaboration by Central Bank)

Annual import growth was due to increases of 37% in quantities purchased and 3.9% in prices. Purchase increases occurred in all use categories, with emphasis on 59.3% expansion in durable goods, followed by fuels and lubricants, 50.7%; raw materials and intermediate products, 39.8%; capital goods, 37.5%; and non-durable consumer goods, 29.1%.

Evolution of annual shipments of raw materials and intermediate goods refl ected 2.6% price increase and 36.6% volume increase. Recorded volume growth was boosted mainly by increases on fl at-rolled iron or steel 166.2%; potassium chloride, 76.9%; and naphtha, 59%. As for prices, highlights were associated with increases in copper cathodes, 51.6%; integrated circuits and micro-assemblies, 31.7%; and naphtha, 29.9%, in contrast to decreases observed in annual rates of chloride potassium 39.5%; and fl at rolled iron or steel 14.6%.

V Economic-Financial Relations with the International Community 93 Graph 5.5 Quarterly price indices and volume of Brazilian imports 2006 = 100

Chemicals Machines and equipment Volume Price Price Volume 170 160 124 255 161 143 120 229 152 126 116 203 143 109 112 177 134 92 108 151 125 75 104 125 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2008 2009 2010 2008 2009 2010

Motor vehicles, trailers and bodies Coke, oil refining and fuel Price Volume Price Volume 125 270 200 240 122 236 177 209 119 202 154 178 116 168 131 147 113 134 108 116 110 100 85 85 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2008 2009 2010 2008 2009 2010

Eletronic and of communications Extration of oil Price material Volume Price Volume 123 158 200 130 119 141 175 122 115 124 150 114 111 107 125 106 107 90 100 98 75 90 103 73 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2008 2009 2010 2008 2009 2010

Price Basic metallurgy Volume Machines, equipment and electrical 137 230 Price material Volume 130 230 129 204 127 204 121 178 124 178 113 152 121 152 105 126 118 126 97 100 115 100 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2008 2009 2010 2008 2009 2010

Source: Funcex Volume index Price index

Capital goods foreign purchases reﬂ ected a -3.7% price variation and 43.3% volume variation, which resulted from the expansion in earthmoving machinery, 91.9%; pumps, compressors and fans, 61.9%; and motors, generators and electrical transformers, 43.3%. Capital goods price decline particularly reﬂ ected reductions in printed circuit boards, 20.5%; earthmoving machinery, 16.7%; and measuring instruments and appliances, 5.6%.

94 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.6 – Exports by aggregate factor – FOB US$ million Itemization 2006 2007 2008 2009 2010

Total 137 807 160 649 197 942 152 995 201 915

Primary products 40 285 51 596 73 028 61 957 90 005

Industrial products 94 541 105 743 119 756 87 848 107 770 Semimanufactured goods 19 523 21 800 27 073 20 499 28 207 Manufactured goods 75 018 83 943 92 683 67 349 79 563

Special transactions 2 981 3 311 5 159 3 189 4 140

Source: MDIC/Secex

Graph 5.6 Exports by aggregate factor – FOB Last 12 months (% change)1/ 50

-10

-30 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2006 2007 2008 2009 2010 Primary Semimanufactured Manufactured Source: MDIC/Secex 1/ From the same period of the previous year.

Within consumer durables imports, which recorded increases of 3.6% in prices and 52.9% in volume, highlights were volume increases in transmission apparatus parts, 136.2%; bulbs, electric tubes and head lights, 129.2%; and furniture and parts, 76.2%; and prices’ highlights were on transmission apparatus parts, 8.8%; and passenger cars, 5.5%. Non-durable consumer goods, which reﬂ ected 10.4% price growth and 18% volume growth, one should note the imported quantity increases in perfumery and toilet articles, 43.2%; processed vegetable products, 53.6%; and toys and games, 38.7%; and prices of, footwear and parts, 17.2%; and perfumery and toiletry articles, 9.4%.

Acquisitions abroad for eight major importing sectors accounted for 71.9% of 2010 total imports. All segments showed imported volume increases, mostly those related to coke, petroleum reﬁ ning and fuels, 86%; basic metallurgy, 76.4%; machinery and equipment, 50.9%; and motor vehicles, trailers and body works, 50.2%. Price changes were not uniform in such sectors, noting the relative annual growth in oil extraction 24.9%; and coke, petroleum reﬁ ning and fuels, 24.5%; and decreases in machinery and equipment, 6.5%; and chemicals, 4%.

Total daily average exports reported annual growth of 31.4% in 2010, reﬂ ecting sales expansion in commodities, 44.7%; semi-manufactured, 37.1%; and manufactured, 17.7%.

V Economic-Financial Relations with the International Community 95 Table 5.7 – Exports – FOB – Major primary products % change 2010/2009 – Daily average 1/ 2/ 3/ Products Value Price Weight Share

Iron ore and concentrates 117.4 86.7 16.4 32.1 Petroleum oils, crude 75.8 44.8 21.4 17.9 Soybean including grinded -3.7 -5.0 1.4 12.3 Meat and edible offal of chicken 19.7 13.4 5.5 6.4 Coffee, not roasted 37.2 26.1 8.8 5.8 Oil-cake and other residues from soybeans 2.3 -7.9 11.1 5.2 Meat of bovine animals 27.2 24.4 2.3 4.3 Tobacco, unmanufactured; tobacco refuse -9.9 21.4 -25.8 3.0 Maize, unmilled 69.5 22.4 38.5 2.5 Cupper ore and concentrates 53.5 45.9 5.2 1.4 Meat of swine 9.8 25.9 -12.7 1.4 Cotton, not carded or combed 19.5 18.2 1.1 0.9 Bovine animals, live 47.9 18.7 24.6 0.7 Salted meat, including poultry 5.8 10.7 -4.4 0.6 Manganese ore and concentrates 90.9 32.5 44.1 0.4 Guts, bladders and stomachs of animals 5.5 -16.1 25.7 0.4 Kaolin and other kaolinic clays 8.4 -3.1 11.8 0.3 Aluminum ore and concentrates 70.7 -23.3 122.6 0.3 Edible meat offal 1.4 3.0 -1.5 0.3 Cashew nuts -1.4 13.2 -12.9 0.3 Other primary products 18.9 - - 3.5

Source: MDIC/Secex 1/ Percentual change of the unit value in US$/kg terms. 2/ Percentual change of weight in kilograms. 3/ Percentual participation in primary products group total.

Primary products shipment daily average reached US$359 million, rising 44.7% in the year. Exports of the three main products under this category – iron ore, oil and soybean – accounted for 62.3% of such segment sales and registered an annual variation of 117.4%, 75.8% and -3.7%.

Exports of the three main products in this category – iron ore, oil and soybean – accounted for 62.3% of sales and registered annual variations of 117.4%, 75.8% and -3.7%.

Asian countries were the main destination of commodities exported, totaling US$161 million per day, equivalent to 45% of such sales and 72% of average daily exports to that region, and recording an annual increase of 54.9%. Chinese market responded for 63.5% of such Asian exports, followed by Japan, 12.5%; and South Korea, 5.6%. Main products shipped were iron ores and their concentrates 47.1% of the total under this category; soybeans, 20.2%; and petroleum, 13.3% of the total.

Commodities average daily exports to the European Union (EU) amounted to US$85 million, expanding 31.2% in the year and now representing 23.7% of such

96 Boletim do Banco Central do Brasil – Annual Report 2010 shipments and 49.5% of Brazilian exports to the EU. Germany became the main destination country within the EU, 22% of the total, followed by the Netherlands, 21.2%; Spain, 10.4%; France, 9.7%; and Italy, 9.1%. Highlights were on sales of iron ores and concentrates 26.9% of the total; soybean meal, 15.5%; raw coffee beans, 13.5%; soybeans 10.8%; and oil, 10.5%, pointing out that iron ores and concentrates sales expanded 214.9% and soybean fell 33.9% in the year.

Commodities shipments to Latin America and the Caribbean recorded a US$34 million daily average, of which 16.9% were channeled to Mercosur countries. It is noteworthy that such exports rose 48.9% in the year and amounted to 9.5% of such category and 17.7% of sales to the region. Main destination countries were St. Lucia, 32.2%; Venezuela, 16.1%; Chile, 15%; and Argentina, 13.8%. Shipments to the region focused on oil, 51%, of which 63.1% for St. Lucia; iron ores and their concentrates, 15.4%, and live cattle 7.3%.

Commodities average daily sales to the US reached US$24 million, rising 46.8% in the year, representing 6.7% of such shipments and 30.8% of total shipments targeted to that country, and were concentrated in oil, 64.2%; raw coffee beans, 17.7%, and tobacco leaves, 4% of the total.

Commodities average daily exports to other countries totaled US$54 million, rising 36.7% in the year, accounting for 15.1% of such category sales and 38.9% of total exports to those countries. Commodities purchased by this group of countries focused on chicken meat, 23.7%; beef, 21.5%; iron ore and concentrates, 19.7%; and pork meat, 6.3%, highlighting the participation of Russia, 17.2%; Saudi Arabia, 15.9%; Iran, 9.4%; and Egypt, 8.6% of the total.

Shipments of semi-manufactured goods recorded a daily average of US$112 million in 2010, expanding 37.1% in the year. The main products under this category were raw sugar, 33% of the total; cellulose, 16.8%; semi-ﬁ nished iron or steel products, 9.2%; iron alloys, 7.2%; semi-manufactured gold, 6.3%; and hides and skins, 6.1%, accounting for about 80% such exports.

Asia was the main destination of semi-manufactured products, at US$40 million per day, accounting for 35.3% of such sales and 17.7% of total exports to the region, with annual growth of 13%. Exports to Asia were focused on raw cane sugar, 27.9% of the total; cellulose, 16.4%, of which 40.1% for China; semi-ﬁ nished iron or steel products, 15.2%; iron alloys, 9.5%; and crude soybean oil, 8.9%. Main destination countries were China, 36.4% of the total; Japan, 11.7%; South Korea, 10.5%; and India, 10.2%, a decline of 33.6% explained especially by the downturn in raw cane sugar and crude soybean oil exports.

Semi-manufactured products exports directed to the EU registered a daily average of US$24 million, with annual growth of 58.6%, representing 21.7% of such sales and

V Economic-Financial Relations with the International Community 97 Table 5.8 – Exports by aggregate factor and by region – FOB Daily average – US$ million Product 2009 2010 Value Value Change from Share (%) 2009 (%) Total Blocs

Total 612 804 31.4 100.0 - Basic 248 359 44.7 44.6 - Semimanufactured 82 112 37.1 14.0 - Manufactured 269 317 17.7 39.4 - Special transactions 13 16 29.3 2.1 -

Latin America and Caribe 143 191 34.1 23.8 100.0 Basic 23 34 48.9 4.2 17.7 Semimanufactured 4 7 62.8 0.9 3.7 Manufactured 115 150 30.1 18.6 78.4 Special transactions 0 0 21.7 0.0 0.1

Mercosur 63 90 42.2 11.2 100.0 Basic 2 6 132.5 0.7 6.4 Semimanufactured 1 2 87.4 0.3 2.5 Manufactured 60 82 37.6 10.2 91.0 Special transactions 0 0 35.3 0.0 0.2

1/ USA 63 78 23.2 9.6 100.0 Basic 16 24 46.8 3.0 30.8 Semimanufactured 8 13 52.3 1.6 16.4 Manufactured 38 40 6.6 5.0 52.0 Special transactions 0 1 23.4 0.1 0.8

European Union 136 172 26.2 21.4 100.0 Basic 65 85 31.2 10.6 49.5 Semimanufactured 15 24 58.6 3.0 14.2 Manufactured 55 61 12.2 7.6 35.7 Special transactions 1 1 -17.1 0.1 0.6

Asia 161 224 39.3 27.9 100.0 Basic 104 161 54.9 20.1 72.0 Semimanufactured 35 40 13.0 4.9 17.7 Manufactured 21 23 6.8 2.8 10.2 Special transactions 0 0 7.7 0.0 0.1

Others 109 140 27.7 17.4 100.0 Basic 40 54 36.7 6.7 38.9 Semimanufactured 19 29 51.6 3.6 20.5 Manufactured 40 42 5.5 5.3 30.3 Special transactions 11 14 35.8 1.8 10.3

Source: MDIC/Secex 1/ Includes Puerto Rico.

14.2% of total exports to the bloc. The Netherlands was the main destination, 29.2% of the total; followed by Italy, 20.6%; UK, 18.7%; and Belgium, 7%. Cellulose exports accounted for 36.7% of the total; followed by those relating to gold in semi-manufactured forms, 14.4%; iron alloys, 11.6%; and hides and skins, 9.3%.

Average daily sales of semi-ﬁ nished products to the US increased 52.3% in the year, amounting to US$13 million, equivalent to 11.3% of such exports and 16.4% of total

98 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.9 – Exports – FOB – Major semimanufactured goods % change 2010/2009 – Daily average 1/ 2/ 3/ Products Value Price Weight Share

Cane sugar, raw 55.0 479.8 16.3 33.0 Chemical wood pulp 43.0 40.2 2.0 16.8 Iron or nonalloy steel semifinished products 48.9 32.3 12.5 9.2 Iron alloys 42.3 10.5 28.8 7.2 Gold, nonmonetary in semimanufactured forms 27.0 26.6 0.3 6.3 Hides and skins 49.7 34.7 11.1 6.1 Soybean oil, crude 13.9 11.9 1.7 4.2 Aluminum, unwrought, not alloyed 9.0 35.4 -19.5 3.9 Pig iron and spiegeleisen -11.2 21.9 -27.2 3.4 Wood, sawn or chipped lenghtwise 4.4 6.8 -2.2 1.5 Cooper cathodes -21.2 54.3 -48.9 1.2 Synthetic rubber and artificial rubber 35.5 66.3 -18.5 1.1 Nickel cathodes 40.7 59.3 -11.7 0.7 Nickel mattes 201.7 84.1 63.9 0.7 Aluminum alloys, unwrought -13.0 12.0 -22.3 0.6 Cocoa butter, fat or oil 4.3 -13.3 20.3 0.5 Zinc, unwrought, not alloyed 43.6 36.5 5.2 0.5 Wood in chips or particles 21.0 5.0 15.2 0.4 Vegetable waxes 65.3 15.0 43.7 0.4 Cocoa butter, fat or oil 95.0 87.8 3.8 0.3 Other semimanufactured products 9.2 - - 1.8

Source: MDIC/Secex 1/ Percentual change of the unit value in US$/kg terms. 2/ Percentual change of weight in kilograms. 3/ Percentage participation in semimanufactured products group total. shipments to that country. Main items being cellulose 26.5% of the total shipped to the country; pig iron and iron spiegeleisen, 19.4%; semi-ﬁ nished iron or steel products, 12.4%; and iron-alloys, 7.3%.

Average daily exports of semi-manufactured goods to Latin America and the Caribbean totaled US$7 million, with annual growth of 62.8%, equivalent to 6.3% of the total under this category and 3.7% of Brazilian exports to these countries. The list focused on iron or steel semi-fi nished products, 25.8% of the total; unrefi ned cane sugar, 25.7%; synthetic and artifi cial rubber, 7.2%; and iron alloys, 5.9%. Main destinations were Argentina, 27.1% of the total; Venezuela, 25.9%; Mexico, 19%; and Peru, 5.9%.

Semi-finished products average daily shipments to other countries totaled US$29 million, registering an annual increase of 51.6% and now representing 25.5% of such sales, and 20.5% of the total to such group. Among items exported to these countries, noteworthy are unreﬁ ned cane sugar, accounting for 75% of the total; gold in semi-manufactured forms, 9.9%; unwrought aluminum, 6%; and crude soybean oil, 3%. The main countries of destination were Russia, 22% of the total; Switzerland, 13.2%; Iran, 10.6%; and Algeria, 8%.

V Economic-Financial Relations with the International Community 99 Table 5.10 – Exports – FOB – Major manufactured goods % change 2010/2009 – Daily average 1/ 2/ 3/ Products Value Price Weight Participation

Passenger motor vehicles 35.6 1.3 33.8 9.5 Airplanes 2.5 8.2 -5.3 8.5 Cane sugar, refined 43.4 29.9 10.4 7.4 Parts and acessories for motor cars and tractors 41.0 8.3 30.2 7.3 Fuel oils 27.9 24.8 2.5 5.5 Iron or nonalloy steel flat-rolled products 10.8 13.8 -2.6 3.9 Aluminum oxide and aluminum hydroxide 33.1 12.7 18.1 3.7 Motor vehicles for the transport of goods 74.7 9.9 59.0 3.6 Polymer of ethylene, prophylene and sthyrene 15.7 36.3 -15.1 3.5 Electric motors, generators and transformers; parts thereof -9.3 -9.4 0.1 3.5 Passenger motor vehicles engines' parts 64.4 -7.9 78.5 3.2 Transmission and reception apparatus, and components -17.5 -26.7 12.6 3.2 Footwear, parts and components 8.9 0.7 8.1 3.2 Pumps, compressors, fans and others 31.3 2.6 28.0 3.2 Civil engineering and contractors' plant and equipment 124.2 -3.0 131.0 2.9 Pneumatic rubber tires 20.5 8.6 11.0 2.9 Paper and paperboard used for writing, printing etc. 24.7 8.3 15.1 2.6 Orange juice, not frozen 18.8 18.0 0.7 2.3 Tractors 63.3 10.0 48.4 2.2 Hydrocarbons and halogenated derivatives 44.1 50.9 -4.5 2.2 Ethyl alcohol, undenatured -24.5 31.6 -42.6 2.2 Passenger motor vehicles engines 82.8 11.3 64.2 2.1 Medicaments for human medicine and for vetenary medicine 16.1 11.6 4.1 2.1 Chassis fitted with engines and bodies for motor vehicles 33.4 3.2 29.2 2.0 Gears and gearing; ball screws; gear boxes, etc; parts thereof 47.5 -9.4 62.8 1.7 Furniture and parts thereof, except for medical-surgical use 10.7 9.6 1.0 1.6 Iron and steel bars and rods 10.1 37.1 -19.7 1.6 Nitrogenated functions compounds 28.7 28.0 0.5 1.6 Agricultural machinery (except tractors) 73.0 10.8 56.1 1.5 Orange juice, frozen -3.3 19.5 -19.1 1.5 Other manufactured products 8.5 - - 68.0

Source: MDIC/Secex 1/ Percentual change of the unit value in US$/kg terms. 2/ Percentual change of weight in kilograms. 3/ Percentage participation in manufactured products group total.

Average daily sales of manufactured goods totaled US$317 million in 2010, a 17.7% annual growth. Main exported products were passenger cars, 9.5% of the total; aircraft, 8.5%; reﬁ ned sugar, 7.4%; auto parts, 7.3%; and fuel oil, 5.5%.

The main export destination of such manufactured goods was Latin America and the Caribbean, a US$150 million daily average, with 30.1% annual increase, accounting for 47.3% of such category sales and 78.4% of products shipped to that region. Sales were concentrated on cars 10% of the total; auto parts, 6.8%; cargo vehicles, 4%;

100 Boletim do Banco Central do Brasil – Annual Report 2010 fuel oil, 3.8%; and transmitters or receivers, 3.2%. Such exports were directed especially to Argentina, 44.7% of the total; Mexico, 8.6%; Chile, 7.8%; Paraguay, 6.3%; and Venezuela, 5.4%.

Average daily sales of manufactured products channeled to the EU totaled US$61 million, increasing 12.2% in the year, representing 19.4% of exports under this category, and 35.7% of shipments to such block. The export list focused on aircraft, 9% of the total; orange juice, 6%; iron and steel hoses, 4.1%; car engine parts, 3.5% each; and footwear, 3.2%. Countries with highest participation were the Netherlands, 25.4% of the total; Germany, 20%; UK, 11.8%; Belgium, 10.6; Spain, 8.3%; and France; 7.5%.

The daily average of manufactured exports to the US registered a 6.6% annual increase, totaling US$40 million, accounting for 12.7% of total sales, and 52% of sales to that country. Main shipped items were automobile engine parts; and marble and granite works, with individual shares of 4.8% in total; hydrocarbons and their products, 4.7%; aircraft, 4.3%; tires, 4%; motors, generators and electrical transformers, 3.7%; and footwear, 3.4%.

Average daily exports of manufactured goods to Asia reached US$23 million in 2010, rising 6.8% in the year, with respective shares of 7.2% in this category and 10.2% in Brazilian sales to the region. Sales focused on aircraft, 9.4% of the total; fuel oil, 9.2%; sugar, 9.1%; ethyl alcohol, 6.4%; and ﬂ at-rolled iron or steel products, 5.5%. China was the main market for these products in the region, 24.3% of the total; followed by Japan, 15.3%; Singapore, 13.8%; India, 12.8%; and South Korea, 8.1 %.

The daily average of Brazilian manufactured products purchased by other countries recorded an annual growth of 5.5% in 2010 reaching US$42 million, representing 13.4% of sales under this category and 30.3% of shipments to these countries. Such exports were concentrated in sugar, 25.5% of the total; aluminum oxides and hydroxides, 14.2%; aircraft, 6.2%; earth-moving equipment and drilling machinery, 2.8%; and electric motors, generators and transformers, 2.6%. The main destinations were Canada, 11.4% of the total; South Africa, 8.5%; UAE; 7.9%; Angola, 6.7%; and Nigeria, 4.9%.

Special operations – special transactions, on board consumption and re-exports – reached a daily average of US$16 million in 2010, rising 29.3% in the year, and focusing on fuel oil used in ships and aircraft refueling, 86.2 % of total, and re-exports, 8.9%.

Average daily exports of industrial products totaled US$511 million in 2010, registering a 22.2% annual increase. Such products accounted for 63.6% of Brazilian exports, distributing low-tech industries, 26.4% of the total; medium-low technology, 14.6%; medium-high technology, 18%; and high-tech, 4.6%.

V Economic-Financial Relations with the International Community 101 Table 5.11 – Exports by tecnological intensity – FOB US$ million – Daily average Itemization 2009 2010 Valor Var.% Part.%

Total 612 804 31.4 100.0 Industrial products 418 511 22.2 63.6

High tecnology 36 37 2.5 4.6 Aircraft 18 19 2.9 2.3 Telecom, audio and video equipment 6 7 17.5 0.9 Other 12 11 -5.8 1.4

Middle-high tecnology 109 145 32.9 18.0 Road motor vehicles 37 56 48.8 6.9 Non-electrical machinery Nesoy 30 38 24.8 4.7 Chemicals products, excluded pharmaceutical 28 36 28.9 4.5 Other 13 15 15.1 1.9

Middle-low tecnology 99 117 18.6 14.6 Fabricated metal products 60 71 18.8 8.8 Petroleum products and other fuels 23 27 15.8 3.3 Other 16 19 21.5 2.4

Low tecnology 175 212 21.7 26.4 Food, beverages and tobacco 127 153 20.3 19.0 Wood, paper and pulp 27 35 29.5 4.3 Textiles, hides and skins and footwear 15 19 23.3 2.4 Manufactured products Nesoy and recycled products 5 6 11.6 0.7

Source: MDIC/Secex, Note: 2010, 251 working days; 2009, 250 working days.

Daily exports of low-technology manufactured products totaled US$212 million, registering a 21.7% annual growth. Sales were concentrated in the food, beverages and tobacco sectors, especially those relating to unreﬁ ned cane sugar, 17.5% of the total; chicken meat, 10.9%; soybean meal, 8.9%; beef, 7.2%; and reﬁ ned sugar, 6.5%. Besides these products, highlights were sales of cellulose, 8.9% of the total; hides and skins, 3.2%; and footwear, 2.8%. The Netherlands became the main destination of these products, 7.7% of the total; followed by the US, 7.4%; Russia, 6.9%; China, 6.3%; and Iran and Saudi Arabia, 3.3% each.

Average daily shipments of manufactured products for medium-high technology grew 32.9% in the year totaling US$145 million. Highlights were sales of the automotive sector, with emphasis on cars, 12.2% of the total; auto parts, 9.4%; load vehicles, 4.7%; car engine parts, 4.2%; and car motors, 2.8%; and those relating to ethylene polymers, propylene and styrene, 4.6%; electric motors, generators and transformers, 4.5%; pumps, compressors, fans, 4.1%; earth moving machinery and equipment, 3.8%; and hydrocarbons and their products, 2.9%. Main destinations of this segment were Argentina, 30.4% of the total; US, 11.5%; Mexico, 6.4%; Germany, 4.9%; Chile, 4.8%; Paraguay, 3.3%; and the Netherlands, 2.9%.

102 Boletim do Banco Central do Brasil – Annual Report 2010 Average daily sales of medium-low technology manufactured products reached US$117 million, a 18.6% increase over 2009. Product list concentrated on oil and fuel for supplying ships and aircraft (onboard consumption), 12.2% of the total; semi-ﬁ nished iron or steel products, 8.9%; fuel oil, 8.8%; iron-alloys, 7%; iron or steel-rolled products, 6.2%; gold in semi-manufactured forms 6.1%; aluminum oxides and hydroxides, 5.9%; and tires, 4.7%. Main destination countries were the US, 13.6% of the total; Argentina, 10%; Netherlands, 7.2%; Switzerland, 3.7%; and UK, 3.3%

Exports of high technology products registered a daily average of US$37 million, rising 2.5% in the year and focusing on aircraft, 42.8% of the total; transmitters or receivers, 15.9%; and drugs, 10.4%. Argentina became the main destination for these products 15.7% of the total; followed by the US, 13.4%; Germany, 5.4%; China, 5.2%; Spain, 4.5%; and UK, 3.6%.

Table 5.12 – Imports – FOB US$ million Itemization 2006 2007 2008 2009 2010

Total 91 351 120 617 172 985 127 722 181 649

Capital goods 18 924 25 125 35 933 29 698 40 995

Raw materials and intermediate product 45 274 59 381 83 056 59 754 83 884

Consumer goods 11 955 16 027 22 527 21 524 31 426 Durable 6 076 8 251 12 710 11 614 18 579 Nondurable 5 879 7 776 9 817 9 910 12 847

Fuels and lubricants 15 197 20 085 31 469 16 746 25 344

Source: MDIC/Secex

Graph 5.7 Raw material imports x industrial production Seasonally adjusted indices – 3 month moving average Imports Industrial production 160 115

143 110

126 105

109 100

92 95

75 90 Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec 2006 2007 2008 2009 2010 Raw material imports industrial production Source: IBGE and Funcex

V Economic-Financial Relations with the International Community 103 Graph 5.8 Brazilian imports by end use category – FOB Last 12 months (% growth)1/ 60 45 30 15 0 -15 -30 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2006 2007 2008 2009 2010

Capital goods Raw materials Source: MDIC/Secex 1/ From the same period of the previous year.

In 2010, average daily imports recorded an annual growth in all general use categories, with emphasis on 59.3% increase in purchases of durable consumer goods; followed by those for fuels and lubricants, 50.7%; raw materials and intermediate goods, 39.8%; capital goods, 37.5%; and non-durable consumer goods, 29.1%.

Imports of raw materials and intermediate goods registered a daily average of US$334 million in 2010, accounting for 46.2% of Brazilian purchases in the period. Imports of chemicals and pharmaceuticals, mineral products, transport equipment accessories and intermediate products – parts and accessories accounted for 76.1% of such purchases. Growth in imported value of the main products of this list resulted in particular from volume increases, especially in relation to prices, which only those relating to transportation equipment accessories and other agricultural raw materials declined in the period.

Average daily purchases of raw materials and intermediate goods from Asia totaled US$96 million in 2010, rising 48.7% in the year, and focusing on electronic integrated circuits and electronic micro-assemblies, 13.2% of the total; ﬂ at-rolled iron or steel, 8%; computers parts and accessories, 6.3%; and auto parts, 5.9%. These purchases were derived in particular from China, 42.2% of the total; Japan, 13.7%; South Korea, 11.4%; India, 6.8%; and Taiwan, 6.7%.

Average daily imports of raw materials and intermediate products from the EU totaled US$77 million in 2010, a 29.4% increase in the year, now representing 49.4% of purchases and 23% of such category from that block. Highlights were auto purchases, 11.9% of the total; heterocyclic compounds, 6.4%; bearings and gears, 4.6%; medicines, 3.5%; insecticides, ant killers and pesticides, 3.4%. Main supplying countries were Germany, 31.8% of the total; France, 14.6%; Italy, 10.3%; Spain, 8.4%; and UK, 7.8%.

Raw materials and intermediate products imports from Latin America and the Caribbean registered a US$63 million daily average, an increase of 34.6% in the year and

104 Boletim do Banco Central do Brasil – Annual Report 2010 accounting for 18.7% imports of such category and 51% of total acquired from that block. Import list focused on copper cathodes, 12% of the total; naphtha, 9%; grain wheat, 8.4%; auto parts, 6.3%; and copper ores and concentrates, 5.9%. Main suppliers were Argentina, 40.2% of the total; Chile, 21.9%; Mexico, 10.3%; and Uruguay, 6.6%. It is worth mentioning a drop in Argentina’s participation and an expansion those relating to Chile and Mexico.

Such category imports from the USA amounted to a daily average of US$55 million, increasing 27.9% in the year, accounting for 16.3% of the category purchases and 50.3% of total imports from the US Highlights during this period were the share of purchases of jet engines, turbines, and parts, 10.8% of the total; ethylene polymers, 3.6%; aircraft and helicopters parts and spares, 3.4%; and bearings and gears, 3.1%.

Average daily imports of raw materials and intermediate products from other countries grew 70.9% in the year, greater expansion among countries’ blocks and regions, totaling US$44 million, now representing 13.2% of such category’s imports and 39% of total imports of this group of countries. Import list focused on naphtha, 18.9% of the total; potassium chloride, 14.8%; ﬂ at-rolled iron or steel products, 6.1%; urea, 5.8%; fertilizers, 5.3 %; and superphosphates, 2.7%. Main suppliers were Algeria, 17.3% of the total; Canada, 15.4%; Russia, 14.2%; Switzerland, 8.5%; and Israel, 6.5%. It was relevant the participation of this group of countries in supplying agricultural inputs, especially fertilizers.

Capital goods average daily purchases totaled US$163 million in 2010, now representing 22.6% of Brazil’s total imports in the year, with emphasis on the impact of the increase in quantities imported, as opposed to the marked price decline in the largest number of items in this category. Industrial machinery imports accounted for 32.9% of the total; followed by those related to ofﬁ ce equipment, and scientiﬁ c services, 18%; spares parts and for capital goods for industry, 12.9%; and mobile transportation equipment, 11.9%.

Capital goods imports from Asia increased 44.4%, reaching US$64 million per day, with respective shares of 39.2% and 28.6% purchases under such category and from this block. Acquisitions were focused on data processing machines and their units, 10% of the total; electric motors, generators and transformers, 8.1%; printed circuits, 7.4%; liquid crystal displays (LCD), 5.9%; pumps, compressors and fans, 4%. Main supplying countries were China, 55.5% of the total; Japan, 15.6%; South Korea, 12.3%; and Taiwan, 5.1%.

Capital goods imports from the EU reached a daily average of US$48 million, a 30.1% annual growth, accounting for 30.8% of total, and 29.4% of such category purchases. The most signiﬁ cant participation corresponded to measuring and checking instruments and appliances, 7.4% of the total; pumps, compressors and fans, 6.8%; electric motors, generators and transformers, 6.6%; earthmoving and drilling machinery

V Economic-Financial Relations with the International Community 105 and equipment, 3.8%; and energy stoppage and protection apparatuses, 3.8%. Major suppliers were Germany, 35.2% of the total; Italy, 17.2%; France, 9%; Austria, 5.9%; Spain, 5.5%; and the UK, 4.9%. It should be noted the annual 95.9% imports growth from Austria, mainly due to increased purchases of machinery for casting, for metallurgy steel making or metal foundries, and motors, generators and transformers.

Table 5.13 – Imports – FOB – Major products % change 2010/2009 - daily average 1/ 2/ 3/ Products Value Price Weight Share

Capital goods 37.5 100.0

Industrial machinery 36.9 -16.2 63.3 32.9 Machines and apparat. for office and scientific destination 28.2 6.4 20.4 18.0 Capital goods parts and components 34.1 -21.7 71.3 12.9 Transportation movable equipment 51.3 3.7 45.9 11.9 Industrial machinery accessories 52.7 -2.7 56.8 7.6 Other capital goods 36.9 -38.1 121.2 16.7

Raw materials and intermediate goods 39.8 100.0

Chemical and pharmaceutical products 32.4 4.0 27.3 27.4 Mineral products 82.2 13.7 60.3 21.3 Accessories for transport equipment 37.0 -13.8 59.0 13.8 Intermediate products - parts 34.3 0.9 33.1 13.6 Other raw materials for farming 24.4 -12.4 42.0 8.0 Other raw materials and intermediate goods 27.2 4.4 21.9 15.9

Nondurable consumer goods 29.1 100.0

Pharmaceutical products 19.2 5.0 13.5 34.3 Foodstuffs 40.8 10.6 27.3 30.3 Apparel and other textiles clothing 36.1 2.8 32.4 10.0 Perfumery, cosmetics, or toilet preparations 46.3 11.4 31.3 6.1 Tobacco and beverage 23.5 -4.4 29.2 4.0 Other nondurable consumer goods 23.3 5.2 17.3 15.2

Durable consumer goods 59.3 100.0

Passenger motor vehicles 54.3 5.5 46.3 49.1 Machines and appliances for household use 109.9 20.1 74.9 21.5 Articles for personal use or adornment 31.6 -0.8 32.7 16.2 Durable consumer goods parts 38.1 -7.6 49.6 5.1 Furniture and other household equipment 87.3 -8.7 105.2 4.9 Other durable consumer goods 53.6 -4.6 61.0 3.1

Fuels and lubricants 50.7 100.0

Fuels 50.0 20.7 24.2 96.9 Lubricants and electricity 79.8 -1.5 82.6 3.1

Source: MDIC/Secex 1/ Percentage change of the unit value in US$/kg terms. 2/ Percentage change of weight in kilograms. 3/ Percentage participation in each end-use category total.

106 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.14 – Imports by category of use and by region – FOB Daily average – US$ million Product 2009 2010 Value Value Change from Share (%) 2009 (%) Total Blocs

Total 511 724 41.7 100.0 - Capital goods 119 163 37.5 22.6 - Durable consumer goods 46 74 59.3 10.2 - Nondurable consumer goods 40 51 29.1 7.1 - Fuels and lubricants 67 101 50.7 14.0 - Raw material and intermediate goods 239 334 39.8 46.2 -

Latin America and Caribe 91 123 35.0 17.0 100.0 Capital goods 9 12 34.9 1.6 9.6 Durable consumer goods 16 22 42.6 3.1 18.1 Nondurable consumer goods 9 12 34.1 1.7 9.9 Fuels and lubricants 11 14 26.5 1.9 11.4 Raw material and intermediate goods 47 63 34.6 8.6 51.0

Mercosul 52 66 26.2 9.1 100.0 Capital goods 6 9 37.1 1.2 12.9 Durable consumer goods 11 16 43.5 2.3 24.8 Nondurable consumer goods 7 9 32.5 1.2 13.1 Fuels and lubricants 2 1 -36.2 0.2 2.1 Raw material and intermediate goods 26 31 19.6 4.3 47.2

1/ USA 81 109 34.4 15.0 100.0 Capital goods 23 28 23.0 3.8 25.6 Durable consumer goods 3 4 26.0 0.5 3.5 Nondurable consumer goods 5 6 16.5 0.8 5.5 Fuels and lubricants 7 16 123.4 2.3 15.2 Raw material and intermediate goods 43 55 27.9 7.5 50.3

European Union 117 156 33.3 21.5 100.0 Capital goods 37 48 30.1 6.6 30.8 Durable consumer goods 7 10 44.1 1.4 6.5 Nondurable consumer goods 11 15 28.3 2.0 9.5 Fuels and lubricants 2 6 204.3 0.8 3.8 Raw material and intermediate goods 59 77 29.4 10.6 49.4

Asia 145 224 54.7 30.9 100.0 Capital goods 44 64 44.4 8.8 28.6 Durable consumer goods 20 37 83.8 5.1 16.4 Nondurable consumer goods 10 13 36.5 1.8 5.9 Fuels and lubricants 6 14 129.8 1.9 6.1 Raw material and intermediate goods 65 96 48.7 13.3 43.0

Others 78 113 45.2 15.6 100.0 Capital goods 6 12 89.1 1.6 10.4 Durable consumer goods 1 1 40.4 0.2 1.1 Nondurable consumer goods 4 5 18.8 0.7 4.5 Fuels and lubricants 41 51 25.1 7.0 45.0 Raw material and intermediate goods 26 44 70.9 6.1 39.0

Source: MDIC/Secex 1/ Includes Puerto Rico.

V Economic-Financial Relations with the International Community 107 Capital goods average daily imports from the US increased 23% to US$28 million, representing 17% of such category purchases and 25.6% of the total country’s imports. Highlights were the purchase of measuring and checking instruments and appliances, 9.3% of the total; pumps, compressors and fans, 7.6%; aircraft, 7%; earthmoving and drilling machinery and equipment, 7%; medical instruments and devices, 6.7%; and data processing machines and their units, 5%.

Capital goods imports from Latin America and the Caribbean totaled US$12 million per day in 2010, rising 34.9% in the year and accounting for 7.2% of such category purchases and 9.6% of total imports from that block. Cargo vehicles purchases accounted for 53.1% of the total, a performance consistent with automotive industry preferential trade agreements subscribed between Brazil and countries in the region, especially Argentina and Mexico. Other relevant products were pumps, compressors and fans, 3.4%; busses and other vehicles, 3.4%; measuring and checking instruments and apparatus, 3.3%; and mobile phones transmitters and receivers, 2.4%. Main countries of origin were Argentina, 71.4% of the total, and Mexico, 23.5%. In the period it should be noted a 98.7% increase in imports of capital goods originating in Uruguay.

Graph 5.9 Brazilian imports by end use category – FOB Last 12 months (% change)1/ 75

-25

-50 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2006 2007 2008 2009 2010

Consumer goods Fuels and lubricants Source: MDIC/Secex 1/ From the same period of the previous year.

Capital goods purchases from other countries reached a US$12 million daily average, 89.1% over that of 2009, recording 7.2% and 10.4% respective participation by category and purchases from such group of countries. Highlights were acquisition of railways vehicles and equipment, 19.8% of the total; motors, generators and transformers, 7%; pumps, compressors and fans, 5.6%; measuring and checking instruments and apparatuses, 5.1%; printing machinery, either typographical printing or offset, 3.9%. The major countries of origin were Switzerland, 35.2% of the total; Canada, 16.4%; Israel, 6.7%; Norway, 5.9%; Turkey, 3.3%; and Russia, 2.9%.

Fuels and lubricants average daily imports showed respective increases of 22.3% and 21.6% in prices and imported volume, totaling US$101 million in 2010, a 50.7% increase in the year, now representing 14% imports of the country. Even recording a 13.5% volume decrease, crude oil accounted for 39.8% of purchases under this use category;

108 Boletim do Banco Central do Brasil – Annual Report 2010 followed by fuel oil, 20.5%; coal, 11.5%; natural gas, 8.4%; and jet fuel, 4.2%. Major suppliers were Nigeria, 23.1% of the total; US, 16.3%; Bolivia, 8.4%; Saudi Arabia, 7.8%; and India, 7.4%. As observed in previous years, Nigeria was the main supplier of oil, accounting for 55.5% of Brazilian purchases of such product, and Bolivia was the sole supplier of natural gas.

In 2010, consumer durables imports registered a 59.3% annual growth, the highest among use categories, reaching a US$74 million daily average, corresponding to 10.2% of the country’s external acquisitions. Note that the trajectory of such imports particularly reﬂ ected the 52.9% increase in imported volume, the most signiﬁ cant in all use categories. Main regions of origin of imports were Asia 49.4% of the total; Latin America and the Caribbean, 30%; and the EU, 13.7%. And main supplier countries were China, 23.9%; Argentina, 21%; South Korea, 15.1%; Mexico, 7.6%; and Germany, 6.3%. Purchases of consumer durables focused on passenger cars 46% of the total; transmitter and receiver components,16.5%; and prosthetic articles and devices, orthopedics and its components, 3.1%.

Table 5.15 – Imports by tecnological intensity – FOB US$ million – daily average Itemization 2009 2010 Valor Var.% Part.%

Total 511 724 41.7 100.0 Industrial products 440 634 44.1 87.6

High tecnology 110 143 29.8 19.7 Radio, television and communication equipment 36 52 43.9 7.2 Pharmaceutical products 24 33 33.6 4.5 Other 49 58 17.5 8.0

Middle-high tecnology 215 300 39.6 41.4 Chemicals products, excluded pharmaceutical 80 102 27.1 14.1 Machinery and equipment n.e.c. 61 87 41.2 12.0 Motor vehicles, trailers and semi-trailers 49 74 50.2 10.2 Other 24 38 55.6 5.2

Middle-low tecnology 74 136 83.0 18.8 Fabricated metal products 33 55 67.7 7.6 Refined petroleum products and other fuels 23 54 133.1 7.5 Other 18 27 46.2 3.7

Low tecnology 41 55 35.3 7.6 Food, beverages and tobacco products 16 20 26.4 2.8 Textiles, leather and footwear 14 20 42.0 2.7 Other 11 15 39.7 2.1

Source: MDIC/Secex Note: 2009, 250 working days; 2010, 251 working days.

V Economic-Financial Relations with the International Community 109 Average daily imports of non-durable consumer goods totaled US$51 million in 2010, a 29.1% increase in the year – resulting from increases of 18% in volume and 10.4% in prices – and equivalent to 7.1 % of Brazilian acquisitions abroad. Main purchased items were medicine, including veterinarian, 34.1% of the total; perfumery and toiletries, 4.1%; preserved vegetables, 3.1%; toys and games, 2.8%; footwear and parts, 2.4%. Main regions of origin were the EU, 28.8% of the total under this category; Asia, 25.8%; and Latin America and the Caribbean, 23.8%. Major supplying countries were China, 14.4% of total; Argentina, 13.8%; the US, 10.5%; Germany, 7.3%; and Switzerland, 4.2%.

Import analysis according to technological intensity shows an annual growth of 44.1% in purchases of industrial products, which reached a daily average of US$634 million and accounted for 87.6% of total imports. Purchases were distributed in the medium-high technology, 41.4% of the total; high technology, 19.7%; medium-low technology, 18.8%; and low-technology, 7.6%.

Average daily imports of medium-high technology grew 39.6% in the year, amounting to US$300 million, with non-pharmaceutical chemicals, machinery and mechanical equipment, and automobiles altogether accounting for 87.4% of these acquisitions. Purchases of medium-high technology products largely originated in Asia and the EU, 28.6% of the total; and from the US and Latin America and the Caribbean, 16.3% of the total.

Average daily purchases of high-technology products totaled US$143 million in 2010, a 29.8% increase in the year. It should be noted that these imports were focused on radio, television and communication equipment, 36.7%; and pharmaceuticals, 22.9%, particularly coming from Asia, 47.2%; EU, 23.1%; and the US, 19.2% of the total.

Purchases of medium-low technology products reached a daily average of US$136 million and recorded an annual increase of 83% in 2010, with emphasis on the impact of oil and oil-products on international price recovery. These imports were concentrated in metal products, 40.4% of the total; and reﬁ ned petroleum products and other fuels, 40.1%, largely originated in Asia, 30.4% of the total; Latin America and the Caribbean, 20.3%; and the EU, 18.3%.

Average daily imports of low-technology products totaled US$55 million, increasing 35.3% in the year, with emphasis on the share of food, beverages and tobacco 36.4% participation, as well as textiles, leather and footwear 35 9%. Purchases under this segment particularly came from Asia, 43.7% of the total; Latin America and the Caribbean, 25.2%; and the EU, 18%.

110 Boletim do Banco Central do Brasil – Annual Report 2010 Trade exchanges

Trade ﬂ ows, showing greater dynamism in bilateral transactions with key partners, resumed its growth trajectory in 2010, with an average daily ﬂ ow of US$1.5 billion at record level, compared with US$1.4 billion in 2008.

Table 5.16 – Brazilian trade by region – FOB Daily average – US$ million Itemization 2009 2010 Exports Imports Balance Exports Imports Balance

Total 612 511 101 804 724 81

1/ EFTA 710-31014-4

Latin America and Caribe 143 91 52 191 123 68 Mercosur 63 52 11 90 66 24 Argentina 51 45 6 74 57 16 Paraguay 7 2 4 10 2 8 Uruguay 5 5 0 6 6 -0 Chile 11 11 -0 17 16 1 Mexico 11 11 -0 15 15 -1 Others 58 17 41 69 25 45

Canada 7 6 0 9 11 -2

European Union 136 117 19 172 156 16 Germany 25 39 -15 32 50 -18 Belgium/Luxembourg 13 5 8 14 7 7 Spain 11 8 3 15 11 4 France 1214-31419-5 Italy 1215-31719-2 Netherlands 33 4 29 41 7 34 United Kingdom 15 10 5 18 13 6 Others 17 22 -5 19 30 -10

Eastern Europe 14 8 5 19 12 7

2/ Asia 161 145 16 224 224 1 Japan 17 21 -4 28 28 1 China 84 64 20 123 102 21 Korea, Republic of 10 19 -9 15 34 -19 Others 49 40 9 58 60 -2

3/ USA 63 81 -18 78 109 -31

Others 82 53 29 101 76 26

Memo: Nafta 81 98 -18 102 135 -33 Opec 53 41 12 63 53 10

Source: MDIC/Secex 1/ Iceland, Liechtenstein, Norway and Switzerland. 2/ Excludes the Middle East. 3/ Includes Puerto Rico.

V Economic-Financial Relations with the International Community 111 Daily exchanges with Asian countries registered a US$448 million daily average. The 46.6% annual increase reﬂ ected growth of 39.3% in exports and 54.7% in imports, which totaled US$224.2 million and US$223.7 million, respectively. Bilateral trade with China accounted for 50.2% of regional ﬂ ows, followed by Japan’s 12.6% participation, and South Korea’s, 10.8%.

Trade ﬂ ow with the EU reached a daily average of US$328 million, rising 29.5% in the year. Exports totaled US$172 million and imports, US$156 million, for respective annual increases of 26.2% and 33.3%. The three main partners in the region were Germany, 25.2% of the daily ﬂ ow to the block; the Netherlands, 14.6%; and Italy, 11%.

Average daily trade with Latin America and the Caribbean countries reached US$314 million. A 34.4% increase compared to 2009 resulted from respective expansions of 34.1% and 35% in exports and imports, which amounted to, in the same order, a daily average of US$191 million and US$123 million. Main partners in the region were Argentina, 41.8% of the total; Chile, 10.6%; and Mexico, 9.6%.

Average daily trade ﬂ ow with the US totaled US$186 million, registering a 29.5% annual growth. Average daily exports totaled US$78 million and imports US$109 million, corresponding to 23.2% and 34.4% annual increases, respectively.

Services

The service account showed net expenditures of US$30.8 billion in 2010, 60.1% annual increase explained mostly by deﬁ cits in international travel, transportation, equipment rental, computer and information services, and royalties and license fees.

Net equipment rental spending totaled US$13.8 billion in 2010, over US$9.4 billion in the previous year, expansion determined by increased utilization of capital goods owned by non-residents in the country, with positive repercussions on the level of productive capacity of the economy.

International travel account deﬁ cit, which posted record highs for revenues and expenditures, totaled US$10.5 billion in 2010, a result 87.8% higher than a year earlier and more pronounced in the second half of the year, in response to the acceleration of domestic economic activity and exchange rate appreciation. Foreigners spending in the country and Brazilians spending abroad reached, in that order, US$5.9 billion and US$16.4 billion, registering respective increases of 11.6% and 50.7% in the year. Net credit card spending totaled US$5.9 billion, rising 71.5% on the same basis of comparison.

Transportation net spending totaled US$6.4 billion in 2010, a 63.2% annual growth, a trend consistent with increases in imports and Brazilians travel abroad, impacting

112 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.17 – Services US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total -8 115 -11 130 -19 245 -13 512 -17 295 -30 807 Credit 12 731 14 997 27 728 14 864 16 957 31 821 Debit 20 846 26 128 46 974 28 376 34 252 62 628 Transportation -1 708 -2 218 -3 926 -2 980 -3 425 -6 406 Credit 2 001 2 039 4 040 2 306 2 626 4 931 Debit 3 709 4 258 7 966 5 286 6 051 11 337 Travel -1 887 -3 706 -5 594 -4 118 -6 385 -10 503 Credit 2 567 2 738 5 305 2 933 2 986 5 919 Debit 4 454 6 444 10 898 7 051 9 371 16 422 Insurance -648 -794 -1 442 -565 -547 -1 113 Credit 190 183 373 213 203 416 Debit 838 977 1 815 778 751 1 529 Financial services -112 70 -42 135 259 394 Credit 590 980 1 570 976 1 096 2 073 Debit 702 910 1 612 841 837 1 679 Computer and information services -1 259 -1 327 -2 586 -1 628 -1 667 -3 296 Credit 92 117 209 126 84 210 Debit 1 351 1 444 2 795 1 754 1 752 3 505 Royalties and licence fees -866 -1 212 -2 078 -1 196 -1 257 -2 453 Credit 193 241 434 192 205 397 Debit 1 059 1 453 2 512 1 388 1 462 2 850 Operational leasing -4 371 -5 022 -9 393 -6 188 -7 563 -13 752 Credit 25 25 50 27 27 54 Debit 4 396 5 047 9 442 6 216 7 590 13 806 Government services -591 -825 -1 416 -789 -567 -1 356 Credit 614 869 1 483 618 909 1 527 Debit 1 205 1 695 2 899 1 407 1 476 2 883 Communication services 89 97 186 96 68 164 Credit 170 183 353 214 221 435 Debit 80 86 166 118 153 271 Construction services 4 6 11 12 10 22 Credit 6 9 14 15 13 29 Debit 1 3 4 3 4 6 Merchanting and other trade-related services 414 201 615 138 138 276 Credit 772 671 1 443 464 663 1 128 Debit 358 470 828 326 525 851 Personal, cultural and recreational services -357 -520 -878 -589 -575 -1 163 Credit 37 44 80 44 64 108 Debit 394 564 958 633 639 1 271 Business, professional and technical services 3 178 4 119 7 297 4 160 4 218 8 378 Credit 5 476 6 899 12 374 6 735 7 859 14 594 Debit 2 298 2 779 5 077 2 575 3 641 6 216

V Economic-Financial Relations with the International Community 113 spending on freight and air fares. Freight net spending grew 50.7% in the year, while air fares net spending totaled US$2.7 billion and increased 59.3%. Other transportation items totaled net expenses of US$1.1 billion, an increase of 117.3% over 2009.

Table 5.18 – International travel US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total -1 887 -3 706 -5 594 -4 118 -6 385 -10 503 Credit 2 567 2 738 5 305 2 933 2 986 5 919 Debit -4 454 -6 444 -10 898 -7 051 -9 371 -16 422 Credit card -1 491 -1 922 -3 412 -2 280 -3 570 -5 850 Credit 1 265 1 910 3 175 2 162 2 154 4 316 Debit -2 755 -3 832 -6 587 -4 442 -5 724 -10 166 Tourism services -227 -360 -587 -384 -589 -972 Credit 181 152 333 194 202 396 Debit -408 -512 -920 -578 -791 -1 369 Other -169 -1 425 -1 594 -1 454 -2 227 -3 680 Credit 1 121 676 1 797 577 630 1 207 Debit -1 290 -2 101 -3 391 -2 031 -2 857 -4 887

Financial services net revenues, including banking services, commissions, brokerage and securities, totaled US$394 million in 2010, compared to a US$42 million net expenditure a year earlier. This reversal was due to32% increase in revenues, which totaled US$2.1 billion, and 4.2% in expenses, which, reﬂ ecting fees paid on loans, this account most signiﬁ cant item, totaled US$1.7 billion.

Insurance services reported net outlays of US$1.1 billion, compared with US$1.4 billion in 2009. Expenditures fell 15.8% in the year, closing at US$1.5 billion, and revenues expanded by 11.6% to US$416 million, reﬂ ecting the rise in direct insurance credits and freight insurance revenues.

Computer and information services net expenditures totaled US$3.3 billion in the year, compared with US$2.6 billion in 2009. Expenditures turned in an annual rise of 25.4%, and reached US$3.5 billion, highlights were on the increase in expenses related to computing services. Revenues remained stable at the level of US$210 million.

Net payments abroad of royalties and license fees, which include technology services supply, copyrights, licenses and registrations for trademark, patent and franchise use, reached US$2.5 billion in 2010. The annual 18% increase reﬂ ected a 13.5% upturn in expenditures.

Government services net expenditures totaled US$1.4 billion in 2010. The annual 4.2% reduction reﬂ ected, in part, the 0.6% decrease in Brazilian government spending abroad, which totaled US$2.9 billion.

114 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.19 – Transportation US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total -1 708 -2 218 -3 926 -2 980 -3 425 -6 406 Credit 2 001 2 039 4 040 2 306 2 626 4 931 Debit 3 709 4 258 7 966 5 286 6 051 11 337 Sea transportation -994 -1 103 -2 097 -1 761 -1 790 -3 551 Credit 1 620 1 663 3 283 1 851 2 210 4 061 Debit 2 614 2 766 5 380 3 612 4 000 7 612 Passenger -1 -0 -1 -1 -1 -1 Credit 0 0 1 0 0 0 Debit 1 1 1 1 1 1 Freight -726 -1 020 -1 746 -1 165 -1 428 -2 593 Credit 538 623 1 161 686 831 1 517 Debit 1 264 1 643 2 906 1 850 2 259 4 109 Others -268 -83 -351 -596 -362 -957 Credit 1 082 1 040 2 122 1 165 1 379 2 544 Debit 1 350 1 123 2 473 1 761 1 741 3 501 Air transportation -703 -1 099 -1 802 -1 203 -1 598 -2 801 Credit 320 291 612 332 314 646 Debit 1 023 1 391 2 414 1 535 1 912 3 447 Passenger -648 -1 021 -1 668 -1 159 -1 498 -2 657 Credit 188 141 329 149 111 260 Debit 835 1 162 1 997 1 307 1 610 2 917 Freight 37 24 60 33 27 60 Credit 108 114 222 136 154 291 Debit 71 90 161 103 128 231 Others -92 -102 -194 -77 -126 -203 Credit 25 36 61 47 48 95 Debit 117 138 256 124 174 299 1/ Other transportation -10 -16 -26 -16 -36 -53 Credit 61 85 145 123 102 225 Debit 71 101 172 139 138 277 Passenger 1 0 1 1 0 1 Credit 1 0 1 1 0 1 Debit 0 0 0 0 0 0 Freight -22 -33 -55 -39 -50 -89 Credit 47 65 112 97 79 176 Debit 69 98 167 136 129 265 Others 11 17 27 22 13 35 Credit 13 20 33 25 23 48 Debit 2 3 5 3 9 12

1/ Includes road transportation.

V Economic-Financial Relations with the International Community 115 Business, professional and technical services recorded net revenues of US$8.4 billion in 2010, expanding by 14.8% over the previous year. Personal, cultural and recreational services net expense totaled US$1.2 billion, rising 32.5% in the year, and communications account registered US$164 million net revenues, a 12.1% annual drop largely associated to an increase from US$166 million to US$271 million in expenses, primarily owed to the telecommunications services segment.

Table 5.20 – Business, technical and professional services US$ million Itemization 2009 2010 1st 2nd Year 1st 2nd Year half half half half

Total 3 178 4 119 7 297 4 160 4 218 8 378 Credit 5 476 6 899 12 374 6 735 7 859 14 594 Mail orders 0 1 1 4 1 5 Self-employed remuneration 1 137 1 150 2 286 1 436 1 424 2 860 Administrative services and real-state rental 1 679 2 073 3 752 2 375 2 855 5 230 Participation in fairs and exhibits 24 19 43 22 25 47 Professional athletes transfer fees 57 120 177 108 124 232 Publicity 167 138 305 176 158 334 Architectural, engineering and other 2 372 3 285 5 658 2 547 3 192 5 738 Technical and economic project implementation services 39 113 152 68 81 149 Debit 2 298 2 779 5 077 2 575 3 641 6 216 Mail orders 10 12 22 27 40 67 Self-employed remuneration 301 342 644 260 406 666 Administrative services and real-state rental 427 457 884 398 668 1 066 Participation in fairs and exhibits 31 34 66 55 45 100 Professional athletes transfer fees 8 12 20 6 27 33 Publicity 91 128 219 182 239 420 Architectural, engineering and other 1 427 1 793 3 220 1 647 2 213 3 860 Technical and economic project implementation services 2 1 3 0 3 3

Income

Revenues account showed a US$39.6 billion defi cit in 2010, a result 17.5% higher than the previous year. As recorded in four previous years, profi ts and dividends net remittances exceeded net interest expense, growth, consistent with growing participation of direct and portfolio foreign investments in the Brazilian external debt composition. However, in 2010 the main prevailing reason for such remittances was the resumption of the country’s economic activity, and subsequent increase in profi t distribution to foreign investors.

Salaries and wages account provided net receipts of US$498 million in 2010, 17.3% lower than results reported in the previous year. Earnings of employees resident in

116 Boletim do Banco Central do Brasil – Annual Report 2010 the country reached US$565 million, a 15.1% annual reduction, and payments to non-residents amounted to US$565million, an annual drop of 15.1%, and payments to non-residents, US$66 million, 6.5% higher.

Table 5.21 – Income US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total -14 635 -19 050 -33 684 -19 731 -19 835 -39 567 Credit 4 689 4 137 8 826 3 124 4 229 7 353 Debit 19 324 23 186 42 510 22 855 24 064 46 919 Compensation of employees 333 270 603 266 232 498 Credit 369 296 665 295 270 565 Debit 36 26 62 29 38 66 Investment income -14 968 -19 319 -34 287 -19 997 -20 068 -40 065 Credit 4 320 3 840 8 160 2 829 3 959 6 788 Debit 19 288 23 160 42 448 22 826 24 027 46 853 Direct investment income -7 958 -11 784 -19 742 -12 011 -13 493 -25 504 Credit 585 701 1 287 385 695 1 080 Debit 8 544 12 485 21 029 12 397 14 188 26 584 Profits and dividends -7 213 -10 552 -17 765 -11 206 -12 385 -23 591 Credit 535 652 1 186 296 592 888 Debit 7 748 11 203 18 951 11 502 12 977 24 479 Interests on intercompany loans -745 -1 232 -1 977 -805 -1 108 -1 913 Credit 51 49 100 90 103 193 Debit 796 1 281 2 077 895 1 211 2 106 Portfolio investment income -4 140 -5 073 -9 213 -5 723 -4 321 -10 044 Credit 3 192 2 636 5 827 2 045 2 830 4 875 Debit 7 332 7 709 15 041 7 767 7 152 14 919 Income on equity (dividends) -3 646 -3 807 -7 453 -3 761 -3 023 -6 784 Credit 20 24 44 0 0 1 Debit 3 666 3 831 7 497 3 762 3 023 6 785 Income on debt securities (interests) -494 -1 267 -1 760 -1 961 -1 299 -3 260 Credit 3 172 2 611 5 783 2 044 2 830 4 874 Debit 3 665 3 878 7 543 4 006 4 129 8 135 1/ Other investments income -2 870 -2 462 -5 332 -2 264 -2 253 -4 517 Credit 543 504 1 046 399 434 833 Debit 3 413 2 966 6 378 2 662 2 687 5 350

Memo: Interest -4 109 -4 961 -9 069 -5 030 -4 660 -9 690 Credit 3 765 3 164 6 930 2 533 3 367 5 899 Debit 7 874 8 125 15 999 7 563 8 027 15 590 Profits and dividends -10 859 -14 358 -25 218 -14 967 -15 408 -30 375 Credit 555 676 1 231 296 593 889 Debit 11 414 15 035 26 449 15 263 16 000 31 263

1/ Includes interests on loans, trade credits, deposits and other assets and liabilities.

V Economic-Financial Relations with the International Community 117 Proﬁ ts and dividends net remittances abroad totaled US$30.4 billion US$5.2 billion more than the 2009 result. This 20.4% rise in this account balance was related to growth in foreign investment stock in Brazil and increased corporate proﬁ tability.

Net interest expenses totaled US$9.7 billion, reﬂ ecting decreases of 14.9% and 2.6% in revenues and expenditures, reaching, in order, US$5.9 billion and US$15.6 billion. It should be noted that decrease seen in revenues is in line with the trend in international interest rates levied on asset investment that constitute the international reserves, the main component of such heading.

Net remittances of direct investment income totaled US$25.5 billion, expanding 29.2% in the year. Net expenditures on proﬁ ts and dividends, the main component of the income account, totaled US$23.6 billion, a 32.8% increase connected to stock growth in foreign direct investment in the country. Net remittances of interest on intercompany loans fell 3.2% totaling US$1.9 billion.

Table 5.22 – Current transfers US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total 1 664 1 673 3 338 1 512 1 276 2 788 Credit 2 303 2 432 4 736 2 344 2 316 4 661 Debit 639 759 1 398 833 1 040 1 873 General government transfers - 73 - 136 - 209 - 123 - 62 - 185 Credit 41 20 61 19 112 132 Debit 114 156 270 142 175 317 Other sectors transfers 1 737 1 810 3 547 1 635 1 338 2 973 Credit 2 262 2 412 4 675 2 325 2 204 4 529 Debit 525 602 1 128 691 866 1 557 Workers’ remittances 867 688 1 555 645 575 1 220 Credit 1 136 1 088 2 224 1 037 1 039 2 076 United States 536 359 894 320 314 634 Japan 239 185 425 174 167 342 Remaining countries 361 544 905 543 558 1 100 Debit 269 400 669 391 464 855 Other transfers 870 1 122 1 992 989 763 1 752 Credit 1 126 1 324 2 451 1 289 1 165 2 454 Debit 257 203 459 299 402 701

Net remittances on portfolio investment income totaled US$10 billion, a 9% rise in the year. This result mainly reflected the increase from US$1.8 billion to US$3.3 billion in net amortizations on fixed-rate securities interest account.

118 Boletim do Banco Central do Brasil – Annual Report 2010 Profits and dividends net remittances of related to portfolios investment funds totaled US$6.8 billion, with annual reduction of 9% in the year, showing a drop in volume of investments in such modality, especially after the final 3 months of the second half-year.

Table 5.23 – Balance of current transactions and external financing requirements1/ US$ million Period Balance of current Foreign direct External financing transactions investments requirements Value % GDPValue % GDPValue % GDP Monthly Last 12 Last 12 Monthly Last 12 Last 12 Monthly Last 12 Last 12 months months months months months months

2005 Dec 530 13 985 1.58 1 406 15 066 1.71 -1 936 -29 051 -3.29 2006 Dec 438 13 643 1.25 2 457 18 822 1.73 -2 896 -32 465 -2.98 2007 Dec -498 1 551 0.11 886 34 585 2.53 -388 -36 136 -2.64 2008 Dec -3 119 -28 192 -1.71 8 115 45 058 2.73 -4 997 -16 866 -1.02

2009 Jan -2 766 -26 929 -1.67 1 930 42 162 2.62 835 -15 233 -0.94 Feb -613 -25 653 -1.63 1 968 43 240 2.75 -1 355 -17 587 -1.12 Mar -1 559 -22 869 -1.48 1 444 41 601 2.70 115 -18 732 -1.22 Apr 105 -19 720 -1.31 3 409 41 138 2.74 -3 514 -21 418 -1.42 May -1 770 -20 705 -1.40 2 483 42 308 2.86 -713 -21 603 -1.46 Jun -575 -18 498 -1.27 1 431 41 014 2.81 -857 -22 516 -1.54 Jul -1 623 -17 953 -1.23 1 287 39 035 2.68 336 -21 081 -1.45 Aug -809 -17 679 -1.21 1 903 36 300 2.48 -1 094 -18 621 -1.27 Sep -2 452 -17 369 -1.17 1 816 31 875 2.14 635 -14 506 -0.97 Oct -3 018 -19 148 -1.27 1 563 29 525 1.95 1 455 -10 376 -0.69 Nov -3 273 -21 471 -1.39 1 604 28 955 1.87 1 669 -7 484 -0.48 Dec -5 950 -24 302 -1.52 5 109 25 949 1.62 841 -1 646 -0.10

2010 Jan -3 840 -25 377 -1.52 585 24 604 1.48 3 255 773 0.05 Feb -3 092 -27 856 -1.61 2 843 25 479 1.47 248 2 377 0.14 Mar -5 017 -31 314 -1.73 2 083 26 118 1.44 2 934 5 196 0.29 Apr -4 616 -36 035 -1.91 2 228 24 937 1.32 2 388 11 098 0.59 May -2 008 -36 273 -1.87 3 590 26 045 1.34 -1 581 10 229 0.53 Jun -5 273 -40 972 -2.05 766 25 379 1.27 4 507 15 593 0.78 Jul -4 589 -43 938 -2.15 2 635 26 727 1.31 1 954 17 211 0.84 Aug -2 975 -46 103 -2.23 2 422 27 246 1.32 553 18 858 0.91 Sep -3 950 -47 602 -2.29 5 404 30 833 1.49 -1 454 16 768 0.81 Oct -3 770 -48 354 -2.32 6 788 36 058 1.73 -3 018 12 295 0.59 Nov -4 735 -49 815 -2.38 3 732 38 186 1.83 1 003 11 629 0.56 Dec -3 500 -47 365 -2.27 15 361 48 438 2.32 -11 861 -1 073 -0.05

1/ External financing requirements = current account deficit – net foreign direct investments (includes intercompany loans).

Other investment income, including interest on suppliers credits, loans, deposits, and other assets and liabilities totaled net remittances of US$4.5 billion in 2010. The 15.3%

V Economic-Financial Relations with the International Community 119 drop reﬂ ected respective reductions of 20.4% and 16.1% in revenues and expenditures, which respectively totaled US$833 million and US$5.4 billion in 2010.

Proﬁ ts and dividends gross remittances totaled US$31.3 billion in 2010, highlighting the 29.2% increase in gross expenditures with foreign direct investment and the 9.5% reduction in gross remittances of portfolio investment. Foreign Direct Investment (FDI) gross outﬂ ow amounted to US$24.5 billion, against US$19 billion a year earlier.

Industrial and service sector companies were respectively responsible for sending 60.6% and 37.2% profi ts and dividends gross remittances, with emphasis on remittances relating to sectors of automotive vehicles manufacturing and assembling, 17.3%; fi nancial intermediation, 9.2%; beverages, 7.8%; and chemicals, 7.7%. Remittances related to such segments totaled US$9.8 billion, corresponding to 42% of FDI profi ts and dividends gross expenditure in 2010.

Current transfers

Net unilateral transfers declined 16.5% during 2010. Net infl ows totaled US$2.8 billion, compared with US$3.3 billion in the previous year, of which US$1.2 billion for residents’ maintenance. Main countries of origin of infl ows for resident maintenance were the US, 30.5%, and Japan, 16.5%. It should be noted that in the two-year period ending in 2007, these two countries accounted for 71% of residents’ maintenance gross infl ow.

Financial account

Balance of payments fi nancial account result refl ected the impact of international liquidity accentuated in an incipient recovery outlook for the developed economies, and the stimulus provided by the consolidation of the Brazilian economy growth process. In this scenario, the fi nancial account recorded net infl ows of US$98.5 billion in 2010, against US$70.2 billion in the previous year. Direct investment and portfolio investment recorded net infl ows of US$36.9 billion and US$63 billion respectively, and other investments registered net amortizations of US$1.3 billion in 2010.

External accounts favorable ﬁ nancing conditions are also expressed in the rollover rate (ratio of new disbursements and past amortizations) of medium and long-term external debt, which closed at 244% in the year, the highest value of the series, compared to 88% in 2009. Rollover rates of bonds and medium and long-term direct loans reached 248% and 237% respectively.

120 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.24 – Private sector mredium and long-term rollover rates1/ US$ million Itemization 2009 2010 1st 2nd Year 1st 2nd Year half half half half

Total 77% 97% 88% 222% 269% 244% Credit 4 827 6 758 11 585 16 210 17 517 33 726 Debit 6 306 6 947 13 253 7 366 6 530 13 896 Paid 6 283 6 945 13 228 7 299 6 510 13 809 FDI conversions 23 2 25 67 21 88

Private sector 63% 85% 74% 204% 234% 219% Credit 3 754 5 644 9 398 14 131 15 051 29 181 Debit 6 029 6 624 12 653 6 998 6 445 13 443 Paid 6 006 6 622 12 628 6 931 6 424 13 355 FDI conversions 23 2 25 67 21 88

Private sector – bonds, notes and commercial papers 62% 86% 74% 194% 265% 225% Credit 2 682 3 823 6 506 9 995 10 408 20 403 Debit 4 322 4 431 8 754 5 230 3 921 9 151 Paid 4 303 4 429 8 732 5 163 3 921 9 084 FDI conversions 19 2 21 67 0 67

Private sector – direct loans 63% 83% 74% 234% 185% 206% Credit 1 071 1 821 2 892 4 136 4 643 8 779 Debit 1 707 2 193 3 900 1 768 2 524 4 292 Paid 1 702 2 193 3 895 1 768 2 503 4 271 FDI conversions 4 0 4 0 21 21

2/ Public sector 387% 345% 364% 565% 2887% 1002% Credit 1 073 1 114 2 187 2 079 2 466 4 545 Debit 277 323 600 368 85 453

Public sector – bonds, notes and commercial papers - 472% 945% 487% - 1280% Credit 1 000 1 000 2 000 1 000 1 627 2 627 Debit 0 212 212 205 0 205

Public sector – direct loans 26% 103% 48% 663% 983% 773% Credit 73 114 187 1 079 839 1 918 Debit 277 111 388 163 85 248

Memo: Bonds, notes and commercial papers 86% 104% 95% 205% 307% 248% Credit 3 682 4 823 8 506 10 995 12 034 23 029 Debit 4 322 4 643 8 965 5 435 3 921 9 356 Paid 4 303 4 641 8 944 5 368 3 921 9 289 FDI conversions 19 2 21 67 0 67

Direct loans 58% 84% 72% 270% 212% 237% Credit 1 144 1 935 3 079 5 215 5 482 10 697 Debit 1 984 2 304 4 288 1 931 2 610 4 541 Paid 1 980 2 304 4 284 1 931 2 589 4 520 FDI conversions 4 0 4 0 21 21

1/ Rollover rate refers to the ratio between disbursements and paid amortizations. Does not comprise trade financing. 2/ Excludes sovereign bonds. Includes financial public sector and others from public sector.

V Economic-Financial Relations with the International Community 121 FDI global fl ows totaled US$1.12 trillion in 2010, according to United Nations Conference on Trade and Development (UNCTAD) preliminary estimates, remaining on the previous year’s level. Impacted by uncertainties surrounding global fi nancial markets, especially those related to European countries sovereign debt, fl ows to developed countries shrank by 6.9% in the year. Mergers and acquisitions reported an increase of 23.9%, while new projects, greenfi eld investments, declined both in value and in number of operations. In contrast, FDI fl ows directed to developing economies grew 9.7% in the period. Developed countries remain as the main FDI recipients, but have reduced their shares in overall fl ows: 56.7% in 2008, 50.8% in 2009, and 46.9% in 2010, while the amount allocated to developing countries has increased 11.2 p.p. in the period to 46.8%. FDI fl ows to Latin America and the Caribbean reached US$141.1 billion, rising 21.1% in the year.

Table 5.25 – Foreign direct investments US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total 12 665 13 283 25 949 12 096 36 342 48 438 Credit 23 274 30 233 53 507 26 063 52 580 78 644 Debit 10 609 16 950 27 558 13 967 16 239 30 206 Equity capital 7 718 12 188 19 906 12 256 27 860 40 117 Credit 12 609 19 071 31 679 18 151 34 432 52 583 Currency 11 417 15 423 26 840 16 325 31 786 48 111 Autonomous 11 417 15 423 26 840 16 325 31 786 48 111 Conversions 1 190 3 645 4 835 1 816 2 631 4 447 Merchandise 2 3 4 11 14 25 Debit 4 891 6 882 11 773 5 895 6 572 12 467 Intercompany loans 4 948 1 095 6 042 -160 8 481 8 321 Credit 10 665 11 162 21 827 7 912 18 148 26 060 Debit 5 718 10 067 15 785 8 072 9 667 17 739 Of which conversions 1 006 2 683 3 689 1 320 1 099 2 419

Memo: Net conversions contribuion fo FDI 185 962 1 147 496 1 532 2 028 Total disbursements through conversions 1 190 3 645 4 835 1 816 2 631 4 447 Amortization of intercompany loans conversions 1 006 2 683 3 689 1 320 1 099 2 419

FDI net infl ows to Brazil amounted to 86.7% in the year, reaching US$48.4 billion, the highest level on record, noting that FDI total estimated stock for December 2010 totaled US$472.6 billion. Within such net infl ows, US$40.1 billion were allocated to equity ownership of companies in the country, of which US$4.4 billion pertaining to debt/equity swap conversion. It should be noted that out of these conversions US$2.4 billion stemmed from intercompany loans repayments, with zero FDI net impact. Intercompany loans net infl ows totaled US$8.3 billion, compared with US$6 billion in 2009.

122 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.26 – Foreign direct investments inflows – Equity capital Distribution by country US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total 12 609 19 071 31 679 18 151 34 432 52 583

Luxembourg 236 301 537 845 7 793 8 638 Netherlands 3 094 3 421 6 515 1 822 4 873 6 695 Switzerland 131 249 380 4 916 1 521 6 437 United States 1 760 3 142 4 902 2 536 3 668 6 204 France 755 1 386 2 141 1 953 1 468 3 421 Austria 15 33 48 23 3 302 3 325 Japan 565 1 107 1 673 441 2 056 2 497 Norway 138 533 671 802 733 1 535 Spain 1 127 2 297 3 424 384 1 107 1 491 Portugal 132 251 384 236 956 1 193 South Korea 106 26 132 171 870 1 041 United Kingdom 193 839 1 032 344 668 1 012 Chile 133 894 1 027 278 661 939 Bermudas 120 261 380 767 128 894 British Virgin Islands 101 302 403 131 745 875 Canada 143 1 228 1 372 135 606 742 Australia 391 315 707 214 345 559 Germany 2 174 299 2 473 180 373 552 Cayman Islands 274 818 1 092 161 245 406 China 71 12 83 366 26 392 Sweden 101 113 214 211 176 386 Mauritius 3 6 9 70 260 330 Denmark 15 32 47 232 61 293 Italy 86 146 232 120 165 285 Uruguay 56 142 198 179 96 275 Hong Kong 6 28 34 6 241 248 Colombia 68 83 152 65 122 187 Hungary 10 51 61 24 163 186 Mexico 32 135 167 93 46 138 Panama 80 52 132 98 28 127 Bahamas 37 16 52 53 56 108 Peru 0 44 45 24 64 88 Argentina 25 55 80 29 56 85 Belgium 82 11 93 41 31 72 Finland 2 54 56 0 41 42 Cyprus 2 68 70 3 37 40 Singapore 79 12 91 19 15 34 Ireland 5 4 8 3 11 13 Netherlands Antilles 1 6 6 6 5 11 Other countries 260 298 558 175 612 788

V Economic-Financial Relations with the International Community 123 Table 5.27 – Foreign direct investments inflows – Equity capital Distribution by sector US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total 12 609 19 071 31 679 18 151 34 432 52 583 Crop, livestock and mineral extraction 1 389 3 206 4 595 2 784 15 374 18 158 Metallic mineral extraction 439 865 1 303 1 310 5 362 6 672 Oil and gas extraction 761 1 895 2 656 1 092 8 830 9 922 Crop, livestock and related services 96 158 254 83 232 315 Nonmetallic mineral extraction 2 5 7 2 40 42 Forestry production 66 99 165 210 127 337 Mineral extraction related services 24 184 208 86 783 870 Others 1 0 1 0 0 0 Industry 6 627 6 853 13 479 9 628 9 717 19 345 Manufacturing and assembly of automotive engines 1 960 203 2 163 93 363 456 Chemical products 834 722 1 556 5 126 2 286 7 411 Basic metallurgy 2 052 1 702 3 754 530 2 997 3 527 Foodstuff 255 195 451 640 460 1 101 Beverages 26 89 115 466 3 469 Pulp, paper and paper products 62 709 770 93 65 157 Machinery and equipments 152 239 391 112 198 310 Electrical machines, devices and apparatuses 192 166 358 9 52 61 Plastic and rubber products 203 234 437 52 232 284 Metal products 22 105 127 51 329 381 Nonmetallic mineral products 1 224 225 51 1 155 1 206 Publishing and printing 5 200 205 8 24 32 Textile products 1 69 71 43 16 59 Sundry 40 38 79 36 50 86 Computer equipment, electronic and optical products 71 253 325 313 374 687 Other transportation equipments 3 69 73 76 55 131 Coke, oil derivatives and biofuels 300 1 045 1 344 1 700 578 2 278 Tobacco products 3 5 8 5 43 49 Maintenance and repair of computer equiment 1 0 1 9 15 24 Pharmaceuticals 379 309 688 117 292 409 Wood products 15 197 212 75 27 102 Other industries 48 80 128 23 101 124 Services 4 588 9 008 13 596 5 760 9 344 15 103 Telecommunication 121 189 310 632 61 693 Commerce, except vehicles 833 1 494 2 327 763 1 752 2 515 Office services and other services rendered to corporatio 66 189 255 93 463 556 Financial and auxiliary services 308 2 581 2 889 910 908 1 818 Electricity and gas 185 785 970 164 970 1 135 Lodging 54 207 261 78 123 202 Buildings 356 361 717 391 318 709 Information technology services 50 808 858 127 462 589 Real estate 296 298 594 556 561 1 117 Insurance and pension funds 971 348 1 319 158 69 227 Transportation 376 134 510 644 210 854 Food industry service 6 14 20 96 23 119 Non real estate lease and intangible assets 42 148 190 52 188 240 Advertsing and market research 22 33 55 30 132 162 Storage and transportation auxiliary activities 75 242 317 56 442 499 Headquarter consulting and management activities 49 134 183 54 102 156 Travel agencies and tourist operators 0 0 0 0 410 410 Architectural and engineering services 24 67 92 139 168 307 Nonfinancial holdings 237 151 388 147 718 865 Infrastructure works 29 397 426 113 106 219 Commerce and maintenance of vehicles 36 36 73 58 65 123 Water services 49 6 55 100 377 477 Other services 401 387 788 396 716 1 112

124 Boletim do Banco Central do Brasil – Annual Report 2010 It is noteworthy that in the fi rst half of the year, when uncertainties returned to international fi nancial markets, net capital infl ows in the form foreign direct investment totaled US$12.1 billion, against US$12.7 billion in the same period of 2009. In the second half, net FDI reached US$36.3 billion, against US$13.3 billion in the same period of the previous year.

FDI related to equity participation, especially originated in Luxembourg, 16.4% of 2010 total gross inﬂ ow; followed by the participation of the Netherlands, 12.7%; Switzerland, 12.2%; the US, 11.8%; France, 6.5%; Austria, 6.3%; and Japan, 4.7%.

FDI gross inﬂ ows channeled towards an increase in equity participation showed distinct developments when segmented by sectors of activity, on agribusiness products and mining industry growing 295.2%, against respective rises of 43.5% and 11.1 % in the industry and service sectors.

Industrial sector, the largest recipient of FDI-equity participation fl ows, accounted for 36.8% of US$19.3 billion annual revenues, with emphasis on the following sectors: chemicals, 14.1% of the total; metallurgy, 6.7%; coke, petroleum products and biofuels, 4.3%; non-metallic mineral products, 2.3%; and food products, 2.1%. Segments bearing most signifi cant yearly expansions were: non-metallic minerals, 435.5%; chemical products, 376.2%; beverages, 306.6%; metal products, 199.5%; and food products, 144.3 %. The largest declines occurred in fl ows channeled to the publishing industry, 84.3%; machinery and electrical appliances, 83%; pulp and paper, 79.6%; and motor vehicles, 78.9%.

The FDI-equity participation fl ows targeted towards the primary sector, mineral extraction industry and agriculture moved from US$4.6 billion in 2009 to US$18.2 billion in 2010 and represented 34.5% of the total. Infl ows channeled to oil and natural gas extraction, the largest single FDI recipient, totaled US$9.9 billion, representing 18.9% of FDI-equity participation fl ows in 2010. Infl ows targeted to metallic minerals extraction totaled US$6.7 billion, rising 411.9% in the year, holding 12.7% of overall participation, and that of mineral extraction supporting activities, in which research related to the oil segment are included, expanded 317.4% reaching US$870 million.

The share of the service sector in total FDI-equity participation fl ows reached 28.7% in 2010, against 42.9% in the previous year, with emphasis on: trade, 4.8% of the total; fi nancial services 3.5%; electricity, gas and other utilities, 2.2%; and real estate activities 2.1%. Service sector activities whose infl ows registered a more signifi cant annual growth were water collection, treatment and distribution, 766.4%; food, 496.3%; architectural and engineering services, 235.1%; telecommunications, 123.4%; and offi ce services 117.7%. Conversely, there were marked decreases on fl ows directed to insurance, 82.8%; infrastructure works, 48.5%; and fi nancial services, 37.1%.

V Economic-Financial Relations with the International Community 125 Table 5.28 – Portfolio investments – Liabilities US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total 2 263 43 896 46 159 23 166 44 629 67 795 Credit 74 266 120 185 194 451 76 502 104 733 181 235 Debit 72 004 76 289 148 292 53 336 60 104 113 440 Equities 3 030 34 041 37 071 9 737 27 948 37 684 Credit 55 400 94 343 149 743 47 880 72 104 119 983 Debit 52 370 60 302 112 671 38 143 44 156 82 299 Issued in the country 3 086 29 012 32 097 7 147 23 435 30 582 Credit 55 232 89 194 144 426 44 232 62 026 106 258 Debit 52 146 60 182 112 328 37 085 38 591 75 676 Issued abroad (Annex V – ADR) -56 5 030 4 974 2 590 4 513 7 103 Credit 168 5 149 5 317 3 648 10 078 13 725 Debit 223 119 343 1 058 5 565 6 623 Debt securities -768 9 855 9 087 13 429 16 682 30 111 Credit 18 866 25 842 44 708 28 622 32 629 61 251 Debit 19 634 15 987 35 621 15 193 15 947 31 141 Issued in the country 1 086 8 990 10 077 9 306 5 282 14 588 Medium and long term 1 404 8 274 9 678 8 292 5 088 13 380 Credit 10 487 14 881 25 368 12 870 11 483 24 353 Debit 9 083 6 607 15 690 4 578 6 394 10 972 Short term -318 717 399 1 013 194 1 207 Credit 1 892 1 284 3 176 1 499 572 2 071 Debit 2 210 568 2 777 485 379 864 Issued abroad -1 854 865 -989 4 123 11 399 15 523 Bonds 692 -599 94 -2 168 -1 396 -3 564 Private 0 56 56 -1 -1 -2 Disbursements 0 56 56 0 0 0 Amortizations 0 0 0 1 1 2 Public 692 -655 38 -2 167 -1 395 -3 561 Disbursements 1 775 2 325 4 100 788 2 030 2 818 Amortizations 1 083 2 980 4 062 2 954 3 425 6 379 Face value 994 2 586 3 580 2 601 2 798 5 399 Discounts -88 -394 -482 -353 -627 -981 Notes and commercial papers -640 124 -516 5 561 8 115 13 676 Disbursements 3 682 4 767 8 450 10 995 12 034 23 029 Amortizations 4 322 4 643 8 965 5 434 3 920 9 354 Money market instruments -1 906 1 339 -567 730 4 681 5 411 Disbursements 1 030 2 529 3 559 2 471 6 509 8 980 Amortizations 2 937 1 189 4 126 1 741 1 828 3 569

Foreign portfolio investment inﬂ ows totaled US$67.8 billion in 2010, against US$46.2 billion in the previous year, resulting from decreases of 6.8% in revenues and 23.5% in remittances. Foreign investments in shares of Brazilian companies, which remained stable when compared to 2009, recorded net inﬂ ows of US$37.7 billion,

126 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.29 – Other foreign investments US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total 14 399 - 323 14 076 28 547 12 753 41 301 Trade credit 8 010 -3 909 4 100 1 482 -2 306 - 823 Long term - 340 - 705 -1 045 - 436 - 97 - 532 Credit 1 218 1 524 2 742 670 1 397 2 066 Debit 1 557 2 229 3 787 1 105 1 494 2 599 Short term (net) 8 350 -3 205 5 145 1 918 -2 209 - 291 Loans 6 286 -1 360 4 926 26 716 14 442 41 158 Monetary authority 0 0 0 - 4 0 - 4 Exceptional financing 0 0 0 0 0 0 Other long term 0 0 0 - 4 0 - 4 Credit 0 0 0 0 0 0 Debit 0 0 0 4 0 4 Remaining sectors 6 286 -1 360 4 926 26 719 14 442 41 161 Long term 1 579 5 597 7 175 10 556 8 494 19 049 Credit 6 926 13 556 20 482 17 022 17 534 34 556 Multilateral1/ 1 823 2 637 4 461 2 519 5 666 8 186 Agencies 806 3 770 4 577 4 631 889 5 520 Buyers credit 3 152 5 214 8 366 4 657 5 497 10 153 Direct loans 1 144 1 935 3 079 5 215 5 482 10 697 Debit 5 347 7 960 13 307 6 466 9 041 15 507 Multilateral1/ 1 281 2 368 3 649 1 432 2 422 3 854 Agencies 411 551 962 1 007 699 1 707 Buyers credit 1 671 2 737 4 407 2 096 3 310 5 406 Direct loans 1 984 2 304 4 288 1 931 2 610 4 541 Short term 4 708 -6 957 -2 249 16 164 5 948 22 112 Currency and deposits 103 989 1 092 347 617 964 Outher liabilities 0 3 958 3 958 2 0 2 Long term (net) 0 3 962 3 962 0 0 0 Short term (net) 0 - 4 - 4 2 0 2

1/ Includes IFC. the highest result for the historical series, and due to decreases of 19.9% in annual revenue and 27% in expenses, which totaled US$120 billion and US$82.3 billion, respectively. Foreign investments in equities traded in the country registered net infl ows of US$30.6 billion, against US$32.1 billion in 2009, and Depositary Receipts (DR) placements, refl ecting foreign investment in shares of Brazilian companies traded in the exchange market abroad, net infl ows totaled US$7.1 billion, against US$5 billion the year before.

Fixed income foreign investments recorded net disbursements of US$30.1 billion in 2010, the highest result for the series started in 1995, and 231.3% higher than reported in 2009. It is noteworthy that evidencing the impact of October rate increase of the IOF levied on ﬁ xed- income foreign capital traded in the country there were net amortizations of US$214 million in the two-month period ended December. In the year,

V Economic-Financial Relations with the International Community 127 foreign investments net disbursement in ﬁ xed income securities traded in the country recorded an increase of 44.8% reaching US$14.6 billion.

Capital fl ow relating to sovereign bonds resulted in net repayments of US$3.6 billion in 2010, including the original schedule of debt maturities and early redemptions. Among such infl ows US$2.8 billion net disbursements stood out, resulting from the issuance and subsequent reopening of the Global 21, respectively of US$788 million and US$825 million; and reopening of Global 41, US$550 million; and Global BRL 28, US$655 million (US$1.1 billion). Notes and commercial papers operations had net infl ows of US$13.7 billion, compared to net repayments of US$516 million in 2009, resulting from increases of 172.5% in disbursements and 4.3% in amortizations. Short-term securities registered net infl ows of US$5.4 billion in 2010, compared with net repayments of US$567 million the previous year, highlighting the expansion of 152.3% in gross disbursements.

Table 5.30 – Brazilian direct investments abroad US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total 1 798 8 286 10 084 -8 881 -2 638 -11 519 Credit 9 899 15 355 25 254 8 913 14 467 23 379 Debit 8 101 7 069 15 170 17 794 17 104 34 898 Equity capital -1 190 -3 355 -4 545 -12 110 -14 673 -26 782 Credit 2 411 1 506 3 917 2 179 1 267 3 446 Debit 3 601 4 861 8 462 14 288 15 940 30 228 Intercompany loans 2 988 11 641 14 629 3 229 12 035 15 263 Credit 7 488 13 849 21 337 6 734 13 199 19 933 Debit 4 500 2 208 6 708 3 505 1 164 4 670

Other foreign investments in the country showed US$41.3 billion net infl ows in 2010, a 193.4% annual increase. Suppliers trade credit totaled US$823 million net amortizations, compared to US$4.1 billion net disbursements in 2009, with US$532 million long-term loans net repayments and US$291million short-term credits. The other sectors long-term loans net infl ows amounted to US$19 billion, consisting of direct loans net disbursements, US$6.2 billion; buyers, US$4.7 billion; organizations, US$4.3 billion, and agencies, US$3.8 billion. Short-term loans net disbursements amounted to US$22.1 billion, compared to US$2.2 billion net repayments in 2009. Non-residents funds net infl ows held in the country as deposits and currency totaled US$964 million, a 11.7% annual decrease, and other long-term liabilities recorded US$2 million infl ows from US$4 billion in 2009, when the International Monetary Fund (IMF) allocated Special Drawing Rights (SDR) to Brazil, which were simultaneously external assets, components of international reserves and foreign liabilities.

128 Boletim do Banco Central do Brasil – Annual Report 2010 Flows of Brazilian direct investments abroad amounted to US$11.5 billion net investments, compared with US$10.1 billion net returns in 2009, resulting from US$26.8 billion increased participation from previous US$4.5 billion in 2009, and US$15.3 billion net repayments of loans to afﬁ liates of Brazilian companies abroad, compared with US$14.6 billion in 2009. The stock of Brazilian direct investments abroad totaled US$175.2 billion, as estimated in December 2010, compared with US$158.8 billion in the same period last year.

Table 5.31 – Brazilian portfolio investments abroad US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total -866 4 990 4 125 -375 -4 408 -4 784 Credit 2 629 7 845 10 473 3 278 7 705 10 983 Debit 3 495 2 854 6 349 3 654 12 113 15 767 Equity investment -524 3 106 2 582 896 5 315 6 211 Credit 205 3 345 3 550 1 379 6 152 7 531 Debit 728 239 968 483 837 1 320 Brazilian Depositary Receipts (BDR) 11 -0 11 -13 68 55 Credit 15 2 17 159 106 264 Debit 3 2 6 172 38 210 Other equities -535 3 106 2 571 909 5 248 6 157 Credit 190 3 343 3 533 1 220 6 046 7 266 Debit 725 237 962 311 799 1 110 Debt securities -342 1 884 1 542 -1 271 -9 724 -10 995 Credit 2 424 4 499 6 923 1 900 1 552 3 452 Debit 2 766 2 615 5 381 3 171 11 276 14 447

Brazilian portfolio investments abroad totaled US$4.8 billion net investments, compared with US$4.1 billion net returns in 2009. Other Brazilian investments in foreign companies shares recorded US$6.2 billion net returns compared with US$2.6 billion in 2009, while investments in ﬁ xed-income securities turned in net investments of US$11 billion, compared with net returns of US$1.5 billion in the previous year.

V Economic-Financial Relations with the International Community 129 Table 5.32 – Other brazilian investments abroad US$ million Itemization 2009 2010 1st half 2nd half Year 1st half 2nd half Year

Total -12 361 -18 015 -30 376 -12 079 -30 496 -42 575 Loans -13 234 -12 065 -25 299 -11 769 -24 799 -36 568 Long term -59 -72 -131 -23 -8 -30 Credit 37 33 70 42 102 145 Debit 96 105 201 65 110 175 Short term (net) -13 175 -11 993 -25 168 -11 746 -24 792 -36 538 Currency and deposits 854 -5 820 -4 966 -435 -4 420 -4 855 Banks -394 -2 543 -2 936 3 413 -1 297 2 117 Remaining domestic sectors 1 248 -3 277 -2 029 -3 848 -3 123 -6 971 Other assets 18 -130 -112 125 -1 277 -1 152 Long term 17 -3 14 -134 -73 -207 Credit 82 84 166 71 26 96 Debit 65 87 152 205 98 303 Short term (net) 1 -126 -125 259 -1 204 -945

Other Brazilian investments abroad registered US$42.6 billion net investments in 2010, up from US$30.4 billion in 2009, refl ecting in particular US$36.5 billion investments in short-term loans. Long-term loans balance abroad totaled US$30 million net resources, compared with US$131 million in 2009. Net outfl ows of US$4.9 billion as currency and deposits abroad refl ected other sectors assets incorporation of US$7 billion, and US$2.1 billion return of deposits of Brazilian banks abroad. Other assets totaled net investments of US$1.2 billion, of which US$945 million in short-term investments.

Graph 5.10 International reserves 300 23 22 280 21 260 20 19

240 Months 18 220 17 200 16

US$ billion US$ 15 180 14 160 13 12 140 11 120 10 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 2008 2009 2010 Liquidity Liquidity/imports (months)

130 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.33 – Statement of international reserves growth US$ million Itemization 2008 2009 2010

I - Reserve position (end of previous month) 180 334 193 783 238 520 1. Net purchases (+)/ sales (-) of Central Bank (interventions) - 5 438 36 526 41 952 Spot 7 585 24 038 41 417 Lines with repurchase - 8 338 8 338 - Foreign currency loans - 4 685 4 151 535 2. Central Bank’s foreign operations 18 887 8 211 8 103 Disbursements 1 291 1 800 1 205 Bonds 525 1 800 1 205 Organizations 766 - - Amortizations - - - Bonds and MYDFA - - - Organizations - - - Paris Club - - - Interest 7 176 4 755 4 070 Bonds and MYDFA - - - Organizations -18 -2 - Paris Club - - - Reserve interest earnings 7 193 4 757 4 070 1/ Other 10 421 1 656 2 828

II - Total Central Bank operations (1+2) 13 450 44 736 50 055

III - Reserves position – cash concept 193 783 238 520 288 575

IV - Outstanding repo lines of credit 8 338 - -

V - Outstanding foreign exchange loan operations 4 685 535 -

2/ VI - Reserves position – liquidity concept 206 806 239 054 288 575

Memorandum: Exchange market: 2 900 28 188 41 952 Transactions with residents (net) - 3 419 30 566 21 776 Interbank transactions with non-residents (net) - - - 3/ Change in bank holdings (net) 6 319 - 2 378 20 175

1/ Includes receipt/payment under reciprocal credits agreement (CCR), price fluctuations of bonds, change in currency and gold prices, acceptance/payment of premium/discount of fees, releases of collateral/guarantees and fluctuations of financial derivatives assets (forwards). 2/ Includes outstanding repo lines of credit and foreign currency loans. 3/ Interventions undertaken through “lines with repurchase” does not change this item. Therefore, the result of the consolidated foreign exchange market only matches with the Central Banks's interventions through the “Spot” and “Export lines” modalities.

International reserves

The Central Bank purchased US$41.4 billion in the spot foreign exchange domestic market, in 2010, which was determinant for the US$50 billion international reserves increase in the year, reaching a record US$289 billion in December.

V Economic-Financial Relations with the International Community 131 Foreign currencies lending transactions guaranteed by export transactions or sovereign securities that accumulated US$535 million in 2009 were fully repaid in May 2010. Thus, the concepts of international reserves, both cash and international liquidity, converged into the same stock.

Central Bank’s foreign operations net revenues totaled US$8.1 billion in 2010, with emphasis on bond disbursements of US$1.2 billion, which included US$550 million reopening of the Global 41 and US$655 million reopening of the Global BRL 28, and interest revenues of US$4.1 billion in earnings on reserves. Among other operations, which increased the stock of reserves at US$2.8 billion, we highlight the gains of US$649 million in bond prices and US$324 million in parities.

Table 5.34 – National Treasury – External debt service1/ US$ million Period Maturity profile Maturity settlement Principal Interest Total Market Reserves Total

2010 Jan 428 1 070 1 498 1 498 - 1 498 Feb 972 440 1 412 1 412 - 1 412 Mar 305 118 423 423 - 423 Apr 552 223 775 775 - 775 May 130 133 263 263 - 263 Jun 215 101 316 316 - 316 Jul 305 915 1 220 1 220 - 1 220 Aug 111 274 385 385 - 385 Sep 208 209 417 417 - 417 Oct 1 194 199 1 393 1 393 - 1 393 Nov 640 146 786 786 - 786 Dec 340 52 392 392 - 392 Year 5 399 3 880 9 279 9 279 - 9 279

1/ Includes principal and interest maturities related to bonds.

National Treasury External Debt Service

The Treasury maintained its policy initiated in 2003 of purchasing currency in the foreign exchange market to pay the debt service relative to bonds. In 2010, these operations totaled US$9.3 billion, of which US$5.4 billion related to principal and US$3.9 billion to interest. Among such bonus amortizations, Global 10, US$413 million; Global 10-N, US$807 million; Global 18/A-Bond, US$335 million; and Euro 10, US$589 million stood out.

The bond repurchase program of Brazil’s external debt, aiming at improving Brazilian public debt term proﬁ le, especially building up a more complete yield curve, traded

132 Boletim do Banco Central do Brasil – Annual Report 2010 US$4.3 billion in 2010, of which US$3.2 billion related to principal payment; US$76 million in accrued interest; and US$981 million in premium expenses.

Table 5.35 – National Treasury – External debt sovereign bonds buyback operations By settlement date

US$ million Itemization Principal Interest Premium/Discount Total

2010 Jan 257 4 41 302 Feb 382 7 138 527 Mar 289 6 49 345 Apr 139 3 36 178 May 130 4 19 153 Jun 215 11 70 295 Jul 141 1 39 181 Aug 111 2 21 134 Sep 193 3 49 245 Oct 388 7 168 562 Nov 640 18 239 896 Dec 340 11 111 463 Year 3 224 76 981 4 281

Foreign debt

Total external debt reached US$257 billion at the end of 2010, against US$58.6 billion in December previous year. Medium and long-term debt increased US$32.3 billion reaching US$199 billion, and short-term debt increased US$26.3 billion reaching US$57.3 billion. Stock of intercompany loans increased US$15.8 billion reaching US$95.1 billion, of which US$87 billion relating to medium and long-term.

In December 2010, the long-term external debt was composed of: trade fi nancing, 39.2% of the total; credits for currency loans, 37.4%; and bonds, 21.2%. The stock of currency loans amounted to US$14.4 billion in the year, refl ecting an increase of US$11.4 billion in notes and US$2.9 billion in direct loans. The stock of external fi nancing for foreign trade increased US$20.7 billion and on foreign debt bonds decreased by US$2.7 billion, to US$42.2 billion, highlighting that of this total, 97.2% referred to the public sector bonds.

V Economic-Financial Relations with the International Community 133 Table 5.36 – Gross foreign indebtedness1/ US$ million Itemization 2006 2007 2008 2009 2010

A. Total debt (B+C) 172 589 193 219 198 340 198 192 256 804

2/ B. Medium and long-term debt 152 266 154 318 161 896 167 220 199 497 Exceptional financing ----- IMF ----- BIS ----- BoJ ----- IMF loans - - - 4 510 4 446 Renegotiated debt bonds ----- 3/ Other bonds 51 968 47 195 42 687 44 953 42 223 Import financing 39 983 46 758 58 977 57 468 78 150 Multilateral 25 148 26 981 30 023 28 202 35 166 Bilateral 6 259 6 482 6 854 6 826 15 528 Other financing sources 8 575 13 295 22 100 22 440 27 457 Currency loans 60 315 60 365 60 232 60 289 74 677 4/ Notes 40 151 45 884 42 420 41 259 52 703 Direct loans 20 164 14 481 17 812 19 030 21 975 Other loans -----

C. Short-term debt 20 323 38 901 36 444 30 972 57 307 Credit line for petroleum imports ----- Commercial banks (liabilities) 16 527 27 613 28 220 21 957 32 328 Resolution no. 2,483 – Rural financing ----- Special operations 3 796 11 288 8 224 9 015 24 979 Financing 530 305 802 593 837 Currency loans 3 266 10 983 7 421 8 422 24 141

D. Intercompany loans 26 783 47 276 64 570 79 372 95 137

E. Total debt + intercompany loans (A+D) 199 372 240 495 262 910 277 563 351 941

1/ In 2001, includes revision of debt position, which separates all debt that bas been matured for more than 120 days, and excludes the stock of principal related to intercompany loans. In the years before 2001, the stock of intercompany loans are also displayed separately. 2/ Debt positions refer to capital registration before the Banco Central do Brasil. Position changes might not be compatible with the balance of payments figures, which represents inflows and outflows effectively occurred in the period. 3/ Includes Brazilian Investment Bonds (BIB). 4/ Includes commercial papers and securities.

The increase in short-term debt was mainly due to respective increases of US$15.7 billion and US$10.4 billion in loan operations and the stock held by the commercial banks.

The registered external debt, with participation of 55% of the private sector, represented 87.4% of the total external debt, being US$99.3 billion in long-term debt and US$24.1 billion in short-term liabilities. The indebtedness of medium and long-term focused on the following modalities: notes, 45.8% of the total, and banks, and 36.6%.

134 Boletim do Banco Central do Brasil – Annual Report 2010 The registered external debt for which the public sector is liable, comprising 45% of the total, was composed, at the end of 2010, of US$100.2 billion of medium and long-term debt and US$844 million of short term debt. The outstanding medium and long-term debt of the non-ﬁ nancial public sector was concentrated in the National Treasury, 62.6% of the total, of which US$41 billion in the bond modality. The Central Bank debt, 5.4% of the total, referred to the full allocations of SDRs with the IMF, and it is classiﬁ ed as debt with international organizations. The external debt of state and municipal governments represented 16% of the total, concentrated in loans from international organizations, while the state-owned companies referred mostly to credits from government agencies.

Table 5.37 – Registered external debt US$ million Debtor Creditor 2/ 3/ Bonds Multilateral Bank loans Notes 1/ institutions

A. Total 42 223 39 633 58 767 61 096

B. Medium and long-term 42 223 39 612 43 139 52 703 Public sector 41 042 34 097 6 770 7 246 Nonfinancial public sector 41 042 28 346 1 548 2 643 National Treasury 41 042 9 908 400 0 Banco Central do Brasil 0 4 446 0 0 Public enterprises 0 2 070 292 2 643 States and municipalities 0 11 921 856 0 Financial sector 0 5 751 5 222 4 603 Private sector 1 181 5 515 36 369 45 457 Nonfinancial sector 1 055 2 770 31 281 20 822 Financial sector 126 2 745 5 088 24 635

C. Short-term 0 21 15 628 8393 Loans 0 1 14 948 0 Nonfinancial sector 0 1 4 495 0 Financial sector 0 0 10 453 0 Import financing 0 21 680 8 393 Nonfinancial sector 0 0 569 868 Financial sector 0 21 111 7 525

D. Intercompany loans 247 0 0 3 773

E. Total debt + intercompany loans (A+D) 42 469 39 633 58 767 64 869

(continues)

The debt contracted with the endorsement of the public sector increased US$5.2 billion in 2010, reaching US$27.1 billion, of which US$25.7 billion are granted by the Federal Government. Regarding the origin of the total indebtedness, from the total amount endorsed, US$1.6 billion, consisted of private-sector debt.

V Economic-Financial Relations with the International Community 135 Table 5.37 – Registered external debt (concluded) US$ million Outstanding: 12.31.2010 Debtor Creditor Government Suppliers Others Total agencies credits

A. Total 15 534 3 133 4 090 224 476

B. Medium and long-term 15 528 2 996 3 296 199 497 Public sector 10 889 111 0 100 154 Nonfinancial public sector 9 158 111 0 82 847 National Treasury 464 74 0 51 888 Banco Central do Brasil 0 0 0 4 446 Public enterprises 8 232 36 0 13 274 States and municipalities 461 0 0 13 239 Financial sector 1 731 0 0 17 307 Private sector 4 639 2 885 3 296 99 342 Nonfinancial sector 4 509 2 874 1 276 64 586 Financial sector 130 11 2 020 34 756

C. Short-term 6 138 794 24 979 Loans 6 0 794 15 748 Nonfinancial sector 6 0 152 4 653 Financial sector 0 0 642 11 095 Import financing 0 138 0 9 231 Nonfinancial sector 0 138 0 1 575 Financial sector 0 0 0 7 656

D. Intercompany loans 0 0 91 117 95 137

E. Total debt + intercompany loans (A+D) 15 534 3 133 95 207 319 613

1/ Includes IMF. 2/ Includes buyers credit. 3/ Includes commercial papers and securitizated loans.

Table 5.38 – Public registered external debt Breakdown of principal by debtor and by guarantor US$ million Itemization 2006 2007 2008 2009 2010

Federal government (direct) 63 942 58 991 54 373 54 779 51 888 States and municipalities 6 815 7 055 8 199 9 593 13 239 Direct - 41 27 5 3 Guaranteed by the federal government 6 815 7 013 8 172 9 588 13 235 Semi-autonomous entities, public - - - - - companies and mixed companies 14 777 14 700 17 147 26 850 35 872 Direct 9 041 8 619 10 946 15 474 23 587 Guaranteed by the federal government 5 735 6 081 6 201 11 376 12 285 Private sector (garanteed by the public sector) 89 436 450 891 1 578 Total 85 622 81 182 80 169 92 113 102 577 Direct 72 983 67 652 65 346 70 258 75 478 Guaranteed by 12 640 13 530 14 823 21 855 27 099 Federal government 12 597 13 454 14 688 21 234 25 684 States and municipalities 3 8 7 5 0 Semi-autonomous entities, public companies and mixed companies 40 67 127 616 1 414

136 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.39 – Registered external debt – By debtor Amortization schedule1/ US$ million Itemization Outstanding 2011 2012 2013 2014 2015 debt

A. Total debt (B+C) 224 476 46 878 20 394 19 827 10 609 20 043

B. Medium and long-term debt 199 497 21 899 20 394 19 827 10 609 20 043 Nonfinancial public sector 82 847 4 765 5 323 3 654 2 992 7 238 Central government 56 334 3 404 4 029 2 212 1 686 3 692 Others 26 513 1 361 1 294 1 442 1 307 3 546 Financial public sector 17 307 2 896 680 1 545 658 974 Private sector 99 342 14 237 14 392 14 627 6 958 11 831

C. Short-term debt 24 979 24 979 - - - - Nonfinancial public sector ------Financial public sector 844 844 - - - - Private sector 24 135 24 135 - - - -

D. Intercompany loans 95 137 17 116 11 441 9 402 10 989 9 248 E. Total debt + intercompany loans (A+D) 319 613 63 993 31 835 29 229 21 598 29 291

(continues)

Table 5.39 – Registered external debt – By debtor (concluded) Amortization schedule1/ US$ million Itemization 2016 2017 2018 2019 2020 Beyond and arrears

A. Total debt (B+C) 12 859 13 443 7 780 11 991 13 126 47 527

B. Medium and long-term debt 12 859 13 443 7 780 11 991 13 126 47 527 Nonfinancial public sector 5 758 6 342 2 935 7 095 1 903 34 842 Central government 2 996 3 825 634 3 884 821 29 153 Others 2 762 2 517 2 301 3 211 1 081 5 690 Financial public sector 618 1 573 1 560 1 515 2 362 2 926 Private sector 6 483 5 527 3 285 3 381 8 862 9 758

C. Short-term debt ------Nonfinancial public sector ------Financial public sector ------Private sector ------

D. Intercompany loans 4 063 5 175 5 150 4 442 5 801 12 311 E. Total debt + intercompany loans (A+D) 16 922 18 617 12 929 16 433 18 927 59 838

1/ Includes exceptional financing.

V Economic-Financial Relations with the International Community 137 Table 5.40 – Registered external debt – By creditor Amortization schedule1/ US$ million Itemization Outstanding 2011 2012 2013 2014 2015 debt

A. Total debt (B+C) 224 476 46 878 20 394 19 827 10 609 20 043

B. Medium and long-term debt 199 497 21 899 20 394 19 827 10 609 20 043 International organizations 39 612 3 196 3 909 3 126 2 677 3 037 Government agencies 15 528 1 041 1 108 1 112 1 039 2 373 Buyers 24 461 5 333 5 709 4 234 2 655 2 476 Suppliers 2 996 754 548 569 209 208 Currency loans 74 677 9 208 6 974 9 154 3 149 9 081 2/ Notes 52 703 2 962 2 797 5 343 1 652 7 499 Direct loans 21 975 6 246 4 176 3 811 1 497 1 582 Bonds 42 223 2 367 2 147 1 632 880 2 867

C. Short-term debt 24 979 24 979 - - - -

D. Intercompany loans 95 137 17 116 11 441 9 402 10 989 9 248

E. Total debt + intercompany loans (A+D) 319 613 63 993 31 835 29 229 21 598 29 291

(continues)

Table 5.40 – Registered external debt – By creditor (concluded) Amortization schedule1/ US$ million Itemization 2016 2017 2018 2019 2020 Beyond and arrears

A. Total debt (B+C) 12 859 13 443 7 780 11 991 13 126 47 527

B. Medium and long-term debt 12 859 13 443 7 780 11 991 13 126 47 527 International entities 2 440 2 067 1 790 1 647 1 501 14 222 Government agencies 2 181 2 040 1 943 1 781 298 614 Buyers 1 511 867 330 576 284 487 Suppliers 123 114 99 92 106 174 Currency loans 4 179 5 112 3 493 4 494 10 554 9 280 2/ Notes 3 141 4 519 3 065 3 939 9 477 8 309 Direct loans 1 038 593 428 555 1 077 971 Bonds 2 425 3 244 126 3 401 383 22 751

C. Short-term debt ------

D. Intercompany loans 4 063 5 175 5 150 4 442 5 801 12 311

E. Total debt + intercompany loans (A+D) 16 922 18 617 12 929 16 433 18 927 59 838

1/ Includes exceptional financing. 2/ Includes commercial papers and securities.

138 Boletim do Banco Central do Brasil – Annual Report 2010 The amortization schedule of the medium and long-term gross external debt, according to the position in December 2010, showed that 52.5% of debts will mature within the next ﬁ ve years. Considering the long-term debt maturing until 2015, the participation of private and public ﬁ nancial sectors amounted to 74.2%. With regard to the amortization schedule of the registered external debt by creditor, those relating to currency loans, operations of buyers and international organizations accounted, respectively, for 40.5%, 22% and 17.2% of medium and long-term maturities, in December 2010.

The average maturity of external debt reached 7.2 years, in December of 2010, compared to 7.5 years in the same month of the previous year, with the shortest period occurring among buyers, 3.3 years, and the longest, 13.2 years, occurring with bonds.

The participation of the US dollar in the external debt registered by currency grew 2.9 p.p. in the year, reaching 82.8%, while the euro and the yen indicated retreats of 0.1 p.p. and 1.7 p.p., reaching 5% and 4.5%, respectively. The participation of real denominated debt decreased by 0.6 p.p., to 5.5%.

The stock of debt with ﬂ oating rates widened from 39.3% of the total in December of 2009 to 40.8% in December of 2010, stressing that the participation of LIBOR as the index rose from 56.5% to 58.7% in this segment.

Table 5.41 – Average maturity term Registered external debt1/ US$ million Itemization 2010 Average maturity (years)

A. Total 221 371 7.2 International organizations 39 605 8.9 Government agencies 15 501 5.9 Buyers 24 075 3.3 Suppliers 2 899 3.7 Currency loans + others 21 820 3.6 Notes and commercial papers 52 047 7.5 Bonds 42 223 13.2 Bradies 93 2.0 Global/Euro 40 949 13.5 Others 1 181 2.5 Short-term 23 201 1.0

B. Intercompany loans 91 296 5.5

C. Total + intercompany loans 312 666 6.7

1/ Excludes debt in arrears.

V Economic-Financial Relations with the International Community 139 Graph 5.11 Average term of registered external debt 9

6 In years

4 Dec Dec Dec Dec Mar Jun Sep Dec 2006 2007 2008 2009 2010

Average term

Graph 5.12 Registered external debt composition December 2010

Distribution by currency Distribution by type of interest rate Real Ien Euro Floating rates 4.5% 5.5% 5.0% Other Other Fixed 2.2% 16.9% rates 59.2%

Libor US dollar 24.0% 82.8%

Indebtedness indicators

Indicators of external indebtedness relative to external debt service and total external debt registered a favorable annual performance in 2010, while those related to net foreign debt had opposite movement.

The debt service and exports increased by 6.4% and 32% in the year, respectively, resulting in a drop from 28.5% to 23%, in the ratio between the two variables. The respective increases of 30.7% and 29.6% observed in the GDP in US dollars and the total external debt resulted in a reduction, from 12.4% to 12.3%, of the ratio total external debt to GDP. Additionally, the relationship of debt service/GDP and total external debt/exports decreased, respectively, from 2.7% to 2.2% and from 129.5% to 127.2% in the year.

The total assets net external debt remained negative in December 2010. Thus, the ratio between the net external debt and exports in the last twelve months went from -40.4%

140 Boletim do Banco Central do Brasil – Annual Report 2010 in December of 2009, to -25.1%, in December of 2010, while the ratio net external debt to GDP ranged from -3.9% to -2.4%.

Table 5.42 – Indebtedness indicators1/ US$ million Itemization 2006 2007 2008 2009 2010

Debt service 56 902 52 028 37 638 43 561 46 348 2/ Amortizations 42 024 36 687 22 065 29 639 32 864 Gross interest 14 878 15 342 15 573 13 922 13 484 Medium and long-term external debt (A) 152 266 154 318 161 896 167 220 199 497 Short-term external debt (B) 20 323 38 901 36 444 30 972 57 307 Total debt (C)=(A+B) 172 589 193 219 198 340 198 192 256 804 International reserves (D) 85 839 180 334 206 806 239 054 288 575 3/ Brazilian credit abroad (E) 2 939 2 894 2 657 2 435 2 227 Commercial bank assets (F) 8 990 21 938 16 560 18 474 16 630 Net debt (G)=(C-D-E-F) 74 821 -11 948 -27 683 -61 771 -50 628 Exports 137 807 160 649 197 942 152 995 201 915 GDP 1 088 767 1 366 543 1 650 713 1 598 397 2 089 829

Indicators (in percentage) Debt service/exports 41.3 32.4 19.0 28.5 23.0 Debt service/GDP 5.2 3.8 2.3 2.7 2.2 Total debt/exports 125.2 120.3 100.2 129.5 127.2 Total debt/GDP 15.9 14.1 12.0 12.4 12.3 Net total debt/exports 54.3 -7.4 -14.0 -40.4 -25.1 Net total debt/GDP 6.9 -0.9 -1.7 -3.9 -2.4

1/ Excludes stock of principal, amortizations and interests concerning intercompany loans. Considers a review in the medium and long-term indebtedness position of the private sector. 2/ Includes the payments referring to the financial assistance program. Refinanced amortizations are not considered. 3/ Export Financing Program (Proex).

V Economic-Financial Relations with the International Community 141 Graph 5.13 External sustainability indicators

Debt service/exports Debt service/GDP % % 100 11 90 80 9 70 60 7 50 5 40 30 3 20 10 1 2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010

Debt/export Debt/GDP Ratio %

5 45

4 35 3 25 2 15 1 5 0

-1 -5 2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010

Total debt/exports Total debt/GDP Net total debt/exports Net total debt/GDP

External funding operations

The face value of securities issued by the Federative Republic of Brazil in 2010 totalled US$2.8 billion. Funding in the international market mainly occurred in the second half of the year and it was denominated in US dollars, with the launch, and subsequent reopening, of the Global 21 and reopening of the Global 41, and in real, with the reopening of the Global BRL 28. The maturity schedules of the bonds ranged from ten to thirty years and the risk premiums – the difference between the rate of return offered by Brazilian bonds and US Treasury bonds – amounted to 115 basis points at launch and 150 basis points in the reopening of the Global 21; and 142 basis points at the reopening of the Global 41.

The restructured external debt totaled US$93 million in December 2010, a reduction of US$31 million over the same month in the previous year, referring exclusively to Exit Bond (BIB), for which there is no provision for advance payments and with the maturity in 2013.

142 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.43 – Issues of the Republic

Itemization Date of Date of Maturity Value Coupon Rate of return Spread over 1/ inflow maturity years US$ million % p.y. at issuance U.S. Treasury % p.y. basis points Euromarco 07 2.26.1997 2.26.2007 10 592 8.000 242 2/ Global 27 6.9.1997 6.9.2027 30 3 500 10.125 10.90 395 3/ Eurolira 6.26.1997 6.26.2017 20 443 11.000 348 Eurolibra 7.30.1997 7.30.2007 10 244 10.000 8.73 268 Global 08 4.7.1998 4.7.2008 10 1 250 9.375 10.29 375 4/ Euromarco 08 4.23.1998 4.23.2008 10 410 10 a 7 8.97 328 Global 09 10.25.1999 10.15.2009 10 2 000 14.500 14.01 850 Euro 06 11.17.1999 11.17.2006 7 723 12.000 12.02 743 Global 20 1.26.2000 1.15.2020 20 1 000 12.750 13.27 650 Euro 10 2.4.2000 2.4.2010 10 737 11.000 12.52 652 5/ Global 30 3.6.2000 3.6.2030 30 1 600 12.250 12.90 663 6/ Global 07 7.26.2000 7.26.2007 7 1 500 11.250 12.00 612 Global 40 8.17.2000 8.17.2040 40 5 157 11.000 13.73 788 7/ Euro 07 10.5.2000 10.5.2007 7 656 9.500 11.01 508 Samurai 06 12.22.2000 3.22.2006 5 531 4.750 10.92 531 Global 06 1.11.2001 1.11.2006 5 1 500 10.250 10.54 570 Euro 11 1.24.2001 1.24.2011 10 938 9.500 10.60 560 Global 24 3.22.2001 4.15.2024 23 2 150 8.875 12.91 773 Samurai 07 4.10.2001 4.10.2007 6 638 4.750 10.24 572 Global 12 1.11.2002 1.11.2012 10 1 250 11.000 12.60 754 Global 08N 3.12.2002 3.12.2008 6 1 250 11.500 11.74 738 Euro 09 4.2.2002 4.2.2009 7 440 11.500 12.12 646 Global 10 4.16.2002 4.15.2010 8 1 000 12.000 12.38 719 Global 07N 5.6.2003 1.16.2007 4 1 000 10.000 10.70 783 Global 13 6.17.2003 6.17.2013 10 1 250 10.250 10.58 738 8/ Global 11 8.7.2003 8.7.2011 8 1 250 10.000 11.15 701 Global 24B 8.7.2003 4.15.2024 21 825 8.875 12.59 764 Global 10N 10.22.2003 10.22.2010 7 1 500 9.250 9.45 561 Global 34 1.20.2004 1.20.2034 30 1 500 8.250 8.75 377 Global 09 N 6.28.2004 6.29.2009 5 750 Libor 3m Libor 3m 359 +5.76 +5.94 Global 149/ 7.14.2004 7.14.2014 10 1 250 10.500 10.80 538 Euro 1210/ 9.24.2004 9.24.2012 8 1 228 8.500 8.57 474 Global 19 10.14.2004 10.14.2019 15 1 000 8.875 9.15 492 Euro 15 2.3.2005 2.3.2015 10 652 7.375 7.55 399 Global 25 2.4.2005 2.4.2025 20 1 250 8.750 8.90 431 Global 15 3.7.2005 3.7.2015 10 1 000 7.875 7.90 353 Global 19 (Reopening) 5.17.2005 10.14.2019 14 500 8.875 8.83 458 Global 34 (Reopening) 6.2.2005 1.20.2034 29 500 8.250 8.81 440 Global 15 (Reopening) 6.27.2005 3.7.2015 10 600 7.875 7.73 363 A-Bond 18 (Swap C Bond) 8.1.2005 1.15.2018 13 4 509 8.000 7.58 336 Global 25 (Reopening) 9.13.2005 2.4.2025 20 1 000 8.750 8.52 417 Global BRL 16 9.26.2005 1.5.2016 10 1 479 12.500 12.75 - Global 15 (Reopening) 11.17.2005 3.7.2015 9 500 7.875 7.77 312 Global 34 (Reopening) 12.6.2005 1.20.2034 28 500 8.250 8.31 363 Global 37 1.18.2006 1.20.2037 31 1 000 7.125 7.56 295 Euro 15 (Reopening) 2.3.2006 2.3.2015 9 362 7.375 5.45 185

(continues)

V Economic-Financial Relations with the International Community 143 Table 5.43 – Issues of the Republic (concluded)

Itemization Date of Date of Maturity Value Coupon Rate of return Spread over 1/ inflow maturity years US$ million % p.y. at issuance U.S. Treasury % p.y. basis points Global 37 (Reopening) 3.23.2006 1.20.2037 31 500 7.125 6.83 204 Global 34 (Reopening) 6.2.2006 1.20.2034 28 198 8.250 8.24 - Global 37 (Reopening) 8.15.2006 1.20.2037 30 500 7.125 7.15 205 Global BRL 22 9.13.2006 1.5.2022 15 743 12.500 12.88 - Global BRL 22 (Reopening) 10.13.2006 1.5.2022 15 301 12.500 12.47 - Global 17 11.14.2006 1.17.2017 10 1 500 6.000 6.25 159 Global BRL 22 (Reopening) 12.11.2006 1.5.2022 15 346 12.500 11.66 - Global 37 (Reopening) 1.30.2007 1.20.2037 30 500 7.125 6.64 173 Global BRL 28 2.14.2007 1.10.2028 21 715 10.250 10.68 - Global BRL 28 (Reopening) 3.27.2007 1.10.2028 21 361 10.250 10.28 - Global 17 (Reopening) 4.11.2007 1.17.2017 10 525 6.000 5.89 122 Global BRL 28 (Reopening) 5.17.2007 1.10.2028 21 389 10.250 8.94 - Global BRL 28 (Reopening) 6.26.2007 1.10.2028 21 393 10.250 8.63 - Global 17 (Reopening) 5.14.2008 1.17.2017 10 525 6.000 5.30 140 Global 19N 1.13.2009 1.15.2019 10 1 025 5.875 6.13 370 Global 19N (Reopening) 5.14.2009 1.15.2019 10 750 5.875 5.80 252 Global 37 (Reopening) 8.5.2009 1.20.2037 30 525 7.125 6.45 195 Global 41 10.7.2009 1.7.2041 30 1 275 5.625 5.80 175 Global 19N (Reopening) 12.22.2009 1.15.2019 10 525 5.875 4.75 114 Global 21 4.22.2010 1.22.2021 10 788 4.875 5.00 115 Global 21 (Reopening) 8.3.2010 1.22.2021 10 825 4.875 4.55 150 Global 41 (Reopening) 9.21.2010 1.7.2041 30 550 5.625 5.20 142 Global BRL 28 (Reopening) 10.27.2010 1.10.2028 21 655 10.250 8.85 -

1/ Over US Treasury, in the closing date. For bonds issued in more than one tranche, spread weightened by the value of each tranche. 2/ The inflow occured on two dates: US$3 billion, on 6.9.1997; and US$500 million, on 3.27.1998. 3/ The inflow occured on two dates: ITL500 billion, on 6.26.1997; and ITL250 billion, on 7.10.1997. 4/ Step-down – 10% in the first two years and 7% in the following years. 5/ The inflow occurred in two dates: US$1 billion, with spread of 679 bps, on 3.6.2000; and US$600 million, with spread of 635 bps, on 3.29.2000. 6/ Global 07 was issued in two tranches: US$1 billion, with spread of 610 bps, on 7.26.2000; and US$500 million, with spread of 615 bps, on 4.17.2001. 7/ Euro 07 was issued in two tranches: EUR500 million, with spread of 512 bps, on 9.19.2000; and EUR250 million, with spread of 499 bps, on 10.2.2000. 8/ Global 11 was issued in two tranches: US$500 million, with spread of 757 bps, on 8.7.2003; and US$750 million, with spread of 633 bps, on 9.18.2003. 9/ Global 14 was issued in two tranches: US$750 million, with spread of 632 bps, on 7.7.2004; and US$500 million, with spread of 398 bps, on 12.06.2004. 10/ Euro 12 was issued in two tranches: EUR 750 million, with spread of 482 bps, on 9.8.2004; and EUR 250 million, with spread of 448 bps, on 9.22.2004.

144 Boletim do Banco Central do Brasil – Annual Report 2010 Table 5.44 – Restructured external debt – Bradies, Pre-Bradies and MYDFA

Itemization Outstanding 12.31.2010 Maturity US$ million

Capitalization Bonds (C Bonds) - - Debt Conversion Bonds (DCB) - - Discount Bonds - - Eligible Interest Bonds (EI) - - Front Loaded Interest Reduction Bond (FLIRB) - - New Money Bond 1994 (NMB) - - Par Bonds - - Exit Bond (BIB) – (pre-Bradies) 93 9.15.2013 Multiyear Deposit Facility Agreement (MYDFA) - -

Total 93

Brazilian external debt securities

The main securities of the Brazilian external debt recorded volatility in 2010, having risen prices in the ﬁ rst three quarters of the year, and decrease in the subsequent period.

The basket containing the Brazilian foreign debt, weighted on a liquidity base and with daily observations, presented, in 2010, an average spread of 203 b.p. in relation to the remuneration of US Treasuries, compared to 306 b.p. in 2009. The index fell 3 basis points to 189 basis points, between the positions of end of year 2009 and 2010.

International Investment Position (IIP)

Net external liabilities reached US$706 billion in 2010. The annual increase of US$100 million reﬂ ected the increases observed in gross external liabilities, US$214 billion, and gross external assets, US$114 billion.

Regarding external assets, the increases of US$50 billion in international reserves, of US$37.1 billion in trade credit, and of US$16.4 billion in direct Brazilian investments abroad stood out.

The evolution of external liabilities was due to increases in stocks of foreign portfolio investments, US$94.4 billion, of which US$53.8 billion in stock, and US$40.7 billion in ﬁ xed-income securities; US$71.8 billion of FDI; and US$47.2 million of other investments, emphasizing their increases of US$21.4 billion and US$23.8 billion in short-term and long term loans, respectively.

V Economic-Financial Relations with the International Community 145 Graph 5.14 Prices of Brazilian securities abroad Secondary market – Bid price, end-of-period – 2010

US$ cents Global 15 US$ cents Global 16 127 119 125 117 123 115 121 113 119 111 117 109 115 107 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 2010

US$ cents Global 18 US$ cents Global 27 124 170 122 165 120 160 118 155 116 150 114 145 112 140 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 2010

US$ cents Global 30 US$ Cents Global 34 195 151 190 146 185 141 180 136 175 131 170 126 165 121 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 2010

US$ cents Global 37 US$ cents Global 40 135 142 130 140 125 138 120 136 115 134 110 132 105 130 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 2010 Graph 5.15 Brazil risk index – EMBI+ (Strip spread) 1500

1000 bps 500

0 1.1.2003 3.4.2003 5.5.2003 7.6.2003 9.6.2003 1.8.2004 6.1.2007 8.2.2007 2.4.2008 4.6.2008 6.7.2008 8.8.2008 11.7.2003 3.10.2004 5.11.2004 7.12.2004 9.12.2004 1.14.2005 3.17.2005 5.18.2005 7.19.2005 9.19.2005 1.21.2006 3.24.2006 5.25.2006 7.26.2006 9.26.2006 1.28.2007 3.31.2007 10.3.2007 12.4.2007 10.9.2008 2.10.2009 4.13.2009 6.14.2009 8.15.2009 2.17.2010 4.20.2010 6.21.2010 8.22.2010 11.13.2004 11.20.2005 11.27.2006 12.10.2008 10.16.2009 12.17.2009 10.23.2010 12.24.2010 Brazil Latin America Source: JPMorgan

146 Boletim do Banco Central do Brasil – Annual Report 2010 The IMF ﬁ nancing and its relationship with Brazil in 2009-2010

Among the IMF sources of fi nancing, the participation quotas formed by the paid- in capital by each member country are signifi cant. The quotas are calculated on the basis of the relative size of the economy of each country, among other factors, and they determine their individual limits of fi nancial commitment with the IMF, and their voting power in the organization. Its original formation had the following proportions: one fourth in reserve assets, such as convertible foreign currencies or SDR, and three fourths in the currency of the given country.

Table 5.45 – International investment position US$ million 1/ Itemization 2008 2009 2010

International investment position (A-B) -283 800 -605 664 -705 663

Assets (A) 407 788 474 218 587 997 Direct investment abroad 163 329 158 777 175 202 2/ Equity capital 121 415 125 960 152 743 Intercompany loans 41 914 32 816 22 460 3/ Portfolio investment 17 321 13 257 18 041 Equity securities 4 828 2 245 234 Debt securities 12 493 11 012 17 807 Bonds and notes 7 534 6 054 12 849 Money-market instruments 4 959 4 958 4 958 Financial derivatives 609 287 153 Other investment 32 746 63 377 106 025 Trade credits (of suppliers) 123 25 226 62 304 Loans 658 853 343 Currency and deposits 24 107 29 105 33 953 Other assets 7 859 8 193 9 425 Of which collateral (interests) and memberships in international financial organizations 1 326 1 560 1 644 Reserve assets 193 783 238 520 288 575

(continues)

In order to fund its ﬁ nancial assistance programs, the IMF can use the SDR or currencies of member countries, especially the most developed ones, which were transferred to the Fund upon payment of quotas. These are the primary sources of the Fund’s resources, known as own sources.

In addition to the quotas, the IMF can increase its funding “buying” convertible currencies from its reserve assets of the countries with solid macroeconomic background, passing them to the requesting countries and receiving national currencies in exchange. Once replenished, the countries “buy back” their currencies by paying them in the same

V Economic-Financial Relations with the International Community 147 convertible currencies they took the loans. The IMF thus acts as an operator and paying/receiving agent in this mechanism of purchasing and repurchasing currencies.

Table 5.45 – International investment position (concluded) US$ million 1/ Itemization 2008 2009 2010

Liabilities (B) 691 588 1 079 881 1 293 660 Direct investment in reporting economy 287 697 400 808 472 579 2/ Equity capital 223 127 321 436 377 441 Intercompany loans 64 570 79 372 95 137 Portfolio investment 287 533 561 848 656 284 Equity securities 149 608 376 463 430 234 In the reporting country 71 350 205 159 254 194 Abroad 78 258 171 304 176 040 Debt securities 137 925 185 385 226 051 In the reporting country 49 289 95 802 122 732 Abroad 88 636 89 583 103 319 Medium and long-term 85 107 86 212 94 925 Medium and short-term 3 529 3 372 8 393 Financial derivatives 2 450 3 413 3 781 Other investment 113 908 113 813 161 016 Trade credits 6 241 3 306 3 133 Medium and long-term 5 906 3 138 2 996 Medium and short-term 335 167 138 Loans 103 463 100 793 145 905 Monetary authority 10 3 - Other sectors 103 454 100 790 145 905 Long-term 70 873 73 357 97 129 International entities 30 023 28 202 35 166 Government agencies 6 854 6 826 15 528 Buyers 16 194 19 302 24 461 Direct loans 17 802 19 027 21 975 Short-term 32 580 27 433 48 776 Currency and deposits 4 204 5 205 7 531 Monetary authority 104 69 57 Banks 4 101 5 135 7 474 Other liabilities - 4 510 4 446

1/ Preliminary data. 2/ Includes reinvested earnings. 3/ Includes securities issued by residents.

In practice, two of the Fund’s programs have been implemented throughout history: the General Arrangements to Borrow (GAB) and the New Arrangements to Borrow (NAB). In 2009, the GAB, established in 1962, encompassed 12 countries and totalled SDR17 billion (US$26 billion). The NAB, founded in 1997, brought together 26 countries and amounted to SDR 34 billion (US$52 billion) on the same date.

148 Boletim do Banco Central do Brasil – Annual Report 2010 The magnitude of the global ﬁ nancial crisis that started in mid-2008, reinforced the role of the IMF as the grantor of credit to countries with imbalances in the balance of payments, and led the G-20 countries to announce, in April of 2009, a three-fold increase, from US$250 billion to US$750 billion, of the sources of IMF funding. This total refers to the new and expanded NAB, which now has US$600 billion, encompassing 39 countries, compared to 26 previously. The need for special legal and political procedures for the legal approval of this new agreement within the various countries involved contributed to the fact that by the end of 2010, there were only 16 bilateral loan agreements and three purchase agreements of the current IMF Notes in force, totaling US$191 billion.

In January 2010, four years after settling in advance the program of ﬁ nancial assistance that was obtained from the IMF, Brazil has become one of the three countries that subscribed the purchase agreement of the IMF Notes, under the new and expanded NAB framework, becoming one of the 39 potential suppliers of funds to the organization. Brazil has offered to purchase up to US$10 billion in Type A Notes, within two-year period. These above mentioned Type A Notes, unlike the B-type counterparts, may be redeemed immediately if there are imbalances in the balance of payments of the country holding them, the reason why only these former ones are considered as reserve assets and are classiﬁ ed under the heading “Reserve Position in the IMF”. In December 2010, Brazil held, in its international reserves, SDR640 million (US$986 million) in Type A Notes of the Fund under this same heading.

At the same time, Brazil replenished the share in convertible currencies of its Fund’s quota, which had been fully utilized in previous years. In 2010, the “Reserve Position in the IMF” increased US$1.1 billion, as a result of the replenishment of US$105 million of Reserve Tranche (quota in convertible currencies), plus the purchase of US$986 million in Type A IMF Notes.

Still with the objective to increase its funding capacity, the Fund announced on August 7, 2009, the distribution of the equivalent of US$250 billion in general allocation of SDRs, distributed in proportion to the participation share of each member country. Brazil’s share amounted to US$3.5 billion, and was incorporated into the international reserves on August 28, 2009. Subsequently, on September 9, 2009, the country received a new SDR allocation, the calculation result of the review of the country’ share, which resulted in the expansion of the voting power in the IMF from 1.4% to 1.7%, corresponding to US$436 million.

Finally, since August 2009, following the recommendations of the new IMF’s balance of payments manual (BPM6), liabilities arising from all SDR allocations became incorporated into Brazilian foreign debt. At the end of 2010, such liabilities totaled US$4.4 billion.

V Economic-Financial Relations with the International Community 149 Table 5.46 – Brazilian financial position in the IMF SDR million Date QuotaReserve position in the IMF SDR holdings SDR allocations Reserve tranche Series A Notes Total

2009 Jan 3 036 0 - 0 1 359 Feb 3 036 0 - 0 0 359 Mar 3 036 0 - 0 0 359 Apr 3 036 0 - 0 1 359 May 3 036 0 - 0 0 359 Jun 3 036 0 - 0 359 359 Jul 3 036 400 - 400 359 359 Aug 3 036 400 - 400 2 610 2 609 Sep 3 036 406 - 406 2 887 2 887 Oct 3 036 406 - 406 2 887 2 887 Nov 3 036 406 - 406 2 887 2 887 Dec 3 036 606 - 606 2 887 2 887

2010 Jan 3 036 606 - 606 2 887 2 887 Feb 3 036 606 - 606 2 888 2 887 Mar 3 036 606 150 756 2 888 2 887 Apr 3 036 606 170 776 2 888 2 887 May 3 036 606 350 956 2 888 2 887 Jun 3 036 606 390 996 2 888 2 887 Jul 3 036 606 410 1 016 2 888 2 887 Aug 3 036 606 410 1 016 2 889 2 887 Sep 3 036 606 410 1 016 2 889 2 887 Oct 3 036 606 490 1 096 2 889 2 887 Nov 3 036 606 490 1 096 2 889 2 887 Dec 3 036 682 640 1 322 2 889 2 887

150 Boletim do Banco Central do Brasil – Annual Report 2010 VI The International Economy

In 2010, the world economy continued its recovery trend initiated in the second half of the previous year. By then, the coordinated action of central banks and the US and European governments – with the objective to stabilize the ﬁ nancial systems and mitigate the effects of a deepening international ﬁ nancial crisis – once again favored the resumption of economic activity.

The leading developed nations registered once again an annual GDP growth, highlighting the asymmetric nature of this trend within these economies and, especially, when including the performance of the emerging economies.

Financial markets, although registering lower volatility than in 2009, reﬂ ected from May to mid-August, rising concerns with the sovereign debt of some European countries and negative prospects regarding the sustainability of the US economic recovery and China’s performance. As of August, the gradual return of optimism regarding the US and Chinese economic growth and higher liquidity in the global economy boosted the indices of major stock exchanges.

In this environment, the worsening supply of various agricultural products and the strong demand from some emerging countries have created the conditions for a signiﬁ cant appreciation in the prices of agricultural commodities in the second half of the year, causing widespread repercussions on inﬂ ation rates and on the normalization process of the monetary policy, both in developed and emerging economies.

Economic activity

The four largest economies, reﬂ ecting the contrasting recovery of their respective internal demand, particularly household consumption and business investments, registered a distinct growth pace in the ﬁ rst quarter. In this sense, the annualized GDP growth rates in Japan and the US amounted to, respectively, 6.1% and 3.7% in the quarter, while for the United Kingdom and the Euro Area it reached 0.8% and 1.6%, respectively.

VI The International Economy 151 In the US, in a scenario of stabilization of real available income and reduced personal savings, household consumption recorded an annualized increase of 1.9% in the period, while in spite of the gradual exhaustion of the incentive effects to car sales coupled with the severe winter, the household consumption recorded expansion of 1.4%. In Japan, clearly indicating the stimulus to demand for cars and consumer durables, and in the United Kingdom, there were respective 2.1% expansion and 0.3% drop.

Gross Fixed Capital Formation (GFCF) of enterprises has shown an annualized quarterly increase at 7.8% in the US and 34.3% in the UK. In the Euro Area, the total GFCF recorded an annualized contraction of 0.9%. In the same period, business investments grew 2.7% in Japan. From a real estate perspective, investments showed an annualized growth of 5.3% in the UK, and 6.5% in Japan, while it recorded declines of 6.2% and 12.3% respectively in the Euro Area and the US Exports of goods and services, in a scenario of recovery of fi nal demand and exhaustion in the inventory adjustments process recorded, in the fi rst quarter, annualized growth of 29.3% in Japan, 12.7% in the Euro Area, and 11.4% in the US, while the UK had a 4% annualized decline. Imports from the Euro Area, refl ecting the low levels of stocks in the region experienced an annualized increase of 15.2% in the quarter, while Japan’s and the US acquisitions, refl ecting a more pronounced recovery in domestic demand in these countries, increased respectively 12.7% and 11.2%. External UK purchases rose 7.7% in the same period.

The stock variation made a positive overall contribution to the annualized GDP growth for the quarter ended March 2010. This performance, coupled with the process of growing exports, and, in the US and Japan, favorable evolution of household consumption, led to the rapid growth of manufacturing output, which recorded in the quarter, annualized rates of 32.7% in Japan, 13.7% in the Euro Area, 7.1% in the US and 4.1% in the UK.

In China, the annual variation of quarterly GDP reached 11.9% in the fi rst three months of the year, the highest growth since the second quarter of 2007, refl ecting strong domestic consumption and export growth, even with further deceleration in the expansion of gross fi xed capital formation. Consumption growth was stimulated by the recovery of the labor market and the maintenance of government incentives to purchase durable goods. During the period, retail sales grew 16.2%, while vehicle sales increased 72.5%. In the same period, industrial production grew 19.6%, refl ecting not only growth of domestic consumption, but also the favorable period for exports, which increased 28.7% over the same period of the previous year. The country’s real imports increased 65.1%, favoring growth of economic activity in Southeast Asia, Japan and the countries exporters of raw materials.

The four largest economies have shown different growth rate in the second quarter. However, in contrast to that observed in the two previous quarters, the annualized rates of the US GDP growth, 1.7%, and Japan, 2.1%, stood at the lower level compared to the UK, 4.3%, and the Euro Area, 4.0% – this was favored by the 9% growth recorded in Germany.

152 Boletim do Banco Central do Brasil – Annual Report 2010 Table 6.1 – Major developed countries GDP components and other indicators % rate anualised 2009 2010 I II III IV I II III IV

GDP United States -4.9 -0.7 1.6 5.0 3.7 1.7 2.6 3.1 Euro Area -9.6 -0.6 1.6 0.8 1.6 4.0 1.4 1.1 United Kingdom -8.6 -3.2 -1.1 1.9 0.8 4.3 2.9 -1.9 Japan -20.0 10.7 -1.9 7.2 6.1 2.1 3.3 -1.3

Household consumption United States -0.5 -1.6 2.0 0.9 1.9 2.2 2.4 4.0 Euro Area -2.1 0.1 -0.8 1.1 1.4 0.8 0.7 1.6 United Kingdom -5.4 -2.8 0.1 3.9 -0.3 2.2 -0.1 -1.1 1/ Japan -7.4 5.2 0.4 3.9 2.1 -0.1 3.6 -3.2

Gross Fixed Capital Formation (GFCF) United States -35.2 -7.5 -1.7 -1.4 7.8 17.2 10.0 7.7 2/ Euro Area -19.1 -8.6 -5.1 -4.2 -0.9 8.5 -0.9 -2.0 United Kingdom -31.1 -33.9 -14.3 -10.9 34.3 0.8 17.2 -0.1 3/ Japan -23.5 -18.2 -8.3 6.3 2.7 12.0 5.6 2.0

Residencial investment United States -36.2 -19.7 10.6 -0.8 -12.3 25.6 -27.3 3.3 4/ Euro Area -2.0 -6.8 -6.9 -6.8 -6.2 3.9 -4.0 -4.8 United Kingdom -44.0 -17.2 6.8 -10.6 5.3 32.8 18.5 -14.2 Japan -23.6 -30.4 -27.9 -15.0 6.5 -1.3 7.5 12.3

Exports of goods and services United States -27.8 -1.0 12.2 24.4 11.4 9.1 6.7 8.6 Euro Area -30.6 -4.0 11.1 9.0 12.7 19.0 8.6 6.3 United Kingdom -25.5 -6.9 3.5 15.5 -4.0 12.5 6.7 7.1 Japan -68.4 45.1 40.1 28.1 29.3 22.9 6.3 -3.0

Imports of goods and services United States -35.3 -10.6 21.9 4.9 11.2 33.5 16.8 -12.6 Euro Area -24.7 -10.6 7.3 4.4 15.2 18.0 6.2 3.9 United Kingdom -25.8 -8.8 4.4 17.7 7.7 8.8 7.8 13.5 Japan -49.4 -19.7 24.0 4.1 12.7 16.8 12.0 -0.5

5/ Unemployment rate United States 8.6 9.5 9.8 9.9 9.7 9.5 9.6 9.4 Euro Area 9.2 9.5 9.9 10.0 10.1 10.1 10.1 10.0 United Kingdom 7.1 7.8 7.9 7.8 8.0 7.8 7.7 7.9 Japan 4.8 5.2 5.3 5.2 5.0 5.2 5.0 4.9

Sources: BEA, Thomson, Cabinet Office, Eurostat and own calculation 1/ Private consumption. 2/ GFCF total. 3/ Private non-residencial investment. 4/ Total construction expediture. 5/ End of the quarter rate.

VI The International Economy 153 In the US, although the annual rate of growth of the real available income reached 4.4% in the June quarter, household consumption increased by 2%, favoring the household savings increase of 0.7 p.p., to 6.2% of available income. In the Euro Area, even in an environment of uncertainty caused by the sovereign debt crisis and the gradual elimination of incentives to vehicle purchases, household consumption indicated an annualized growth of 0.8%. In Japan, the exhaustion of incentives to the consumption of durable goods contributed to the fact that consumption recorded an annualized drop of 0.1% in the quarter.

The growth rate of the GFCF of companies in the US reached 17.2% and 0.8% in the United Kingdom. In the Euro Area, the total GFCF presented the fi rst growth since the fi rst quarter of 2008, growing 8.5%, with an emphasis on cost recovery in machinery and equipment and the expansion of construction activity. In Japan, business investments grew by 12%. In the same period, residential investment recorded respective increases of 3.9%, 25.6% and 32.8% in the Euro Area, the US and the United Kingdom, and a decline of 1.3% in Japan. It should be noted that the result registered in the US was led, in part, by the extension of tax incentives for the purchase of fi rst homes.

Exports of goods and services recorded in this period, annualized growth of 22.9% in Japan, 19% in the Euro Area, 9.1% in the US and 12.5% in the UK, while imports of goods and services experienced respective variations by 16.8%, 18%, 33.5% and 8.8% in the mentioned economies.

The manufacturing output in the Euro Area recorded a 9.6% annualized growth in the second quarter, following the strong growth in the US, 8.7%; in Japan, 2.8%; and the United Kingdom, 6.2%.

In China, the annual growth rate of the GDP reached 10.3% in the quarter that ended in June, compared to 11.9% in the quarter ended in March. Retail sales, impacted by the slowdown in vehicle sales, grew 15.2%, while the increase in total fi xed asset investment slowed to 20.5%, the fourth consecutive quarterly decline, and the annualized quarterly growth of industrial production amounted to 16%. Exports accelerated the pace of growth to 40.8% and imports, further infl uenced by the political exhaustion of the policies of commodity stock accumulation, slowed to 43.7% on the same basis of comparison. Considering the falloff in domestic demand and the prospects of slower growth in international trade, in July, the Chinese offi cials announced an additional stimulus to investment in infrastructure involving about US$100 billion, and to domestic vehicle demand.

Showing relative recovery of the labor market and continued expansion in private consumption, the annualized growth rate of Japan’s GDP reached 3.3% in the quarter ended in September, following the strong growth in the UK, 2.9%; US, 2.6%; and 1.4% in the Euro Area.

154 Boletim do Banco Central do Brasil – Annual Report 2010 In the US, the annualized growth rate of household consumption increased for the third consecutive year, reaching 2.4% in the quarter ended in September. Growth in real available income grew 1.0%, contributing for the household savings rate to fall 0.2 p.p. In the same period, the annualized growth rate of household consumption reached 0.7% in the Euro Area, 3.6% in Japan, showing the impact of the introduction of income transfer and extension of incentives to the consumption of durable goods, and -0.1% in the United Kingdom.

The growth rate of Gross Fixed Capital Formation (GFCF) of enterprises slowed to 10% in the US, and accelerated again in the United Kingdom to 17.2%. In the Euro Area, gross fi xed capital formation recorded a new decline of 0.9%. In Japan, the growth rate of business investment slowed to 5.6%. Also in the third quarter, residential investment expanded 7.5% and 18.5% in Japan and the United Kingdom, respectively, and decreased by 4% and 27.3%, respectively, in the Euro Area and the US in this case refl ecting the lagged effect of the end of government incentives for the purchase of fi rst homes that happened in April.

In the US, the external sector contributed -1.8 p.p. for the variation of the annual GDP for the quarter ended in September, contrasting with the respective impacts of 1.5 p.p., 0.3 p.p. and 0.1 p.p. reported in the United Kingdom, Euro Area and Japan Imports of goods and services recorded a 16.8% annualized increase in the US, followed by expansions in Japan, 12%; the Euro Area, 6.2%; and the United Kingdom, 7.8%, noting that exports of goods and services of these economies experienced an annualized growth of 6.7%, 6.3%, 8.6% and 6.7% respectively in the period.

In the third quarter, growth in manufacturing output slowed to 5.1%, 3.1% and 3.6%, respectively, in the US, Euro Area and the United Kingdom, and declined by 4.1% in Japan.

In China, the GDP growth rate in twelve months reached 9.6%. Real retail sales increased 15%, the third consecutive deceleration and consistent with a continued drop in vehicle sales. The growth rate of total ﬁ xed asset investment also recorded the third consecutive slowdown, to 18.3%, while industrial production grew 13.5%, the second consecutive slowdown. Chinese exports grew by 32.2% in the quarter, while imports, showing the impact of the policy of building up stocks of commodities increased 27.1% in the same period in 2009.

The annualized GDP growth rates in the US and the Euro Area reached 3.1% and 1.1% respectively in the quarter ended in December, highlighting that the growth registered in the US reﬂ ected, in particular, the occurrence of reduction in imports and increase in private consumption. In contrast, there were respective drops of 1.3% and 1.9% in GDP in Japan’s and the United Kingdom’s GDP, arising from the exhaustion of incentives

VI The International Economy 155 for the purchase of consumer goods and the slowdown of international trade in Japan, and strong winter in December, in the United Kingdom.

The annualized growth rate of household consumption increased for the fourth consecutive time in the US, reaching 4% in the last 2010 quarter, while real available income grew 1.8% and household savings decreased by 0.5 p.p. to 5.5% of disposable personal income. In addition, household consumption recorded annualized quarterly variations of -3.2% in Japan, 1.6% in the Euro Area and -1.1% in the United Kingdom.

In the same period, the GFCF of companies in the US grew 7.7% and 2% in Japan, and dropped 0.1% in the United Kingdom. The residential investment increased 12.3% in Japan and 3.3% in the US.

Imports of goods and services registered annual variation of -12.6% in the US, 3.9% in the Euro Area, -0.5% in Japan and 13.5% in the United Kingdom. Exports of goods and services by the US, UK and the Euro Area experienced respective increases of 8.6%, 7.1% and 6.3% during the period, while Japan’s external sales fell 3%.

The annualized growth rate of US manufacturing output slowed to 3.5% in the quarter ended in December, while the rates for the Euro Area and the United Kingdom accelerated respectively, to 9.3% and 4.6% and manufacturing output in Japan fell 2.6%.

In China, despite government efforts to restrict credit, reduce the growth rate and enhance the fi ght against infl ation, the annual GDP growth rate reached 9.8% in the quarter ended in December. The December result refl ected, in particular, the performance of retail sales that, while slowing the fourth consecutive quarter, expanded by 14%, and total fi xed asset investment increased 16.8% in the period.

Commodities

The international prices of commodities, after registering sharp volatility up to mid-year, were affected by the scenario of strong demand from China and other major emerging markets, high international liquidity, recovery of major developed economies and declining supply of various agricultural products. As a result, prices of several commodities ended the year at a level higher than that before the intensiﬁ cation of global ﬁ nancial crisis in 2008.

The Commodities Index – Brazil (IC-Br), calculated by the Central Bank of Brazil, increased 35.4% in 2010, as a result of variations of 45.7%, 25.9% and 17.1% in the segments of agribusiness commodities, metal and energy commodities, respectively. Considering the annual average, the index registered annual growth of 20.8% in 2010.

156 Boletim do Banco Central do Brasil – Annual Report 2010 Table 6.2 – China Demand components and other indicators % Rate [(Q)/(Q-4)] 2009 2010 I II III IV I II III IV

China GDP 6.5 7.9 9.1 10.7 11.9 10.3 9.6 9.8 Household consumption Retail sales 21.6 22.7 23.2 19.6 16.2 15.2 15 14 1/ Vehicles sales 3.6 31.6 73.8 85.7 72.5 29 16 23.2

Gross Fixed Capital Formation 30.3 41.2 38.2 25.8 23.2 20.5 18.3 16.8

2/ Exports of goods -19.8 -23.5 -20.4 0.1 28.7 40.8 32.2 24.9

2/ Imports of goods -31 -20.3 -11.7 22.8 65.1 43.7 27.1 29.4

3/ Urban unemployment rate 4.3 4.3 4.3 4.3 4.2 4.2 4.1 4.1

Source: Bloomberg, Thomson and own calculations 1/ Includes sales to enteprises. 2/ variations calculated in US$ current prices. 3/ End of the quarter rate.

The prices of agribusiness commodities, which, refl ecting the favorable results of the 2009/2010 crop, dropped in the fi rst half, began the process of strong appreciation as of July 2010. This process refl ected the aforementioned increase in demand as well as the consequences of severe drought in Russia, which culminated in the suspension of wheat exports from that country in August 2010, and adverse weather conditions in Australia, China, USA, Argentina and Brazil, which affected the supply of corn, soybeans, sugar, coffee and cotton. In this scenario, the December 2010 and 2009 S&P Goldman Sachs, average indexes reported increases in dollar prices of cotton, 88.9%; coffee, 54.8%; corn, 47.1%; wheat, 43.1%; soybean, 27.6%; and sugar, 24.8%.

The rise in metallic commodities prices reﬂ ected the upturn of economic recovery in the developed countries and strong growth in emerging economies, especially China.

Graph 6.1 IC-Br Index 180

160

140

120

100 2000 = 2000 = 100 80

60 Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec 2005 2006 2007 2008 2009 2010

IC-Br IC-Br Agriculture IC-Br Metal IC-Br Energy Source: BCB

VI The International Economy 157 The impact of high global liquidity on demand for high risk assets and the occurrence of speciﬁ c problems in the supply of nickel and copper contributed additionally. The monthly average of S&P Goldman Sachs indexes in December 2010 and in the previous year recorded its variations of 40% and 30.4% respectively in the prices of nickel and copper, followed by those for aluminum, 7.3%; lead, 3.1%; zinc, -4.6%.

In 2010, the average monthly price of iron ore with content of 63.5% in the Chinese spot market, recorded an appreciation of 60.1%, according to data from Metal Bulletin, a result of the combination of strong demand in China and problems in supply of the commodity faced by major exporters. As from April 1st, the new pricing system under contract for the iron ore came into force, replacing the system of annual negotiations by a new system of quarterly reviews. According to the spot price of iron ore with content of 63.5%, the new system resulted in 100% adjustment of the contract value for the second quarter of 2010, compared to the current 2009 price, followed by an increase of 33.4% in the third quarter and a decline of 11.5% within the following three months.

Despite the strong demand in emerging economies, oil prices showed relative stability in the ﬁ rst half of 2010, reﬂ ecting the high level of world stocks of this commodity. In the second half, the combination of high international liquidity, signals of strength of the recovery of major economies and severe winter in the northern hemisphere boosted the commodity price. In this context, the average prices of oil barrels Brent and WTI types reached, respectively, US$91.80 and US$89.15 in December of 2010, rising 22.9% and 19.7% respectively, over the same period in 2009.

Monetary policy and inﬂ ation

Rising commodity prices during the year, a phenomenon especially important in agricultural and oil sectors, has inﬂ uenced the evolution of inﬂ ation indexes in different manners. The price increase was more intense in economies where domestic demand is found to be more heated and the output gap more closed, like the one registered in emerging Asia and Latin America.

In this environment, major emerging economies, including China, India and Brazil, and mature commodity exporting economies such as Canada, Norway, Australia and New Zealand, began the process of normalization of monetary policy, partially reversing the monetary loosening measures taken while facing the crisis of 2008/2009. Differently, in the G3 economies, where the core inﬂ ation remained depressed during that period, their central banks, delaying the withdrawal of monetary stimulus, did not alter their basic interest rates.

In the US, the capacity utilization level and the slow recovery of the labor market made

158 Boletim do Banco Central do Brasil – Annual Report 2010 Graph 6.2 U.K. Brent oil – Spot market 135

120

105

60 US$ per barrel US$ 45

30 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2006 2007 2008 2009 2010

Source: Bloomberg it diffi cult the pass-through the increases in commodity prices to fi nal consumers, as evidenced by the twelve-month Consumer Price Index (IPC) variation, that went from 2.7% in December 2009 to 1.1% in June and 1.5% in December 2010. Similarly, the twelve-month variation of the core IPC went from 1.8% in December 2009 to 0.6% in October – the lowest value of the series started in 1957 – and 0.8% in December of 2010. It should be noted that, to cope with the scenario of high idleness of production factors and to stimulate domestic demand, the Federal Reserve (Fed) kept the limits of the fl uctuation band of the target for Fed funds at 0% and 0.25% p.y.

Graph 6.3 Official interest rates1/ Annual rate (%) 8 7 6 5 4 3 2 1 0 Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2007 2008 2009 2010 USA Euro Zone United Kingdom Japan China Source: USA – Fed, Euro Area – ECB, United Kingdom – BoE, Japan – BoJ and China – PBoC 1/ USA – Fed funds, Euro Area – minimum bid rate, United Kingdom – Securities repurchase, Japan – Overnight call rate and China – 1-year working capital.

Concerning the adequacy of local liquidity, the Fed announced in February, the closure of several unconventional programs started after the fi nancial crisis worsened in 2008 and the currency swap lines with several central banks. In the fi rst quarter, the Fed reduced the maximum term for loans through discount window operations, which once again were performed only through overnight, and in April, it announced the creation of a program of fi xed-term program (Term Deposit Facility – TDF) in order to drain liquidity when needed.

VI The International Economy 159 Graph 6.4 USA: Inflation1/ Annual percentage change 10 8 6 4 2 0 -2 -4 -6 -8 Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2007 2008 2009 2010 PPI CPI Source: Bureau of Labor Statistics 1/ Producer and consumer prices.

These signs of normalization of the monetary policy have been partially reversed in May, when, in response to a ﬁ scal crisis in certain European countries, Fed reestablished the swap lines with central banks of Europe, England, Canada, Switzerland and Japan. In addition to that, evaluating that core inﬂ ation remained below the level considered consistent and that the labor and real estate markets continued depressed, the Federal Open Market Committee (FOMC) decided, in August, to provide additional stimulus to the economy. In this sense, it announced it would retain the volume of assets on its balance sheet by reinvesting in long-term treasuries, the resources generated by the maturity of mortgage-backed securities of Fannie Mae and Freddie Mac. This measure was extended in November through the so-called quantitative easing II, which provided Fed with the purchase of another US$600 billion in long-term treasuries.

In Japan, the consumer price index, confi rming the slowing trend of the defl ationary process which began in 2009, when it fell 1.7%, recorded zero growth in 2010, after growing 0.2% in the twelve- month period ended in October, fi rst rise in 21 months, in this type of analysis. The performance of the annual infl ation refl ected, in particular, increases in variations of food prices, -2.5% to 0.7%, and energy, from -2.6% to 4%.

It should be noted that, in view of the persistent domestic demand below potential level, the defl ationary pressures and the appreciation of the yen determined the performance of the Bank of Japan (BoJ). In this sense, trying to shorten the defl ationary period, reduce real interest rates and curtail the appreciation of local currency, the BoJ kept a loose monetary policy. Extraordinary interventions were undertaken in March and June in order to provide extra liquidity, and in August, at a special meeting, a new quantitative growth through the expansion of the emergency credit line for the fi nancial market from ¥20 trillion to ¥ 30trillion was adopted, as well as the creation of the program of the fi nancial assets acquisition totaling ¥5 trillion. Additionally, in October, the BoJ opted to reduce the basic interest rate of 0.1% p.y. for the range between 0% p.y. and 0.1% p.y.

160 Boletim do Banco Central do Brasil – Annual Report 2010 Graph 6.5 Japan: Inflation1/ Annual percentage change 3

-1

-2

-3 Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2007 2008 2009 2010

CPI CPI - core Source: Bloomberg 1/ Consumer prices.

In the Euro Area, the twelve months variation in the Harmonized Index of Consumer Prices (HICP) was in an upward bias over the year, increasing from 0.9% in December 2009 to 2.2% in December 2010, surpassing the 2% threshold for the fi rst time since the end of 2008. This behavior was determined in particular by the respective annual increases of 2.2% and 11% in food and energy prices, which had varied, respectively, -0.2% and 1.8% in 2009. Core infl ation remained at a level of 1% over the year, registering record low of 0.8% in the fi rst two months of the year. In this scenario, which included anchored infl ation expectations, the European Central Bank (ECB) decided to maintain the benchmark interest rate at 1% p.y.

In March, after announcing that no refi nancing operation with a maturity longer than three months shall be approved and that the three-month offers for these operations would pass from a fl at fee to the auction process, the ECB started easing the monetary policy in May. In this sense, new three and six- month operations were established at a fi xed rate, and the criteria for acceptance of Greek sovereign debt bonus in refi nancing operations became more fl exible. Additionally, also in May, the ECB announced a program of purchases of public and private securities issued by the Euro Area countries – the Securities Markets Program.

Graph 6.6 Euro Area: Inflation1/ Annual percentage change 5

-1 Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2007 2008 2009 2010

HICP HICP – Core Source: Bloomberg 1/ Consumer prices.

VI The International Economy 161 In the UK, despite the high idleness of production factors, the twelve-month cumulative IPC variation confi rmed the upward trend that began in October 2009, remaining above 3% – the ceiling of the long-term goal – throughout 2010. With similar behavior, the core infl ation rate registered annual growth of around 3%, the highest level recorded during the entire decade. This infl ationary process refl ected, in particular, rising commodity and service prices, depreciation of the pound and increased value-added tax.

In order to provide adequate fi nancial conditions to the country’s economic recovery, the Bank of England (BoE) maintained unaltered the asset purchase program, at £200 billion, and basic interest rate at 0.5% per year, a percentage fi xed in March 2009, with developments on the real interest rate trajectory, which reached -3.1% per year in April and December, the lowest level in all decade. It should be noted that, in December, because of the diffi culties in Ireland, the BoE and the ECB created a temporary line of currency swap to facilitate potential Irish needs to pay pound-denominated commitments.

Graph 6.7 United Kingdom: Inflation1/ Annual percentage change 6

1 Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2007 2008 2009 2010

CPI – Core CPI Source: Bloomberg 1/ Consumer prices.

In China, the annual IPC variation rose from 1.9% in December 2009 to 4.6% in December 2010, after reaching 5.1% in November. The acceleration of the indicator reﬂ ected fundamentally the trajectory of food prices, which, by evidencing restrictions on supply and rising demand, posted annual growth of 9.6% in the year, up from 5.3% in 2009. It should be noted that the cumulative variation in food prices last twelve months reached 11.7% in November, the highest percentage since July 2008.

In response to increased liquidity, with rising infl ationary expectations and an upward effective infl ation, the People’s Bank of China (PBC) made quantitative restrictions to curb the rise in property prices and the formation of a real estate bubble in large cities. Additionally, it sold bonds with maturity of three years and raised six times the rate of reserve requirements, setting it at the end of the year, at 18.5% for larger banks and 16.5% for smaller institutions. It should be noted that still in May, after 23 months of fi xed parity against the US dollar, the PBOC announced the easing of the renminbi and, pressed by the high international liquidity and strong credit growth

162 Boletim do Banco Central do Brasil – Annual Report 2010 in October, made the ﬁ rst increase in benchmark interest rate since December 2007, from 5.31% to 5.56% p.y. The measure was repeated in December, with the rate ending the year at 5.81%.

Graph 6.8 China: Inflation1/ Annual percentage change 11 9 7 5 3 1 -1 -3 -5 -7 -9 Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec 2007 2008 2009 2010

Source: Bloomberg CPI PPI 1/ Consumer prices.

International ﬁ nancial market

The main ﬁ nancial markets, except for the period from May to August, when the movements of risk aversion associated with the ﬁ scal problems in countries of the Euro Area and the uncertainties about global economic recovery resulted in an increase in risk perception, operated in an environment of lower volatility in 2010 over the previous year.

The stock markets of major developed economies have recovered in 2010, standing, at the end of the year, at a level close to that recorded before the aggravation of the global ﬁ nancial crisis. During the year, the Deutscher Aktienindex (DAX – Germany), Standard & Poor’s 500 (S&P500 – USA) and Financial Times Securities Exchange Index (FTSE100 UK) advanced 16.1%, 12.8% and 9% respectively, contrasting with the 3% decrease recorded in Japan’s Nikkei, inﬂ uenced by the appreciation of the Yen and the major uncertainties regarding the country’s economic recovery.

The Chicago Board Options Exchange Volatility Index (VIX) index, of the Chicago Board Options Exchange, which expresses the implied short-term volatility Standard & Poor’s (S&P500) and is considered an important measure of risk aversion, after reaching 45.8 points on 20 of May 2010, amid tensions over the ﬁ scal situation in Greece, fell to 17.7 points at the end of the year. The average annual index fell from 31.5 points in 2009 to 22.5 points in 2010.

VI The International Economy 163 Graph 6.9 Stock exchanges – USA, Europe and Japan

135

115

55 12.31.2005 = 12.31.2005 = 100

35 1.4 3.11 5.16 7.21 9.25 11.30 2.4 4.11 6.16 8.21 10.26 12.31 2009 2010 FTSE 100 DAX Source: Bloomberg Nikkey 225 S&P 500

The more favorable prospects in relation to the trajectory of emerging economies contributed to various stock markets of these countries recording, in the period, signiﬁ cant gains, with emphasis on results reported in Turkey, 24.9%; South Korea, 21.9%; Mexico, 20%; India, 17.4%; and South Africa, 16.1%. It is worth mentioning the reduction in the last two months of the year, in the gains in these markets, changes consistent with the signs of resurgence of inﬂ ationary pressures, arising from increases in prices of agricultural commodities and energy.

Graph 6.10 VIX

10 1.4 4.4 7.4 10.3 1.2 4.3 7.3 10.2 1.1 4.2 7.2 10.1 12.31 2008 2009 2010 Source: Bloomberg

Uncertainties about ﬁ scal sustainability in the Euro Area countries, despite the ﬁ nancial aid packages and support mechanisms established by the IMF and the European Union, increased the sovereign risk premium measured by the Credit Default Swaps (CDS) of Greece, Ireland, Portugal and Spain, which went, respectively, from 283 b.p., 160 b.p., 90 b.p. and 113 b.p. at the end of 2009, to 1,037 b.p., 609 b.p., 499 b.p. and 349 b.p. at the end of 2010.

164 Boletim do Banco Central do Brasil – Annual Report 2010 Graph 6.11 Stock exchanges – Emerging markets Percentual change in 2009 and 2010 in local currency

Turkey (XU100)

Mexico (IPC)

India (Sensex)

Hungary (BUX)

Korea (KOSPI)

China (Shangai)

Brazil (Ibovespa)

South Africa (JALSH)

-70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 70 80 90 100 Source: Bloomberg 2009 2010

The Evolution of the Emerging Markets Bond Index Plus (Embi+), a risk indicator associated with emerging markets, reﬂ ected during 2010 the macroeconomic fundamentals of these economies, being marginally inﬂ uenced by the events in Europe. The index fell by 26 b.p. to 248 b.p. in the year, while the indexes associated with Brazil, Mexico and South Africa fell to 189 b.p. 149 b.p., and 143 b.p., respectively, in the period.

Figure 6.12 Sovereign CDS 5 years b.p. 620

520

420

320

220

120

20 1.6 2.26 4.20 6.10 7.31 9.22 11.12 1.4 2.24 4.16 6.8 7.29 9.20 11.10 12.31 2009 2010

Brazil Mexico Spain Portugal Ireland

Source: Thomson

Yields on long-term bonds of mature economies showed different movements during the year. After decreasing until the end of August, as a consequence of increased risk aversion and mistrust regarding the recovery of the major developed economies, yield of these securities began to reﬂ ect the improved expectations for the world economic growth and a decline in risk aversion. In this scenario, the annual yield of ten-year bonds of mature economies fell between late 2009 and late 2010, registering a drop from 3.84% to 3.29% in the US; from 3.39% to 2.96 % in Germany; from 1.30% to 1.13% in Japan; and from 4.02% to 3.40% in the UK.

VI The International Economy 165 Graph 6.13 Emerging Markets Bond Index Plus (Embi+) 750 700 650 600 550 500 450 400 350 300 250 200 150 100 1.2 2.27 4.24 6.19 8.14 10.9 12.4 1.29 3.26 5.21 7.16 9.10 11.5 12.31 2009 2010 Embi+ Brazil South Africa Source: Bloomberg Mexico Russia

The dollar, reﬂ ecting the impact of the European sovereign debt crisis and the improvement of expectations regarding the performance of the US economy, registered respective annual appreciation of 7% and 3.6% against the euro and the sterling pound, respectively. The US dollar experienced 12.8% depreciation against the yen, in particular due to the fact that the Japanese currency became a base for ﬂ ight to quality and assets operations in times of increased risk aversion.

Graph 6.14 1/ % Yield on treasury bonds 5.5

4.5

3.5

2.5

1.5

0.5 1.4 4.4 7.4 10.3 1.2 4.3 7.3 10.2 1.1 4.2 7.2 10.1 12.31 2008 2009 2010 Germany Japan United Kingdon USA Source: Bloomberg 1/ 10 year treasury nominal yields.

A greater strength of emerging countries growth, the risk reduction and the increased gap between current interest rates in these economies and in major developed economies have attracted signiﬁ cant international capital ﬂ ows to emerging markets, with repercussions on the respective exchange rates. In contrast, the Fed’s announcement of the Quantitative Easing II, in an already abundant liquidity scenario, have raised concerns about possible excessive depreciation of the dollar and the formation of bubbles in asset markets, hastening the adoption of capital control measures in many emerging economies. During the year, the dollar recorded depreciation against the real, 4.8%; the Indian rupee, 3.9%; and the Chinese renminbi, 3.2%; and appreciation against the Turkish lira, 2.9%; and Russian ruble, 1.7%.

166 Boletim do Banco Central do Brasil – Annual Report 2010 Graph 6.15 Developed countries 6.1.2005 = 100 Dollar exchange rates 140 130 120 110 100 90 80 70 1.2 2.27 4.24 6.19 8.14 10.9 12.4 1.29 3.26 5.21 7.16 9.10 11.5 12.31 2009 2010

Euro/Dollar Yen/Dollar Pound Sterling/Dollar Source: Bloomberg

Graph 6.16 6.1.2005 = 100 Emerging markets currencies 135 Dollar exchange rates

125

115

105

65 1.2 2.27 4.24 19.6 8.14 10.9 12.4 1.29 3.26 5.21 7.16 9.10 11.5 12.31 2009 2010 Real/Dollar Russian ruble/dollar Turkish lira/dollar Indian rupee/dollar Chinese renminbi/dollar Source: Bloomberg

VI The International Economy 167 VII International Financial Organizations

International Monetary Fund

The IMF was created at the Bretton Woods Conference on July 22, 1944. It came into force on December 27, 1945, when 29 countries, including Brazil, signed its Articles of Agreement8. At the end of 2010, the Fund had 187 member countries9.

Its mission is to ensure the proper functioning of the global ﬁ nancial system, through the promotion of international monetary cooperation, exchange rate stability and economic growth. The main Fund’s activities are: granting of loans to struggling countries; monitoring of local and global economic conditions (surveillance) and providing technical assistance and economic advice.

The IMF is an organization based on quotas, which represent the contribution of each country and the inﬂ uence on decision power of each of them in the institution. The entire capital of the IMF was SDR 217.4 billion at the end of 201010. Brazil’ share in the Fund is SDR 3.04 billion, representing 1.40% of total capital of the organization.

In 2010, the IMF has undergone important changes related to the governance of the body. The Executive Board approved a reform that promotes a 100% increase in total quotas of the body and a redistribution of the countries’ quotas in order to give greater representation to those countries with emerging economies. Brazil’s share in the Fund’s quotas will be increased to 2.32%. Moreover, the reform establishes a shift towards an Executive Board composed only of elected directors and a commitment to the maintenance of 24 seats, with the future transfer of two European chairs to emerging countries. The changes depend on the ratiﬁ cation by member states, which should occur in late 2012.

8/ The IMF Articles of Agreement was incorporated into Brazilian law by Decree-Law no. 8479 of December 27, 1945. 9/ The Tuvalu, newest member, joined the IMF on June 24, 2010. 10/ With the ratiﬁ cation of the reform of quotas in April 2008, in 2011, the IMF’s total capital shall be DES 238 billion. The share of Brazil amounts to DES 4.25 billion and represents 1.78% of total capital of the IMF.

VII International Financial Organizations 169 In order to accomplish its ﬁ nancing activities, in addition to the resources coming from quotas, the IMF raises funds from countries. During 2010, Brazil started to cooperate more effectively in this regard. In January the Notes Purchase Agreement (NPA) was signed, which provides for the purchase of notes issued by the Fund for an amount up to USD 10 billion. In June, Brazil approved the admission of the New Arrangements to Borrow (NAB)11, expanded in April after trading in 2009 with the support of G-20. The program resources will increase from SDR 34 billion to SDR 367 billion. Brazil must provide a credit line of SDR 8.7 billion, which will incorporate the commitments of the NPA when the expanded NAB comes into force in 2011.

In 2010, the IMF has promoted a reform of its credit lines, reinforcing mechanisms of precautionary loans, focused on ﬁ ghting and preventing crises. The Flexible Credit Line (FCL) established in 2009, provides the countries with solid economic fundamentals with a credit line not associated with restrictions on economic policy. In 2010, the FCL has had its deadline extended from one to two years, and removed the limit for loans of 1000% of the quota. A PCL (Precautionary Credit Line) was created with the same precautionary purpose, with a little more ﬂ exible requirements than the FCL, but with shorter terms, a loan limit of 500% (initial) or 1000% (after 12 months) of the share and with remedial measures of aspects that would not qualify a country for the FCL.

The IMF’s monitoring activities (surveillance) are traditionally focused on the annual assessment of the economy of member countries, established by article IV of the Articles of Agreement of the body. It includes fi scal, monetary, and fi nancial and exchange aspects, and checks whether the policies carried out by the countries contribute to domestic and external stability. In 2010, as a result of the crisis, the IMF proposed the creation of a report (Spillover Report) that would be carried out together with assessments of article IV of the U.S., Euro Zone, Japan, China and the United Kingdom, that would verify the impact of their economic and fi nancial policies over other countries.

Another IMF assessment tool is the Financial Sector Assessment Program (FSAP) conducted jointly with the World Bank, upon request of the member country. The program checks two aspects: degree of fi nancial stability and level of fi nancial development of the country. In 2010, the Board decided that the 25 countries of systemic importance should perform the fi nancial stability part of the FSAP every fi ve years in accordance with the article IV. In the same year, Brazil expressed its intention to participate in a new FSAP, scheduled for early 2012.

Together with the FSAP, or independently, the IMF and World Bank can also draw up the Reports on the Observance of Standards and Codes (ROSC). These evaluations constitute the degree of adoption by member countries, of 12 international standards

11/ Established in 1997, NAB provides its members resources available to the Fund (in the form of loans or notes) upon request by the Managing Director of the IMF and approval by 85% of the members.

170 Boletim do Banco Central do Brasil – Annual Report 2010 covering the topics of data availability, ﬁ scal transparency and transparency of monetary and ﬁ nancial policies.

Additionally, the Fund combines the impressions received in its studies and evaluations of the world economy as a whole. The most relevant studies are the World Economic Outlook (WEO) and Global Financial Stability Report (GFSR), published biannually. In 2010, the Fiscal Monitor report has gained more prominence and became part of a series of studies incorporating the WEO and GFSR.

Group of the 20 – G-20

The G-20 is an informal forum that promotes discussion between industrialized and emerging countries on key issues related to global economic stability. The Group supports worldwide growth and development by strengthening the international ﬁ nancial architecture and providing opportunities for dialogue on national policies and international cooperation.

Created in response to fi nancial crises recorded in the late 90s, the G-20 refl ects more accurately the diversity of interests of industrialized and emerging economies, thus having greater representation and legitimacy. Its composition is given by the Finance Ministers and Central Bank Governors from 19 countries12 and the rotating presidency of the European Union Council and the European Central Bank. Also, to ensure simultaneous work with international institutions, the Managing Director of the IMF and the World Bank Governor participate ex offi cio in the meetings.

The presidency of the Group is annual, rotating among the members, the country president responsible for establishing an interim secretariat during its tenure. In 2010, this role fell to Korea. The Koreans were tasked to develop the work program of the forum, organize events and make coordination between the various members.

In 2010, the G-20 held two Summits and three meetings of Finance Ministers and Central Bank Governors. During the year, after its successful efforts in containing the global ﬁ nancial crisis, the G-20 focused on global economic recovery and modernization of the IMF.

The Group’s continued efforts focused on strengthening the process of international coordination. After the last crisis, it became clear that global imbalances and failures of the international monetary system require coordinated action, renewed international

12/ South Africa, Germany, Saudi Arabia, Argentina, Australia, Brazil, Canada, China, South Korea, France, India, Indonesia, Italy, Japan, Mexico, Russia, Turkey, the United Kingdom and the United States.

VII International Financial Organizations 171 ﬁ nancial institutions and new ﬁ nancial instruments. As a result, the G-20 Summit in Seoul launched the Action Plan, which aims at better coordination of macroeconomic policies, structural reforms that enhance and sustain the global demand and the promotion of external sustainability.

The discussions within the Group also resulted in agreement on the terms of the Fund’s reform, which will be implemented by 2013. This will provide a signiﬁ cant increase in the voting power of emerging and developing countries and important changes in the governance structure of the organization. Thus, the G-20 further consolidated its role as the main forum for the global economy and ﬁ nancial debate, having in view the important role and performance that emerging economies play today.

Due to the extension of the last crisis, the G-20 was forced to address a wide range of topics. Their regular meetings and seminars have become insufﬁ cient to cover the entire agenda of the Group. Thus, the G-20 has treated a greater number of issues through the composition of work or study groups (WGs), which despite having voluntary participation ended up including all the member countries and some major international organizations.

In this respect, in addition to periodic events, the G-20 discussed in 2010 WGs the instruments to improve ﬁ nancial safety networks; a new regulatory framework; development issues; climate change; and ﬁ nancial inclusion. The Central Bank of Brazil (BCB) has actively participated in this last issue, being the coordinator, together with Australia, of one of its work subgroups, called Financial Access through Innovation.

At the Seoul Summit, the presidency of the Group was passed to France, which added to its 2011 work plan to revamp the international monetary system and to study the behavior of commodity markets. It was also announced that Mexico will chair the G-20 in 2012.

Bank for International Settlements – BIS

The Bank for International Settlements (BIS) is an organization founded in 1930, and its mission is to assist the central banks and ﬁ nancial authorities in the maintenance of monetary and ﬁ nancial stability, promote international cooperation in these areas and act as a bank for central banks. The Central Bank of Brazil is a shareholder of the BIS since March 25, 1997, with 3000 subscribed shares for the amount of SDR15 million, equivalent to 0.55% of the overall capital of the organization.

In its mission to promote ﬁ nancial stability, BIS coordinates the Basle Committee on Banking Supervision; the Committee on Payment and Settlement Systems; the Committee

172 Boletim do Banco Central do Brasil – Annual Report 2010 of the Global Financial System; and the Market Committee, giving all of them a high degree of autonomy in structuring their agendas and activities.

In the role of bank for central banks, BIS offers a wide variety of banking services, especially designed to assist in the management of reserves. Approximately 140 institutions, including central banks, make use of this service. On average, over recent years, about 6% of global international reserves have been applied by the central banks with the BIS.

Since 2009, Brazil has intensiﬁ ed its participation in BIS, formally becoming a member, in addition to the committees mentioned above, of the Financial Stability Board (FSB). In January 2010, this process culminated with the president of the Brazilian Central Bank, Henrique Meirelles, being elected a member of the Board of that organization.

In addition to the Annual General Assembly, which usually occurs in June, bimonthly high-level technical meetings are carried out, restricted to central bank governors and, at most, one more special advisor, among which we highlight the Global Economy Meeting (GEM) and the Meeting of Central Bank Governors.

The main purpose of the GEM, which brings together 30 Central Bank governors BIS shareholders (including Brazil) as permanent members, and another 15 as observers, is to monitor economic and ﬁ nancial developments and assess the risks and opportunities in the global economy and global ﬁ nancial system. In addition, GEM started to coordinate the activities of the Committee for Clearing and Settlement Systems, the Committee for Global Financial System, and Committee for the Markets.

In order to assist the GEM in preparing proposals for discussion and decision, the BIS board created the Economic Advisory Committee (EAC), a composed of 15 members of the Board, General Manager of the BIS and the governors of the Mexican and Indian Central Banks.

The Basle Committee on Banking Supervision (BCBS) directs its efforts at supervising the individual institutions and their relation to macro-prudential supervision. Given the recent ﬁ nancial crisis, the Committee announced, in September 2010, the rules called Basle III, with more stringent provisions to the ﬁ nancial system, especially in relation to capital levels of banks.

The Committee on Payment and Settlement Systems (CPSS) works in partnership with the International Organization of Securities Commissions (Iosco) analyzes and establishes standards for payment systems, settlement and clearing. The main actions taken during 2010 consisted in reviews of their standards, including recommendations for Central Counterparts responsible for the settlement of OTC derivatives transactions.

VII International Financial Organizations 173 The key function of the Committee on the Global Financial System (CGFS) is to monitor the development of ﬁ nancial markets for the major central banks. The objective of the Committee is to identify and evaluate potential sources of stress in global ﬁ nancial markets and thereby promote stability and improvement of markets. In 2010, the focus of the work was directed to the responses of public and private sectors to the crisis and the implications of the development of macro prudential tools and frameworks for central banks.

The Markets Committee is a forum for monitoring the development, operation and possible trends in ﬁ nancial markets. The purpose is to facilitate the exchange of information among its members on short-term implications of recent events in the functioning of markets and central bank operations.

In the Financial Stability Board, an agency coordinated by the BIS, Brazil has participated actively in discussions on reform of global prudential regulatory standards and on promotion of cooperation between national authorities, international organizations and regulatory agencies. In June 2010, during the G20 meeting, it was proposed that the FSB should expand its activities beyond its membership as a way to better refl ect the global nature of the fi nancial system. Therefore fi ve regional consulting groups should be established, one of which in the Americas.

Brazilian Central Bank attended the meetings and work groups of the Advisory Council for the Americas, established in 2008, and composed of the presidents of the six central banks of the BIS members in the region – Argentina, Brazil, Canada, Chile, U.S. and Mexico – with goals of improving the performance of that organization in the region and to better reﬂ ect the needs and interests of the Americas in its work program. In February 2010, President Henrique Meirelles became the president of the board.

Finally, the BCB also represents Brazil in the Irving Fisher Committee on Central Bank Statistics.

Center for Latin American Monetary Studies – CEMLA

CEMLA, organization established in 1952, is a civil association with legal domicile in Mexico City, which has as its objectives to promote better understanding of monetary or banking matters in Latin America and the Caribbean; assistance in training of the staff of central banks and other fi nancial agencies in the region; research and systematization of the results in the fi elds mentioned above; and the dissemination of information to members about events of international and regional interest within fi nancial and monetary policies framework.

174 Boletim do Banco Central do Brasil – Annual Report 2010 The Cemla is currently composed of 51 institutions, 30 of which are central banks associated with voting and voice power. The other institutions are divided between collaborating members and staff assistants, who have only the power of voice. In 2010, the General Directorate of the organization began, through talks with BIS participating central banks the process of expanding its collaborating members. Besides strengthening its budget, another explicit goal of the initiative is the establishment of regional partnerships, especially between Latin America and Asia.

The management of the Center is through the Governors Assembly and the Board of Government, advised by the Alternates Committee and the Audit Committee. The elective ofﬁ ce of deputy general director, the second most important in the institution, has been traditionally occupied by the BCB in recent terms (the current one, since 2007, is occupied by Luiz Barbosa, a retired employee).

During 2010, Cemla offered 56 events and 12 technical assistance missions, often in conjunction with other organizers. Of these activities, approximately 60% are concentrated in the area of training. Regarding the distribution of events by subject matter, there was, in 2010, greater focus on issues arising from the crisis, especially on macroeconomic and ﬁ nancial stability aspects.

In conjunction with the BCB, CEMLA organized in 2010 four courses (banking regulation and risk management/measurement; economic growth and development; advanced macro ﬁ nance; ﬁ nance and development) and a meeting on human resource management in central banks.

Over the years the Center has coordinated 14 technical meetings. We especially highlight the above mentioned meeting held in Brazil; the monetary policy advisors meetings; researchers meetings; and open market operators meeting. The Conference on Economic and Financial Education in Latin America and the Caribbean has also received special attention from the organization.

CEMLA maintained its policy of promoting technical assistance to member central banks, in coordination with international organizations and other technical partners. The programs, consisting of assessment missions, preparation of recommendations and meetings with national authorities, aimed at strengthening speciﬁ c areas of central banks, especially those of Central America and the Caribbean. Public debt management, which used to be the main area of technical assistance, has gradually given way to programs, for payment systems development, credit information and data dissemination.

As far as Rodrigo Gómez Award is concerned, given annually to the best academic work submitted to CEMLA, 12 studies were analyzed in 2010. The best assessment came from the work of the servants of the Central Reserve Bank of Peru, Paul Castillo and Jorge Salas, entitled “The terms of trade as drivers of economic ﬂ uctuations in

VII International Financial Organizations 175 developing economies: An empirical study.” From 2010, CEMLA began offering special award ceremony to be held at the headquarters of the central bank whose employees have won the award.

Finally, given that Argentina, Brazil and Mexico are the only countries in the region which is G-20 members, in 2010 CEMLA started to address issues of the Group in its meetings. This is an effort to level the discussion among its members and to try, in the opposite sense, to put the dominant issues of the region in today’s main forum for global discussion.

176 Boletim do Banco Central do Brasil – Annual Report 2010 VIII Main Economic Policy Measures

Complementary Laws

137, dated 8.26.2010 – Authorized the Union to participate, as shareholder, of funds with the single purpose of supplementary coverage for risks in agricultural, livestock, aquaculture and forest insurance. The payment of quotas by the Union shall be authorized by decree and may be effected at the discretion of the Minister of Finance: a) in currency, up to the limit deﬁ ned by the Budget Law no.; b) in public securities, up to R$4,000,000,000.00 (four billion reais).

138, dated 12.29.2010 – Postponed from 1.1.2011 to 1.1.2020 credit rights on the Tax on the Circulation of Merchandises and Services (ICMS) related to goods for use or consumption by the company itself.

Laws

12,213, dated 1.20.2010 – Created the National Senior Citizen Fund, authorizing individual and legal persons Income Tax deduction of donations to Municipal, State and National Senior Citizen funds, and modiﬁ ed Law no. 9,250, dated 12.26.1995.

12,214, dated 1.26.2010 – Estimated the revenue of the Union and set at the expenses for the ﬁ nancial year 2010.

12,218, dated 3.30.2010 (conversion of Provisional Measure no. 471, 2009) – Modiﬁ ed Law no. 9,440, dated 3.14.1997, and Law no. 9,826, dated 8.23.1999, establishing tax incentives for the regional development.

12,249, dated 6.11.2010 – Created the Special Incentive Regime for the Oil Industry Development in the North, Northeast and Central-West regions (Repenec); created the Program One Laptop per Child (Prouca) and the Special Regime for the Acquisition of Computers for Educational Use (Recompe); extended fi scal benefi ts; established sources of funds additional to the Merchant Navy Fund (FMM) fi nancial agents to fi nance projects approved by its Merchant Navy Fund Board of Directors (CDFMM); created the Special Regime for Brazilian Aeronautical Industry (Retaero); regulated the Financial Bill and the Certifi cate of Structured Operations, and provided other measures.

VIII Main Economic Policy Measures 177 12,254, dated 6.15.2010 (conversion of Provisional Measure no. 475, dated 12.23.2009) – Reset in 7.72%, the beneﬁ ts held by Social Security, as of January 1, 2010. Therefore, the maximum limit of contribution and beneﬁ t wages increased to R$3,467.40.

12,255, dated 6.15.2010 (conversion of Provisional Measure no. 474, dated 12.23.2009) – Set at R$510.00 the minimum wage, effective as of January 1, 2010.

12,270, dated 6.24.2010 – Provided for measures of suspension of granting or other Country’s obligations related to intellectual property rights and others, in case of noncompliance with the Incorporation Agreement of the World Trade Organization.

12,276, dated 6.30.2010 – Authorized the Union to transfer to Brazilian Petroleum Company (Petrobras) the practice of activities of research and drilling of oil, natural gas and other hydrocarbon ﬂ uids, as foreseen by item I of article 177 of the Federal Constitution, and established other measures.

12,304, dated 8.2.2010 – Authorized the Executive Branch to create a publicly-traded corporation, called Brazilian Company for the Management of Petroleum and Gas Corp. – Sub-Salt Oil Corp. (PPSA).

12,309, dated 8.9.2010 – Established guidelines for the development and execution of the 2011 Budget and adopted other measures. The primary surplus goal for the consolidated public sector was set at R$125.5 billion, with a reduction of up to R$32 billion relative to the Growth Incentive Program (PAC), plus such Program remains payable in 2010 and any excess of the primary surplus goal calculated in 2010.

12,348, dated 12.15.2010 (conversion of Provisional Measure no. 496, dated 7.19.2010) – Provided for the contracting of credit operations authorized by the National Monetary Council (CMN), through an exceptional treatment, aimed at ﬁ nancing the infrastructure works to host the 2014 World Cup (International Federation of Football Association – FIFA) and 2016 Olympic and Paraolympic Games, and adopted other measures.

12,349, dated 12.15.2010 (conversion of Provisional Measure no. 495, dated 7.19.2010) – Changed Law no. 8,666, dated 6.21.1993, which provided for tendering procedures and contracting for goods and services within the public administration scope, in order to give priority to goods and services produced or rendered by companies that invest in research and technology development in Brazil.

12,350, dated 12.20.2010 (conversion of Provisional Measure no. 497, dated 7.27.2010) – Promoted the tax exemption from government subsidies for the development of technology research in companies; created the Tax Regime for

178 Boletim do Banco Central do Brasil – Annual Report 2010 Construction, Enlargement, Renovation or Modernization of Football Stadiums (Recopa); established a schedule of reduction of the Import Tax levied on car parts and tires; widened the customs regime of drawback, updated the concept of day trade operations for tax purposes, and adopted other measures.

12,351, dated 12.22.2010 – Regulated the exploration and production of oil, natural gas and other hydrocarbon ﬂ uids, under a regime of shared production in the sub-salt layer and strategic areas; created the Social Fund (SF) and provided for its structure and sources of funds; changed Law no. 9,478, dated 8.6.1997, among other measures.

12,377, dated 12.30.2010 – Changed 2010 and 2011 budget guidelines laws, in order to exclude the calculation related to companies of the Eletrobras Group from the calculation of ﬁ scal result in the public sector. Thus, the primary surplus target for the consolidated public sector, for both ﬁ scal years, was reduced from 3.30% to 3.10% of the Gross Domestic Product.

Provisional Measures

482, dated 2.10.2010, rectiﬁ ed in the the Ofﬁ cial Daily Government Newspaper (DOU), dated 2.12.2010 – Provided for measures of suspension of granting or other Country’s obligations related to intellectual property rights and others, in case of noncompliance with the duties of the Incorporation Agreement of the World Trade Organization (WTO).

487, dated 4.26.2010 – Changed Law no. 12,096/2009, which authorized the granting of economic subsidy to the Brazilian Development Bank (BNDES) on ﬁ nancing operations, channeled to the acquisition and production of capital goods and technology innovation; deviated the incidence of restriction on incurring new debts by the States, in case of ﬁ scal adjustment review stemming from low or negative economic growth; authorized the Union to exchange shares of its own by equity participations held by entities of indirect federal public administration, not exercising and assigning preemptive rights for the subscription of shares increasing in federal mixed capital companies, to issue federal public securities debt as a replacement for shares of mixed capital companies held by the Export Guarantee Fund (FGE) and carrying out capital increase in state companies, through the transfer of rights came from advance payments for a future capital increase; Changed Law no.10,260/2001, and revoked the provisions mentioned.

491, dated 6.23.2010 – Created the Theatre Near You Program, the Special Tax Regime for Movie Exhibition Development (Recine) and established the suspension of taxes and contributions in case of domestic sales or import of new machinery, devices, instruments and equipments, for the incorporation on ﬁ xed assets and use in exhibition complexes, as well as materials for their construction.

VIII Main Economic Policy Measures 179 495, dated 7.19.2010 – Changed Law no. 8,666, dated 6.21.1993, which dealt with tendering proceedings and the contracting for goods and services within the Public Administration scope, in order to beneﬁ t the goods and services produced or provided by companies that invest in research and technology development in the country.

496, dated 7.19.2010 – Regulated the contracting of credit operations authorized by the National Monetary Council, through an exceptional treatment, targeted to ﬁ nance the infrastructure works for the 2014 FIFA World Cup and 2016 Paralympic Games, among other measures.

497, dated 7.27.2010 – Established tax exemption of government subventions channeled to the development of technology research in companies; created the Tax System for Construction, Expansion, Reconstruction and Modernization of Football Stadiums (Recom); established a schedule of reduction of the Import Tax on car parts and tires; widened the customs regime of drawback, updated the concept of day trade operations for tax purposes, and created other measures.

499, dated 8.25.2010 – Changed articles 27 and 29 of Law no. 10,683, dated 5.28.2003, regarding the national policy for the export of defense products, as well as the promotion of research and development activities, production and export in areas of interest and control over the exports of defense products.

500, dated 8.30.2010 – Authorized the Union and entities of indirect federal public administration to reciprocally contract, or with private funds of which the National Treasury is the only shareholder, the acquisition, sale, barter and transfer of shares, assignment of credits arising from advance payments for future capital increase, assignment of priority allocation of shares in public offerings or assignment of preemptive rights for the subscription of shares with capital increase; authorized the Union to refrain from purchasing shares when there is a capital increase of companies in which it holds equity ownership, and adopted other measures.

501, dated 9.8.2010 – Released R$1.95 billion for the States, Federal District and Municipalities, in order to provide ﬁ nancial assistance, aimed at encouraging the country’s exports; increased the volume of loans granted by the Brazilian Development Bank (BNDES), from R$124 billion to R $ 134 billion, up to 3.31.2011, with ﬁ nancial subsidies, among other measures.

505, dated 9.24.2010 – Authorized the Union to grant credit to the Brazilian Development Bank (BNDES), amounting to R$30 billion under ﬁ nancial and contractual conditions to be deﬁ ned by the Ministry of Finance. To cover such credit, the Union may directly issue Federal Public Debt securities on behalf of the BNDES under the modality of direct placement.

180 Boletim do Banco Central do Brasil – Annual Report 2010 510, dated 10.28.2010 – Regulated the compliance of tax obligations by consortiums, which undertake judicial businesses in their own legal name; gave new wording to article 31 of Provisional Measure no. 497, dated 7.27.2010, granting tax unburdening of government subsidies, aimed at the promotion of technology research and development of technology innovation in companies and established the Special Taxation System for the Construction, Enlargement, Reconstruction and Modernization of Football Stadiums (Recom); added provisions to Law no. 10,168, dated 12.29.2000, which created the economic contribution to ﬁ nance the Program of Incentive to Promote the Interaction University-Company to Support Innovation, and adopted other measures.

511, dated 11.5.2010 – Dealt with measures to ensure the economic-ﬁ nancial sustainability of the Brazilian Development Bank (BNDES), about the authorization to guarantee the ﬁ nancing of the High Speed Train (HST), between Rio de Janeiro (RJ) and Campinas (SP), among other measures.

512, dated 11.25.2010 – Changed Law no. 9,440, dated 3.14.1997, which established tax incentives for the regional development and the automotive industry.

513, dated 11.26.2010 – Authorized the Wage Variation Compensation Fund (FCVS), to take on, in accordance with the Board of Trustees of Wage Variations Fund (CCFCVS), rights and duties for the Homeowner Insurance of the Housing Financing System (SH/SFH), offering direct coverage to house, ﬁ nancing contracts annotated in the SH/SFH Policy; authorized the National Department of Transportation Infrastructure (DNIT) to use federal funds to States to support the deﬁ nitive transfer of the federal highway network, and adopted other measures.

514, dated 12.1.2010 – Changed Law no. 11,977, dated 7.7.2009, which established the My House, My Life Program (PMCMV) and the agrarian regulation of settlements located on urban areas.

516, dated 12.30.2010 – Set at R$540.00 the minimum wage, effective as of January 1, 2011. Through publication of the Law no. 12,382, dated 2.25.2011, the minimum wage increased to R$545.00, effective as of March 1, 2011.

517, dated 12.30.2010 – Deals with the levying of tax on speciﬁ ed transactions income; changed Law no. 6,404, dated 12.15.1976, Law no. 9,430, dated 12.27.1996; Law no. 11,478, dated 5.29.2007; and Law no. 12,350, dated 12.20.2010; created the Special Incentive System for the Development of Nuclear Power Plants (Renuclear); dealt with tax measures on the National Broadband Plan; changed legislation relating to the exemption of Extracharge on Freight (AFRMM); provided for the abolition of the National Development Fund, and adopted other measures.

VIII Main Economic Policy Measures 181 Decrees

7,064, dated 1.14.2010 – Dealt with the execution of the Fifty-third Additional Protocol to the Economic Complementation Agreement no. 35 (ACE35-53PA), signed Between Argentina, Brazil, Paraguay and Uruguay, States Parties of Mercosul and Chile, on May 27, 2009.

7,090, dated 2.1.2010 – Enacted the Argentina-Brazil Agreement for the Commercial Cooperation Mechanism, signed in Puerto Iguazu, on November 30, 2005.

7,094, dated 2.3.2010 – Approved the budget and ﬁ nancial program, established the monthly disbursement schedule of the Executive Branch for the ﬁ nancial year 2010, and adopted other measures.

7,112, dated 2.18.2010 – Enacted the Economic and Industrial Cooperation Agreement between Brazil and the Czech Republic, signed in Prague on April 12, 2008.

7,113, dated 2.19.2010 – Instituted the Deliberative Board of the Brazilian Sovereign Fund (CDFSB), and adopted other measures.

7,131, dated 3.17.2010 – Dealt with the implementation of the Thirty-ninth Additional Protocol to the Economic Complementation Agreement no. 14, signed between Brazil and Argentina on March 3, 2010.

7,137, dated 3.29.2010 – Authorized the prorogation and granted discount for settling rural credit operations ﬁ nanced by the Northern Constitutional Financing Fund (NOF), as provided for by article 56, of Law no. 11,775, dated 9.17.2008.

7,141, dated 3.29.2010 – Regulated the record update of retirees and pensioners of the Union, whose earnings or pensions are provided by the National Treasury, participating in the Integrated System of Human Resources Management (Siape), foreseen in article 9 of Law no. 9,527, dated 12.10.1997.

7,144, dated 3.30.2010 – Changed the budgetary and ﬁ nancial planning of the Union’s Budget, approved by Decree no. 7,094, dated 2.3.2010.

7,145, dated 3.30.2010 – Reduced from 10% to 5% the Industrial Products Tax (IPI) rate levied on panels, plywood, swivel chairs and furniture.

7,147, dated 4.1.2010 – Enacted the First Additional Protocol to the Economic Complementation Agreement no. 59, between Argentina, Brazil, Paraguay and Uruguay, States Parties to the Mercosul, and Colombia, Ecuador and Venezuela, Andean Community Member-countries, signed in Montevideo on October 18, 2004.

182 Boletim do Banco Central do Brasil – Annual Report 2010 7,148, dated 4.8.2010 – Provided for the Implementation of the Eighth Additional Protocol to the Economic Complementation Agreement no. 59, signed by Argentina, Brazil, Paraguay and Uruguay, States Parties of the Mercosul, and Venezuela, Colombia and Ecuador, on December 30, 2009.

7,150, dated 4.9.2010 – Enacted the CMC Decision no. 11/2009, which establishes speciﬁ c conditions, in order to make easier the use of resources of the Mercosul Structural Convergence and Institutional Strengthening Fund (FOCEM), to ﬁ nance projects of productive integration, adopted during the XXXVII Common Market Council Ordinary Meeting, in Asuncion, on July 24, 2009.

7,189, dated 5.30.2010 – Changed the fi nancial budgetary and fi nancial planning for 2010 fi scal year, in order to make it compatible with the new revenue estimates disclosed on May 20 by the Ministry of Planning, Budget and Management. Such changes involved the reduction of R$7.6 billion in National Treasury discretionary spending, and R$ 2.4 billion in mandatory spending.

7,213, dated 6.15.2010 – Changed Decree no. 6,759, dated 2.5.2009, which regulates the administration of customs activities, supervision, control, taxation on foreign trade operations and revokes the normative and provisions mentioned.

7,248, dated 8.2.2010 – Included the Seventieth-third Additional Protocol to the Economic Complementation Agreement no. 18 (73PA-ACE18) signed between Argentina, Brazil, Paraguay and Uruguay, on May 19, 2010, to the Directive no. 27, on November 13, 2008, of the Mercosul Trade Commission (CCM) relative to the “Change of the CCM Directive no. 10, on Aug 10, 2007, Mercosul Origin Scheme”.

7,249, dated 8.2.2010 – Included the Seventieth Additional Protocol to the Economic Complementation Agreement no. 18 (70PA-ACE18), signed between Argentina, Brazil, Paraguay and Uruguay, on May 19, 2010, Decision no. 40, on December 15, 2008, of the Common Market Council (CMC), on “Common Regime for Import of Goods for Scientiﬁ c and Technological Research.”

7,250, dated 8.2.2010 – Included the Sixty-Ninth Additional Protocol to the Economic Cooperation Agreement no. 18 (69PA-ACE18) signed between Argentina, Brazil, Paraguay and Uruguay, on May 19, 2010, and GMC Resolution no. 8, on June 20, 2008, which provides for Punctual Actions in the Tariff Framework for Supply Purposes, and the Revoking of Resolution GMC no. 69, on December 7, 2000.

7,251, dated 8.2.2010 – Extended additional deadlines to those established by the Decision of the Common Market Council (CMC) no. 14, dated June 28, 2007, in order to the States Parties of the Mercosul conclude the activities related to the harmonization of special import regimes, and eliminate the national schemes adopted unilaterally.

VIII Main Economic Policy Measures 183 7,264, dated 8.12.2010 – Determined that in the 2010 fi scal year, the annual payment of bonus due to insured and dependants of the General Social Security System (RGPS) shall be made in two installments, the fi rst one in August, corresponding to 50% of the benefi t.

7,278, dated 8.26.2010 – Authorized the Board of Directors of the Brazilian Development Bank (BNDES) to report: I) interim dividends on net income calculated in the balance sheet on June 30, 2010; and II) additional dividends on the account of the Reserve for Future Capital Increase, relative to the existing balance on December 31, 2009.

7,279, dated 8.30.2010 – Authorized the granting of credits from the Union to the Brazilian Development Bank (BNDES), resulting from the equity participation in the Brazilian Power Plants (Eletrobras) capital.

7,284, dated 9.1.2010 – Included in the Economic Complementation Agreement no.18 the Directive no. 6, on April 23, 2009, of the Mercosul Trade Commission (CCM) relating to the “Mercosul Origin Regime (Repeal of Directive CCM no. 23, on December 11, 2007)”, which is reported through an annex and forms the present Protocol.

7,293, dated 9.6.2010 – Changed Decree no. 6,842, dated May 7, 2009, regulating the granting of zero rate up to April 30, 2012 or until the domestic production meets 80% of domestic consumption, of the Social Integration Program/Civil Service Asset Formation Program (PIS/Pasep) Contribution to Social Security Financing (Coﬁ ns), PIS/Pasep-Import Contribution and Coﬁ ns-Import Contribution levied on gross revenue on domestic market sale and on imported paper.

7,295, dated 9.8.2010 – Authorized exchange shares between the Union and BNDES Participações S.A. (BNDESpar); authorized the sale or exchange of shares owned by Caixa Econômica Federal (CEF) and the Brazilian Development Bank S.A. (BNDES) for the Fiscal Investment and Stabilization Fund (FFIE), and changed Decree of Sep. 26, 2010, authorizing the capital stock increase of BNDES and CEF.

7,297, dated 9.10.2010 – Added provision to Decree no. 6,582, dated 9.26.2008, which listed the machinery, equipments and goods mentioned in §§ 7 and 8, article 14, Law no. 11,033, dated 12.21.2004, to which the Tax System for the Incentive to Port Structure Modernization and Expansion (Reporto) applies.

7,320, dated 9.28.2010 – Regulated the eligibility and co-eligibility qualiﬁ cation for the Special Incentive Regime for the Oil Industry Development in the North, Northeast and Central-West regions (Repenec), foreseen in articles 1 to 5, Law no. 12,249, dated 6.11.2010.

184 Boletim do Banco Central do Brasil – Annual Report 2010 7,323, dated 10.4.2010 – Increased from 2% to 4%, from October 5, 2010, the tax rate on Tax on Credit, Exchange and Insurance Operations, or Stock and Bond Operations (IOF) levied on settlements of foreign exchange by foreign investors on funds infl ow into the Country, for fi nancial market (fi xed income) investment. Capital market transactions remained charged at 2%.

7,330, dated 10.18.2010 – Raised from 4% to 6%, as of October 19, 2010, the rate on Tax on Credit, Exchange and Insurance Operations, or Stock and Bond Operations (IOF) levied on foreign exchange settlements of funds infl ow into the Country, carried out by foreign investors targeted to the fi nancial market (fi xed income) investment.

7,332, dated 10.19.2010 – Added articles to Decree no. 5,209, dated September 17, 2004, relating to the Family Grant Program.

7,333, dated 10.19.2010 – Gave new wording to the provisions of Decree no. 3,937, dated September 25, 2001, regulating Law no. 6,704, dated 10.26.1979, which provided for the Export Credit Insurance and repealed the provisions and normatives mentioned.

7,361, dated 11.22.2010 – Increased the capital stock of the Brazilian Development Bank (BNDES), changed the Bylaws, approved by Decree no. 4,418, dated October 11, 2002, and repealed Decree no. 7,152, dated April 9, 2010.

7,362, dated 11.22.2010 – Provided for the Implementation of the Common Market Council (CMC) Decision no. 1/10 “Rules on Mercosul Structural Convergence Fund”, on August. 2, 2010, approved on the XXXIX Common Market Council Ordinary Meeting, in San Juan, Argentina.

7,365, dated 11.25.2010 – Authorized the Board of Directors of the Brazilian Development Bank (BNDES) to report additional dividends on the Revenue Reserve for Future Capital Increase account, regarding the existing balance on the balance sheet carried out on 6.30.2010.

7.366, dated 11.25,2010 – Authorized the subscription shares of the Popular Housing Guarantee Fund (FGHab), established by Law no. 11,977, dated July 7, 2009, up to the amount of R$1.938 billion.

7,367, dated 11.25.2010 – Changed and repealed the provisions of Decree no. 6,144/2007, which regulated the eligibility for the Special System of Incentives for Infrastructure Development (Reidi), established by articles 1 to 5, Law no. 11,488, dated June 15, 2007.

7,368, dated 11.26.2010 – Changed the annexes of Decree no. 7,094, dated February 3, 2010, which dealt with the 2010 budget program and established the monthly disbursement schedule of the Executive Branch.

VIII Main Economic Policy Measures 185 7,377, dated 12.1.2010 – Enacted the Regional Energy Complementation Framework Agreement among the States Parties of the Mercosul and Associated States, registered under the 1980 Montevideo Treaty, as Partial Scope Agreement for Trade Promotion no. 19 (AAPPC no. 19), signed in Montevideo, on December 9, 2005, between Brazil, Argentina, Paraguay, Uruguay, Colombia, Chile, Ecuador and Venezuela.

7,382, dated 12.2.2010 – Regulated Chapters I to VI and VIII of Law no. 11,909, dated March 4, 2009, which dealt with activities related to natural gas transportation, foreseen in article 177 of the Federal Constitution, as well as natural gas handling, processing, storage, liquefaction, regasiﬁ cation and commercialization.

7,389, dated 12.9.2010 – Regulated incentives under article 11-B, Law no. 9,440, dated March 14, 1997, which established ﬁ scal incentives for regional development.

7,394, dated 12.15.2010 – Extended until December 31, 2011, the reduction of lndustrialized Products Tax (IPI) levied on construction materials.

7,398, dated 12.22.2010 – Enacted the Fourth Amendment to the International Monetary Fund Incorporation Agreement.

7,403, dated 12.23.2010 – Established a transition rule for the allocation of royalties amounts and special participation owed to the Union’s direct administration based on oil, natural gas and other hydrocarbon ﬂ uids production in sub-salt areas, under concession agreement, foreseen in § 2, article 49, Law no. 12,351, dated December 22, 2010.

7,407, dated 12.28.2010 – Increased the capital stock of the Brazilian Development Bank (BNDES) to R$4,499,999,982.08 (four billion, four hundred ninety-nine million, nine hundred ninety nine thousand, nine hundred and eighty two reais and eight cents), through the transfer of 139,754,560 common shares of Brazilian Petroleum Company (Petrobras), assigned to the maintenance of the Union shareholding control, authorized by Decree of August 26, 2010.

7,412, dated 12.30.2010 – Changed Decree no. 6,306, dated December 14, 2007, which regulated the Financial Operations Tax (IOF).

Legislative Decrees

217, dated 4.8.2010 – Approved the Framework Agreement wording between the Mercosul and the Arab Republic of Egypt, signed in Puerto Iguazu, Argentina, on July 7, 2004.

186 Boletim do Banco Central do Brasil – Annual Report 2010 275, dated 5.19.2010 – Approved the Framework Agreement on Economic Cooperation among the Mercosul States Parties and Member States of the Arab Gulf States Cooperation Council, signed in Brasília on May 10, 2005.

664, dated 9.1.2010 – Approved the Economic and Commercial Cooperation Agreement between Brazil and Jordan signed in Brasília on October 23, 2008.

798, dated 12.20.2010 – Approved the wording of the Crop and Livestock Partial Scope Agreement no. 3, signed among Argentina, Brazil, Paraguay, Uruguay, Bolivia and Chile, in Montevideo, on August 8, 2006.

806, dated 12.20.2010 – Approved the wording of the 2007 International Coffee Agreement, signed by Brazil, on May 19, 2008.

807, dated 12.20.2010 – Approved the wording of the Mercosul Preferential Trade Agreement between the Common Market of the South Southern Common Market (Mercosul) and the Southern African Customs Union (SACU), integrated by South Africa, Botswana, the Kingdom of Lesotho, Namibia and Swaziland, signed in Salvador, on December 15, 2008, and the members of the Southern Africa Customs Union (SACU), in Maseru, the capital of Lesotho, on April 3, 2009.

National Monetary Council Resolutions

3,831, dated 1.13.2010 – Added article 9-R to Resolution no. 2,827, dated 3.30.2001, and authorized to raising funds to ﬁ nance urban mobility projects directly associated with the 2014 FIFA World Cup.

3,832, dated 1.28.2010 – Changed Regulation annexed to Resolution no. 3,040, dated 11.28.2002, which provides for requirements and procedures for the establishment, authorization to operate, transfer of corporate control, and corporate reorganization, as well as for the cancellation of the authorization for the operation of the institutions listed therein, and Resolution no. 3,442, dated 12.28.2007, which provides for the establishment and operation of credit unions.

3,833, dated 1.28.2010 – Changed Resolution no. 3,312, dated 8.31.2005, aiming at the establishment of mandatory registration of hedge operations, held with ﬁ nancial institutions abroad or on foreign exchanges.

3,834, dated 28.1.2010 – Changed Resolution no. 2,828, dated 3.30.2001, which provides for the establishment and operation of development agencies, and Resolution no. 394, dated 11.3.1976, which regulates the banks activities for development banks.

VIII Main Economic Policy Measures 187 3,835, dated 1.28.2010 – Included a 4th paragraph to article 7 and a 4th paragraph to article 9 of Resolution no. 2,827, dated 3.30.2001.

3,836, dated 2.25.2010 – Provided for the issue of Financial Bill by ﬁ nancial institutions listed therein.

3,837, dated 2.25.2010 – Provided for the establishment of additional tax rates to the Farm Activity Guarantee (Proagro) to include agricultural current expenditure operations of cocoa, eucalyptus, papaya, passion fruit, winter maize combined cultivation with Brachiaria grass and pine.

3,838, dated 2.25.2010 – Changed provisions of Resolution no. 3,739, dated 6.22.2009, which created the Capitalization Program of Farm Cooperatives (Procap-Agro).

3,839, dated 2.25.2010 – Provided for the granting of loans from the federal government, for the grape-related industry, from the 2009/2010 harvest.

3,840, dated 2.25.2010 – Adjusted rules on investment credits of the National Program for Strengthening Family Agriculture (Pronaf) and Special Pronaf Credit Line – More Food.

3,841, dated 2.25.2010 – Provided for the channeling of resources obtained from savings deposits by member entities of the Brazilian System of Savings and Loans (SBPE) and the compensation of amounts related to discounts granted, in accordance with the Law no. 11,922, dated 4.13.2009.

3,842, dated 3.10,2010 – Set at the effective interest rate of the Fund to ﬁ nance the Higher Education Student Financing Fund (Fies).

3,843, dated 3.10.2010 – Provided for the compliance with the requirement of additional compulsory payment on funds of rural saving deposits, within the Brazilian System of Savings and Loans (SBPE).

3,844, dated 3.24.2010 – Provided for the foreign capital in the Country and its registration in the Central Bank of Brazil, among other measures.

3,845, dated 3.24.2010 – Gave new wording to Regulation Annex V to Resolution no. 1,289, dated 3.20.1987.

3,846, dated 3.25.2010 – Changed Resolution no. 3,792, dated 9.24.2009, which provided for directives on the application of assets guaranteeing from plans administered by the closed entities of complementary pension funds.

188 Boletim do Banco Central do Brasil – Annual Report 2010 3,847, dated 3.25.2010 – Deﬁ ned the Long-Term Interest Rate (TJLP) for the second quarter of 2010.

3,848, dated 3.25.2010 – Gave new wording to article 9º-M of Resolution no. 2,827, dated 3.30.2001, included by Resolution no. 3,653, dated 12.17.2009, in order to remove the requirement of deadline for contracting operations.

3,849, dated 3.25.2010 – Provided for the creation of an organizational component of ombudsman ofﬁ ce, by ﬁ nancial institutions and other corporations authorized to operate through the Central Bank of Brazil.

3,850, dated 4.15.2010 – Changed article 1º of Resolution no. 3,759, dated 7.9.2009, to set deadlines for refunding and grace period differentiated for the operations mentioned in subparagraph “c” of indent I of the same article, when it is production or acquisition of capital goods necessary for the development of construction projects of large hydroelectric power stations, in accordance with the subvention referred to in article 1 of Law no. 12,096, dated 11.24.2009.

3,851, dated 4.29.2010 – Established the conditions for granting loans subject to economic subsidy by the Union to the Brazilian Development Bank (BNDES), for the acquisition and production of capital goods, production of consumer goods for export and technological innovation.

3,852, dated 5.29.2010 – Adjusted rules of the Program of Commercial Planting of Forests (Propﬂ ora) and the Program of Incentive to Sustainable Farm Production (Produsa).

3,853, dated 4.20.2010 – Provided for the preparation and dissemination of interim consolidated ﬁ nancial statements, based on international accounting standards, according to the International Accounting Standards Board (IASB), among other measures.

3,854, dated 5.27.2010 – Provided for the declaration of goods and assets held abroad by individuals or legal entities resident, domiciled or headquartered in the country

3,855, dated 5.27.2010 – Provided for the channeling of resources of the Coffee Economy Defense Fund (Funcafé).

3,856, dated 5.27.2010 – Provided for credit lines intended to ﬁ nance current expenditure, harvesting, warehousing of coffee and for Coffee Acquisition Financing (FAC), under the terms of the Coffee Economy Defense Fund (Funcafé).

3,857, dated 5.27.2010 – Changed Resolution no. 2,827, dated 3.30.2001.

VIII Main Economic Policy Measures 189 3,858, dated 5.27.2010 – Promoted adjustments on the rules of the Program of Incentive to Sustainable Farm Production (Produsa), with changes in Section 8 of Chapter 13 of Rural Credit Manual (MCR).

3,859, dated 5.28.2010 – Changed and consolidated the rules related to the establishment and operation of credit unions.

3,860, dated 5.28.2010 – Authorized the inclusion of installments of loans made from resources of the Worker Support Fund of the Brazilian Development Bank (FAT/BNDES) expired between July 1, 2009, and March 1, 2010, subject to extension under the conditions established by Resolution no. 3,772, dated 8.26.2009.

3,861, dated 5.28.2010 – Provided for the advance authorization to extend agrarian credit operations, with resources of the Land and Agrarian Reform Fund as established by Complementary Law no. 93, dated 2.4.1998, and Decree no. 4,892, dated 11.25.2003.

3,862, dated 6.7.2010 – Provided for rules of the Federal Government Loans (EGF).

3.863, dated 6.7.2010 – Created a credit line for fuel ethanol storage with product warranty.

3,864, dated 6.7.2010 – Altered conditions of ﬁ nancing for ﬁ shing and water farming.

3,865, dated 6.7.2010 – Provided for adjustments in the ﬁ nancing rules for current expenditures and marketing with funds from rural credit, from the 2010/2011 crop.

3,866, dated 6.7.2010 – Provided for programs on farming investment supported by funds of the Brazilian Development Bank (BNDES).

3,867, dated 6.10.2010 – Altered conditions of the Farm Activity Guarantee Program (Proagro) from the 2010/2011 agricultural year.

3,868, dated 6.17.2010 – Altered rules of the National Program for Strengthening Family Agriculture (Pronaf).

3,869, dated 06.17.2010 – Deﬁ ned the conditions applicable for ﬁ nancing with resources from the Fund for Land and Agrarian Reform, as established by Complementary Law no. 93, dated 2.4.1998, and Decree no. 4,892, dated 11.25.2003, carried out as of July 1, 2010, and changed Resolution no. 3,231, dated 8.31.2004.

3,870, dated 6.22.2010 – Set at 6% (six percent per year) the Long-Term Interest Rate (TJLP) for the third quarter of 2010.

190 Boletim do Banco Central do Brasil – Annual Report 2010 3,871, dated 6.22.2010 – Included the article 9º-T to Resolution no. 2,827, dated 3.30.2001, authorizing credit operations under the For-Transportation program.

3,872, dated 6.22.2010 – Established additional provisions and deadlines for the completion of wording in §2 of article 3 of Law no. 11,775, dated 9.17.2008.

3,873, dated 6.22.2010 – Promoted adjustments in the rules of funding channeled to rice farmers in Rio Grande do Sul, under the Program of Incentive to Sustainable Farm Production (Produsa), and altered the conditions of the Program of Agricultural Modernization and Conservation of Natural Resources (Moderagro) for funding channeled to ﬁ shing and water farming.

3,874, dated 6.22.2010 – Provided for the Program of funding for the storage of fuel ethanol.

3,875, dated 6.22.2010 – Created a Special Credit Line for commercialization of honey, sheep wool, sheep milk, goat milk, pineapple, banana, guava, apple, papaya, mango, passion fruit and peach.

3,876, dated 6.22.2010 – Forbid the granting of rural credit to individuals or entities that are enrolled in the Employers Register who kept workers in slave-like conditions, established by the Ministry of Labor and Employment.

3,877, dated 6.22.2010 – Altered percentage of sub requirements and weighting factors for purposes of compliance with requirements and sub requirements of the Rural Credit Manual (MCR) 6-2, from the 2010/2011 harvest, and introduced adjustments in rural credit rules.

3,878, dated 6.22.2010 – Changed the wording of article 9-H of Resolution no. 2,827, dated 3.30.2001, in order to remove the deadline for the contracting of credit operations under the Program for Modernization of Administration of Revenue and Fiscal, Finance and Property Management of the State Administration (PMAE).

3,879, dated 6.22.2010 – Provided for the levying of additional tax rate of the Farm Activity Guarantee Program (Proagro), within the framework of funding costs operations of sesame farming.

3,880, dated 6.22.2010 – Set the inﬂ ation targeting and its tolerance range for 2012.

3,881, dated 6.22.2010 – Altered Resolution no. 3,211, dated 6.30.2004, which provided for the opening, maintenance and operation of special accounts of cash and savings deposits.

VIII Main Economic Policy Measures 191 3,882, dated 6.30.2010 – Established the conditions for granting loans liable to economic subsidy by the Union to the Brazilian Development Bank (BNDES), for the construction works and working capital of companies located in municipalities in the States of Alagoas and Pernambuco that declared emergency or public calamity situations.

3,883, dated 7.22.2010 – Provided for the imposition of penalties relating to the rendering of information by ﬁ nancial institutions and other corporations authorized to operate through the Central Bank of Brazil.

3,884, dated 7.22.2010 – Provided for adjustments in the rules of rural credit from the 2010/2011crop.

3,885, dated 7.22.2010 – Dealt with the regulation of the Price Guaranty Program for Family Agriculture (PGPAF).

3,886, dated 7.23.2010 – Adjusted rules of the National Program for Strengthening Family Agriculture (Pronaf).

3,887, dated 7.29.2010 – Changed the deadlines established by Resolution no. 3,806, dated 10.28.2009, which regulates articles 24, 25 and 26 of Law no. 11,775, dated 9.17.2008.

3,888, dated 7.29.2010 – Authorized the inclusion of installments of investment credit operations from the Worker Support Fund of the Brazilian Development Bank (FAT/BNDES) matured in the period from January 1, 2009, to March 1, 2010, liable to prorogation in accordance with the conditions established by Resolution no. 3,772, dated 8.26.2009.

3,889, dated 7.29.2010 – Set up an emergency credit line for farmers and families affected by excessive rainfalls and their consequences in the states of Alagoas and Pernambuco.

3,890, dated 7.29.2010 – Maintained for the 2010/2011 crop, the extraordinary circumstances of replacement of documentation proving agrarian regularity, as referred to in item 18 of Section 1 of Chapter 2 of Rural Credit Manual (MCR).

3,891, dated 7.29.2010 – Changed the item X of § 1º of article 9 of Resolution no. 2,827, dated 3.30.2001, and repealed Resolution no. 3,802, dated 10.28.2009.

3,892, dated 7.29.2010 – Provided for the establishment of additional tax rate of the Farm Activity Guarantee Program (Proagro), within the framework of of funding costs operations of citrus and peach palm farming.

192 Boletim do Banco Central do Brasil – Annual Report 2010 3,893, dated 7.29.2010 – Altered conditions of the Farm Activity Guarantee Program (Proagro) from the agricultural year 2010/2011.

3,894, dated 7.29.2010 – Extended the limit for granting guarantees by companies of the electric energy sector, within the scope of the federal, state, municipal and district levels, to the special purpose company formed by them, limited to the percentage of their participation in the joint exclusively for investments linked to the Program of Generation and Transmission of electric energy, under the Growth Incentive Program (PAC).

3,895, dated 7.29.2010 – Altered Resolution no. 3,809, dated 10.28.2009, which provided for the adoption of the classiﬁ cation procedures, accounting records and disclosure of transactions of sale or transfer of ﬁ nancial assets, according to the Resolution no. 3,533, dated 1.31.2008.

3,896, dated 8.17.2010 – Created, in accordance with the Brazilian Development Bank (BNDES), the Program for Reduction of Emission of Greenhouse Gases in Agriculture (Program ABC).

3,897, dated 8.25.2010 – Changed Resolution no. 3,464, dated 6.26.2007, and Resolution 3,490, dated 8.29.2007, which respectively dealt with the implementation of market risk management structure and the assessment of the Required Base Capital (PRE).

3,898, dated 8.26.2010 – Instituted, under the terms of the Coffee Economy Defense Fund (Funcafé), a credit line to ﬁ nance the establishment of a guarantee margin and daily adjustments in futures sales, the acquisition of premium in sales options contracts and fees and charges related to these transactions, when referenced to the 2010/2011 coffee crop.

3,899, dated 8.26.2010 – Authorized the composition of rural credit debts contracted with resources from the Northeast Financing Constitutional Fund (FNE) by vegetable and fruit farmers and their cooperatives and companies producing fruits and vegetables, located in the municipalities of São Francisco.

3,900, dated 9.29.010 – Set at 6% (six percent) per year the Long-Term Interest Rate (TJLP) for the fourth quarter of 2010.

3,901, dated 9.30.2010 – Adjusted the rules of credit lines aimed at Coffee Acquisition Financing (FAC) under the terms of the Coffee Economy Defense Fund (Funcafé), the Federal Government Loans (EGF) and the Special Trade Credit Line (LEC).

3,902, dated 9.30.2010 – Authorized the debt renegotiation of rural credit regarding current expenditures of the 2009/2010 apple crop.

VIII Main Economic Policy Measures 193 3,903, dated 9.30.2010 – Dealt with the rechanneling of Funcafé funds and the credit line aimed at the Coffee Acquisition Financing (FAC), supported by the Funcafé resources.

3,904, dated 9.30.2010 – Altered rules of the Special Line of Credit for Investment in Food Production (Pronaf More Food) under the National Program for Strengthening Family Agriculture (Pronaf).

3,905, dated 9.30.2010 – Promoted adjustments in the rules of funding targeted to rice farmers in Rio Grande do Sul, under the Program of Incentive to Sustainable Farm Procution (Produsa).

3,906, dated 9.30.2010 – Created a weighting factor aiming at the compliance with the requirements of the Rural Credit Manual (MCR) 6-4.

3,907, dated 9.30.2010 – Added article 9º-U to Resolution no. 2,827, dated 3.30.2001, and authorized the contracting of ﬁ nancing by state-owned electric power companies, headquartered in states hosting games of the FIFA World Cup 2014, for projects of generation, transmission and distribution of electricity.

3,908, dated 9.30.2010 – Provided for the nomination of the director responsible for the data consultation process regarding positions in derivatives ﬁ nancial instruments.

3,909, dated 9.30.2010 – Altered Resolution no. 3,517, dated 12.6.2007, extending the obligation to inform the Total Effective Cost (TEC) to operations involving micro and small businesses.

3,910, dated 9.30.2010 – Established the conditions for granting loans subject to economic subsidy by the Union to the Brazilian Development Bank (BNDES), aimed at the acquisition and production of capital goods, production of consumer goods for exports, technological innovation and electric power sector.

3,911 dated 10.6.2010 – Altered article 10 of Resolution no. 3,568, of dated 5.29.2008. The deadline for the National Treasury to buy dollars to pay for the Federal Public External Debt (DPFe) was extended from 750 days to 1,500 days.

3,912, dated 10.7.2010 – Provided for simultaneous exchange contracts in case of internal migration between investments of non-resident investor in the country, in situations herein speciﬁ ed.

3,913, dated 10.19.2010 – Conditioning of Credit to the Public Sector – added the article 9º-V to Resolution no. 2,827, dated 3.30.2001, and authorized the contracting of funding by state-owned electricity companies.

194 Boletim do Banco Central do Brasil – Annual Report 2010 3,914, dated 10.20.2010 – Forbid the execution of rental, trading and loan operations of securities and fi nancial gold assets by fi nancial institutions and other institutions authorized to operate through the Central Bank of Brazil to non-resident investor, in situations therein specifi ed.

3,915, dated 10.20.2010 – Altered article 1 of Resolution no. 3,912, dated 12.7.2010. All internal migrations of funds in reais became subject to the contracting of simultaneous exchange operations, channeled to the establishment of margin requirement, initial or additional, performed by non-resident investor in the country, required by stock and merchandise and futures exchanges.

3,916, dated 10.28.2010 – Altered provisions relating to the Capitalization Program of Farm Cooperatives (Procap-Agro).

3,917, dated 10.28.2010 – Altered deadlines and additional provisions to turn effective the wording of articles 3 and 4 of Law no. 11,775, dated 9.17.2008.

3,918, dated 10.28.2010 – Altered the conditions to include the granting of rural credit investment in the Guarantee Program for Farming Activity and Family Agriculture (Proagro Mais).

3,919, dated 11.25.2010 – Altered and consolidated the rules on charging fees for services rendered by ﬁ nancial institutions and other corporations authorized to operate by the Central Bank of Brazil.

3,920, dated 11.25.2010 – Regulated the query to information relating to transactions carried out in the exchange market by ﬁ nancial institutions and other institutions authorized to operate by the Central Bank of Brazil.

3,921, dated 11.25.2010 – Provided for the payment policy for the executives of ﬁ nancial institutions and other institutions authorized to operate by the Central Bank of Brazil.

3,922, dated 11.25.2010 – Provided for the investment of resources pertaining to social security special schemes established by the Union, States, the Federal District and Municipalities.

3,923, dated 11.25.2010 – Regulated the Incentive Program of Incentive to Sustainable Farm Production (Produsa), which is supported by funds from the Brazilian Development Bank (BNDES).

3,924, dated 11.25.2010 – Created an emergency credit line for family farmers with ventures affected by drought in the municipalities of the semi-arid states of the Northeast and Minas Gerais.

VIII Main Economic Policy Measures 195 3,925, dated 11.25.2010 – Changed the item X of § 1º of article 9 of Resolution no. 2,827, dated 3.30.2001, and repealed Resolution no. 3,891, dated 7.29.2010.

3,926, dated 11.25.2010 – Provided for adjustments in the basic conditions for rural credit.

3,927, dated 11.25.2010 – Dealt with measures to support family farmers in the municipalities of the Mato Grosso state, affected by ﬁ res out of control.

3,928, dated 11.25.2010 – Altered provisions of the Rural Credit Manual (MCR) in accordance with the National Program for Strengthening Family Agriculture (Pronaf).

3,929, dated 11.25.2010 – Cancelled the Fund for Payment of Beneﬁ ts in Case of Loss of Income and Temporary Disability (Fiel), and adopted other measures.

3,930, dated 12.3.2010 – Established the conditions for granting loans subject to economic subsidies by the Union, to the Brazilian Development Bank, aimed at providing working capital and investment on companies and individual micro entrepreneurs, located in municipalities in the states of Alagoas and Pernambuco that declared emergency or public calamity.

3,931, dated 12.3.2010 – Altered Resolution no. 3,692, dated 3.26.2009, which dealt with the funding inﬂ ow of time deposits with special guarantee provided by the Credit Guarantee Fund (FGC) and the maximum speciﬁ ed in Resolution no. 3,400, dated 9.6.2006.

3,932, dated 12.16.2010 – Altered and consolidated rules on targeting resources obtained from saving deposits by member entities of the Brazilian System of Savings and Loans (SBPE).

3,933, dated 12.16.2010 – Dealt with the issuance of Financial Bill by the Brazilian Development Bank (BNDES).

3,934, dated 12.16.2010 – Set at 6% (six percent per year) the Long-Term Interest Rate (TJLP) in force during the period from January 1 to March 31, 2011.

3,935, dated 12.16.2010 – Altered article 9 J of Resolution no. 2,827, dated 3.30.2001, extending the deadline for contracting credit operations, under the Way to School Program.

3,936, dated 12.16.2010 – Changed the starting date for the compliance with the requirement to include information in the Common Registry of Rural Operations (Recor) of credits for Coffee Acquisition Financing (FAC) under the terms of the Coffee Economy Defense Fund (Funcafé), the Federal Government Loans (EGF) and the Special Trade Credit Line (LEC).

196 Boletim do Banco Central do Brasil – Annual Report 2010 3,937, dated 12.16.2010 – Altered articles 9ºQ and 9ºR of Resolution no. 2,827, dated 3.30.2001, aiming at extending the deadlines set in credit lines for the construction and renovation of the 2014 World Cup stadiums and projects for urban mobility.

3,938, dated 12.16.2010 – Reallocated resources for ﬁ nancing operations aiming at the acquisition and production of capital goods, liable to economic subsidy by the Union to the Brazilian Development Bank (BNDES).

3,939, dated 12.16.2010 – Extended the deadline for contracting credit operations under the Highway Intervention Program (Provias) until 12.31.2011.

Resolution of the National Council of Energy Policy

1, dated 5.28.2010 – Deﬁ ned guidelines for the exceptional supply of electric power in a discontinued way to the Republic of Argentina and the Republic of Uruguay, in 2010, with mandatory return of energy in the same year.

Resolutions of the National Council of Export Processing Zones

1, dated 5.26.2010 – Deﬁ ned the Higher Guidance Policy on Export Processing Zones.

8, dated 6.28.2010 – Deﬁ ned the procedure to declare the forfeiture of the act establishing Export Processing Zone.

Resolutions of the National Health Surveillance Agency (ANVISA)

12, dated 3.11.2010 – Authorized, exceptionally, the manufacture, importation and commercialization of synthetic rubber surgical gloves, under sanitary surveillance regime.

17, dated 4.19.2010 – Provided for the minimum requirements to be followed in the manufacture of medicines to standardize the veriﬁ cation of compliance with Good Manufacturing Practice for Medicinal Products (GMP), for human use during the health inspections, internalized the Common Market Group Resolution (GMC) no. 15/09 – “Good Manufacturing Practices for Pharmaceutical Products and Implementation Mechanism in Mercosul,” and repealed the Directive Secretariat of Health Surveillance (SVS) no. 500/1997 and the Board of Directors Resolution (RDC) of the National Health Surveillance Agency (ANVISA) no. 210/2003.

VIII Main Economic Policy Measures 197 Resolutions of the Foreign Trade Council (Camex)

1, dated 01.19.2010 – Determined that in the List of Exceptions to the Common External Tariff (TEC), dealt with in Annex II of Resolution no. 43/2006, the ex-tariff is included in the code Common Mercosul Nomenclature (NCM) mentioned therein. Included the Ex-035- containing oseltamivir phosphate (Tamiﬂ u) in the code NCM 3004.90.69, reducing the Import Tax from 8% to 0% in the List of Exception to the TEC.

2, dated 2.4.2010 – Changed to 0% until 12.31.2010, the ad valorem rate of Import Tax on capital goods and Informatics and Telecommunications Goods, listed therein, as special ex-tariff.

3, dated 2.4.2010 – Changed to 2%, until 12.31.2010, the ad valorem rates of Import Duties on capital goods of Informatics and Telecommunications, as ex-tariff, as well as on the components of Integrated Systems (IS) related therein.

4, dated 2.4.2010 – Changed to 2%, until 12.31.2010, the ad valorem rates of Import Tax levied on capital goods, as ex-tariffs, as well as on the components of Integrated Systems listed therein, and altered Resolutions no 45/2008, 58/2008, 6/2009, 39/2009, 42/2009 52/2009 62/2009 and 78/2009.

13, dated 2.11.2010 – Altered the List of Exceptions to the Common External Tariff, dealt with in Annex II of Resolution no. 43/2006.

14, dated 3.3.2010 – Applied defi nitive antidumping duty, for up to fi ve years, on Brazilian imports of footwear, classifi ed on the codes Common Mercosul Nomenclature (NCM) 6402-6405, from China, to be collected as specifi c tax rate set at US$13.8/pair, and repealed Resolution no. 48/2009.

15, dated 3.5.2010 – Adopted the list of goods subject to suspension of concessions undertaken by Brazil in accordance with the General Agreement on Tariffs and Trade 1994, regarding the United States, and set the rates of Import Tax, valid for 365 days.

16, dated 03.12.2010 – Established, under the Provisional Measure no. 482/2010, the procedure for public consultation on measures to suspend the country’s concessions or obligations, regarding intellectual property rights and others, in relation to United States America, as a result of non-compliance with decisions and recommendations adopted by the Dispute Settlement Body of the World Trade Organization (WTO), in the context of the litigation “United States – Subsidies to Cotton” (WT/DS 267).

18, dated 3.25.2010 – Changed to 2%, until 12.31.2010, the ad valorem rates of the Import Tax on capital goods, as ex-tariffs, as well as on components of Integrated

198 Boletim do Banco Central do Brasil – Annual Report 2010 Systems listed therein and modiﬁ ed Resolutions no. 52/2008, 77/2008, 6/2009, 22/2009, 39/2009, 42/2009, 52/2009, 62/2009, 78/2009 and 4/2010.

19, dated 4.6.2010 – Altered Article 4º of Resolution no. 15/2010, which adopted the list of goods subject to suspension of concessions undertaken by Brazil, in accordance with the 1994 General Agreement on Tariffs and Trade, regarding the United States, and set the rates of Import Tax, valid for 365 days.

20, dated 4.22.2010 – Extended until 6.21.2010, the coming into force of the retaliation to the United States, in the context of the litigation “United States-Subsidies to Cotton”, dealt with in Resolution no. 15/10.

21, dated 4.26.2010 – Altered the List of Exceptions to the Common External Tariff dealt with in Annex II of Resolution no. 43/2006, including the Common Mercosul Nomenclature (NCM) 2207.10.00 and 2207.20.10, with a rate of 0%.

22, dated 4.26.2010 – Changed to 0% for a period of 12 months, the ad valorem rates of Import Tax on goods within the highlights “Ex” of the Common Mercosul Nomenclature (NCM) 3002.20.11 and 3002.20.21 and excluded the same codes from the List of Exceptions to the Common External Tariff, dealt with in Annex II of Resolution no. 43/2006.

23, dated 04.28.2010 – Applied defi nitive antidumping duty for a period of up to fi ve years to Brazilian imports of blankets of synthetic fi bers, non-electric, made in the People’s Republic of China, commonly classifi ed under item 6301.40.00 of the Common Mercosul Nomenclature (NCM), to be collected under specifi c fi xed rate set at $5.22/kg.

24, dated 04.29.2010 – Applied defi nitive antidumping duty for up to fi ve years to Brazilian imports of ball point pens made of plastic resins, with a unique body type, standing or collapsible, retractable or not, with or without grip, gel or oil-based ink, made in the People’s Republic of China, commonly classifi ed under item 9608.10.00 of the Common Mercosul Nomenclature (NCM), to be collected under specifi c fi xed rate of US$14.52/kg, making public the facts that justifi ed the decision.

25, dated 4.30.2010 – Altered to 2%, for a period of 12 months, in accordance with itemized quotas, the ad valorem rates of Import Tax speciﬁ ed, classiﬁ ed under codes 1513.29.10, 7410.21.10 and 8545.19.90 of the Mercosul Common Nomenclature (NCM).

26, dated 5.3.2010 – Changed to 2%, until 5.31.2011, the ad valorem rates of Import Tax on Goods of Informatics and Telecommunications listed therein in the ex-tariff condition, and reported that as from 1.1.2011, tariff reduction should be adapted to the new special regimes and common procedures aimed to be established by the Southern Common Market (Mercosul).

VIII Main Economic Policy Measures 199 27, dated 5.3.2010 – Changed to 2%, until 12.31.2011, the ad valorem rates of Import Tax on Capital Goods, as ex-tariff, as well as components of Integrated Systems that relates, and reported that from 1.1.2011, tariff reductions should be adapted to the new common special systems and procedures targeted to be established by the Southern Common Market (Mercosul). Modiﬁ ed Resolution no. 77, dated 12.10.2008; Resolution no. 6, dated 2.3.2009; Resolution no. 52, dated 9.17.2009; Resolution no. 78, dated 12.15.2009; Resolution no. 4, dated 2.4.2010; and Resolution no. 18, dated 3.25.2010 and changed to 0% tax rates on the components of the Integrated System (SI-777), in accordance with Resolution no.18, dated 3.25.2010.

28, dated 5.5.2010 – Altered the List of Exceptions to the Common External Tariff and List of Exceptions on Informatics and Telecommunication Goods, in accordance with Resolution no. 43, dated 12.22.2006.

29, dated 05.14.2010 – Suspended the change to 2% of the ad valorem rate of Import Tax, provided in Resolution no.75, dated 11.23.2009, for goods mentioned therein.

34, dated 05.26.2010 – Changed to 2%, until 12.31.2011, the ad valorem rated of Import Tax on Capital Goods mentioned therein, as ex-tariffs, as well as on components of related Integrated Systems and determined that, from 1.1.2011, such tariff reductions should be adapted to the new special common regimes and procedures aimed to be established by the Mercosul. It also modiﬁ ed ex-tariffs established by Resolutions no. 5, dated 2.3.2009, and 27, dated 4.30.2010.

35, dated 5.26.2010 – Changed to 2%, until 12.31.2011, the ad valorem rates of Import Tax on of Informatics and Telecommunications Goods speciﬁ ed therein, as ex-tariffs, and determined that, from 1.1.2011, such tariff reductions should be adapted to the new common special systems and procedures aimed to be established by the Southern Common Market (Mercosul).

36, dated 5.26.2010 – Included the code NCM 9508.90.90, as mentioned, to the List of Exceptions to the Common External Tariff (TEC) dealt with in Annex II of Resolution no. 43, dated 12.22.2006.

37, dated 5.26.2010 – Ended the review with an extension for a period of up to ﬁ ve years, of the antidumping duty applied on Brazilian imports of ring-shaped ferrite magnets (ceramic), from China, commonly classiﬁ ed in the item Mercosul Common Nomenclature (NCM) 8505.19.10, as ad valorem tax rate of 43% on the customs value of imports based on Cost, Insurance and Freight (CIF).The following were excluded from the scope of the measure: ferrite magnets (ceramic) ring-shaped, with outer diameter less than 20 mm, used in gas, water and electric meters, sensors and rotors for micro-motors or pumps.

200 Boletim do Banco Central do Brasil – Annual Report 2010 38, dated 5.28.2010 – Authorized the governing body of the Export Guarantee Fund (FGE) to replace and sell stocks in the cases herein mentioned.

39, dated 6.2.2010 – Altered the List of Exceptions to the Common External Tariff, dealt with in Annex II of Resolution no. 43, dated 12.22.2006.

40, dated 05.26.2010 – Altered article 2º of Resolution no. 7, dated 3.4.2004, which established the Export Financing and Guarantee Committee (Coﬁ g), with the power to decide on matters relating to the application of budget resources of the Union, allocated in the Export Financing Program (Proex) and the Export Guarantee Fund (FGE).

41, dated 6.8.2010 – Altered the way law was enforced on defi nitive anti-dumping duty on imports of glyphosate (N-phosphonomethyl glycine), in different forms (acid, salts and formulated) and degrees of concentration, designed exclusively for manufacturing herbicides, as classifi ed under the items Common Nomenclature Mercosul (NCM) 2931.00.32, 2931.00.39 and 3808.93.24, when originated in China, extended by Resolution no. 3, dated 2.3.2009, from ad valorem rates to specifi c duty, denominated in U.S. dollars, as mentioned.

42, dated 6.17.2010 – Excluded and changed the codes mentioned in the List of Exceptions to the Common External Tariff, as dealt with in Annex II of Resolution no. 43, dated 12.22.2006.

43, dated 6.17.2010 – Abolished Resolution no.15, dated 3.5.2010, which included the list of goods subject to suspension of concessions undertaken by Brazil, in accordance with the 1994 General Agreement on Tariffs and Trade, in relation to the United States of America (USA), amounting to $591 million authorized by the World Trade Organization (WTO); and the procedure initiated by Resolution no. 16, dated 3.12.2010, for the suspension of concessions or other country’s obligations relative to intellectual property rights and other rights regarding the United States, amounting to $238 million, authorized by the WTO.

44, dated 06.24.2010 – Extended, until 12.31.2010, the deadline of ex-tariff speciﬁ ed on Resolutions no. 45/2008, 47/2008 and 77/2008.

45, dated 6.24.2010 – Altered to 2%, up to 12.31.2011, the ad valorem rates of Import Tax levied on Goods of Informatics and Telecommunication Goods mentioned therein, as ex-tariffs, and determined that, as of 1.1.2011, such tariff reductions should be adapted to the new common special systems and procedures that may be set up by Mercosul.

46, dated 06.24.2010 – Changed to 2%, up to 12.31.2011, the ad valorem rates of Import Tax on Capital Goods, as ex-tariffs, as well as on components of Integrated Systems speciﬁ ed therein, and determined that, from 1.1.2011, such tariff

VIII Main Economic Policy Measures 201 reductions should be adapted to the new special common systems and procedures, aimed at be established by the Southern Common Market (Mercosul). Modiﬁ ed Resolutions no. 52/2008 77/2008 78/2009 26/2010 42/2009 18/2010 27/2010 and 34/2010 and repealed the ex-tariffs speciﬁ ed by the Resolutions.

47, dated 6.24.2010 – Altered, from 7.1.2010, the Common Mercosul Nomenclature (NCM) and the rates of Import Tax that make up the Common External Tariff (TEC), as dealt with in Annex I of Resolution no. 43, dated 12.22.2006; repealed, as from 7.1.2010, the change regarding the code NCM 8545.19.90, dealt with in Resolution no. 25, dated 4.29.2010; included in the List of Exceptions of the Common External Tariff, dealt with in Annex II of Resolution no. 43/2006, the NCM codes mentioned therein; and modiﬁ ed the Resolution no. 28, dated 4.29.2010.

48, dated 7.1.2010 – Extended the defi nitive antidumping duty for a period of up to fi ve years, applied to Brazilian imports of barium carbonate from China, commonly classifi ed in the item Mercosul Common Nomenclature (NCM) 2836.60.00, to be collected under the specifi c rate of US$105.17/t.

51, dated 7.28.2010 – Ended a review of the safeguard measure, as quantitative restriction on imports of dry coconut, shelled, even shredded, classiﬁ ed in item Mercosul Common Nomenclature (NCM) 0801.11.10, with an extension for two years, under the provisions of article 9º of Decree no. 1.488/1995.

52, dated 7.29.2010 – Altered to 2%, according to speciﬁ ed quotas, for a six-month period, the ad valorem rates of Import Tax on goods relative to tariff highlights (Ex) speciﬁ ed therein.

53, dated 08.05.2010, rectiﬁ ed on 08.09.2010 – Altered to 2%, up to 6.30.2012, the ad valorem rates of Import Tax levied on Capital Goods, as ex-tariffs, as well as on components of the Integrated Systems speciﬁ ed therein; determined that, as from 1.1.2011, such tariff reductions should be adapted to the new special common systems and procedures that may be established by the Southern Common Market (Mercosul).

54, dated 8.5.2010 – Altered to 2%, until 6.30.2012, the ad valorem rates of Import Tax levied on the Goods of Informatics and Telecommunications speciﬁ ed therein, as ex-tariffs, and determined that, as from 1.1.2011, such tariff reductions should be adapted to the new special common systems and procedures that may be created by the Southern Common Market (Mercosul).

55, dated 8.5.2010 – Altered the Taxation Rule of the Common External Tariff for Aeronautical Products Sector, as dealt with in Annex I of Resolution no. 43, dated 12.22.2006.

202 Boletim do Banco Central do Brasil – Annual Report 2010 56, dated 8.5.2010 – Altered article 2º of Resolution no.80, dated 12.15.2009, which imposed defi nitive antidumping duties, for a period of up to fi ve years, to Brazilian imports of wire with at least 85% of viscose fi ber in its composition, from Austria, India, Indonesia, China, Thailand and Chinese Taipei, commonly classifi ed in item Mercosul Common Nomenclature (NCM) 5510.11.00, to be collected as specifi c fi xed rates.

57, dated 8.5.2010 – Altered the item 2.2. of Annex I of Resolution no. 24, dated 4.28.2010, which imposed defi nitive antidumping duties, for up to fi ve years, to Brazilian imports of ball point pens made of plastic resins, with a unique body type standing or collapsible, retractable or not, with or without grip, with gel or oil-based ink, originated from the People’s Republic of China, commonly classifi ed under item 9608.10.00 of the Common Mercosul Nomenclature (NCM), to be collected a specifi c fi xed rate of US$14.52/kg, making public the facts which justifi ed the decision.

58, dated 8.17.2010 – Altered article 2 of Resolution no. 7, dated 3.4.2004, which established the Export Financing and Guarantee Committee (Coﬁ g), with the power to decide on the following topics relating to the implementation of budgetary resources of the Union, consigned to the Export Financing Program (Proex) and the Export Guarantee Fund (FGE).

59, dated 8.17.2010 – Altered the List of Exceptions to the Common External Tariff (TEC), dealt with in Annex II of Resolution no. 43, dated 12.22.2006, and § 1 of article 3 of Resolution no. 47, dated 6.24.2010.

62, dated 8.17.2010 – Conditioned the Brazilian offi cial support for export, either through fi nancing or refi nancing, equalization of interest rates, credit insurance or any combination of these modalities, to the signing of the Exporter Commitment Declaration in response to the commitments made by Brazil as part of the Convention on Combating Bribery of Foreign Public Offi cials in International Business Transactions, ratifi ed on 6.15.2000 and promulgated by Decree no. 3,678, dated 11.30.2000.

63, dated 8.17.2010 – Regulated the extent of enforcement of antidumping and countervailing measures, dealt with in Law no. 9,019, dated 3.30.1995, the import of products from third countries, as well as parts, pieces and components of the product subject to existing measures, in case of elusive practices that frustrate the enforcement of current trade defense measures.

65, dated 9.2.2010 – Altered the List of Exceptions to the Common External Tariff (TEC), excluding the code NCM 2933.71.00, referring to the chemical product 6-Hexanolactama (epsilon-caprolactam), whose rate of Import Tax is changed from 12% to 2%, limited to a quota of 45,000 tones for a period of 12 months and extended until 11.30.2010 the deadline to be registered the Import Declarations, supported by the

VIII Main Economic Policy Measures 203 reduction in the rate of Import Tax for products of the code NCM 0303.71.00 (sardine, sardinella and sprat).

67, dated 9.2.2010 – Changed to 2%, until 6.30.2012, the ad valorem rates of Import Tax on Informatics and Telecommunications Goods, as ex-tariffs, as well as on components of the Integrated Systems speciﬁ ed therein, and determined that, as from 1.1.2011, such tariff reductions should be adapted to the new special common systems and procedures aimed to be established by the Southern Common Market (Mercosul).

68, dated 9.2.2010 – Changed to 2%, until 6.30.2012, the ad valorem rates of Import Tax on Goods of Informatics and Telecommunications, as ex-tariffs, as well as on components of the Integrated Systems related therein, and determined that, from 1.1.2011, such tariff reductions should be adapted to the new special common systems and procedures that may be established by the Southern Common Market (Mercosul).

70, dated 9.14.2010 – Reduced to 0% the Import Tax on cotton, classiﬁ ed under the Common Mercosul Nomenclature (NCM) 5201.00.20 and 5201.00.90 (cotton), and limited to a quota of 250,000 tons in the List of Exceptions to the Common External Tariff (TEC).

71, dated 9.14.2010 – Reduced the Import Tax on car parts speciﬁ ed therein, as speciﬁ c ex-tariffs for this current system, amounting to the equivalent to the levying of 2% rate, when they are imported for production.

72, dated 10.5.2010 – Altered the List of Exceptions to the Common External Tariff (TEC), dealt with in Resolution no. 43/2006, repealed article 5 of Resolution no. 65, dated 9.2.2010, and changed, under the terms of Resolution no. 69, dated 12.7.2000, of the Common Market Group (GMC), the ad valorem rates of Import Tax for goods speciﬁ ed therein.

73, dated 10.05.2010 – Extended the defi nitive antidumping duty for a period of up to fi ve years, applied to Brazilian imports of ethylene glycol monobutyl ether (EBMEG), from the United States, commonly classifi ed in item Mercosul Common Nomenclature (NCM) 2909.43.10, to be collected as specifi c fi xed rate, amounting to US$377.34/t for the manufacturer/exporter The Dow Chemical Company (TDCC), and US$670.42/t for the other manufacturers/exporters of EBMEG, from the United States.

74, dated 10.5.2010 – Extended the defi nitive antidumping duty for a period of up to fi ve years, levied on Brazilian imports of magnesium powder, with a minimum of 90% magnesium and maximum of 10% lime, from China, commonly classifi ed under the items Common Mercosul Nomenclature (NCM) 8104.30.00 and 8104.90.00, to be collected under the specifi c rate of US$0.99/kg.

204 Boletim do Banco Central do Brasil – Annual Report 2010 75, dated 10.19.2010 – Suspended, for a period of one year, the anti-dumping duty applied by Resolution no. 48, dated 6.30.2010, on Brazilian imports of barium carbonate from China, commonly classiﬁ ed under the item Common Mercosul Nomenclature (NCM) 2836.60.00.

76, dated 10.19.2010 – Changed to 2%, until 6.30.2012, the ad valorem rate of Import Tax on Goods of Informatics and Telecommunications, speciﬁ ed therein, as ex-tariffs, as well as on components of Integrated Systems, and determined that, from 1.1.2011, this tariff reduction should be adapted to the new special common systems and procedures, that may be established by the Southern Common Market (Mercosul).

77, dated 10.19.2010 – Changed to 2%, up to 6.30.2012, the ad valorem rate of Import Tax levied on Goods of Informatics and Telecommunications, speciﬁ ed therein, as ex-tariffs, as well as on components of Integrated Systems, and determined that, as from 1.1.2011, this tariff reduction should be adapted to the new special common systems and procedures, that may be set up by the Southern Common Market (Mercosul).

78, dated 11.3.2010 – Changed to 2%, 6.30.2012, the ad valorem rate of Import Tax on Goods of Informatics and Telecommunications, speciﬁ ed therein, as ex-tariffs, as well as on components of Integrated Systems, and determined that, from 1.1.2011, this tariff reduction should be adapted to the new special common regimes and procedures, that may be set up by the Southern Common Market (Mercosul).

79, dated 11.3.2010 – Changed to 2%, up to 6.30.2012, the ad valorem rate of Import Tax on Goods of Informatics and Telecommunications, speciﬁ ed therein, as ex-tariffs, as well as on components of Integrated Systems, and determined that, as from 1.1.2011, this tariff reduction should be adapted to the new special common regimes and procedures, aimed to be established by the Southern Common Market (Mercosul).

80, dated 11.9.2010 – Provided for the implementation of rules of non-preferential origin, dealt with in article 9 of Decree-Law no.37, dated 11.18.1966, and the Agreement on Rules of Origin of the World Trade Organization (WTO).

81, dated 11.17.2010 – Altered the List of Exceptions to the Common External Tariff (TEC), dealt with in Resolution no. 43, dated 12.26.2006, and § 2 of article 3 of Resolution no. 47, dated 6.24.2010, in relation to the quotas therein established.

82, dated 11.26.2010 – Revoked the ex-tariffs, speciﬁ ed therein, established by Resolution no.79, dated 11.3.2010, which changed to 2%, up to 6.30.2012, the ad valorem rate of the Import Tax on Goods of Informatics and Telecommunications, speciﬁ ed therein, as ex-tariffs, and determined that, from 1.1.2011, this tariff reduction should be adapted to the new special common systems and procedures, that may be established by the Southern Common Market (Mercosul).

VIII Main Economic Policy Measures 205 84, dated 12.8.2010 – Altered the Common Mercosul Nomenclature (NCM), the rates of Import Taxes that make up the Common External Tariff (TEC) and the lists of exceptions to the TEC, in accordance with the Resolution no. 43, dated 12.26.2006.

85, dated 12.8.2010 – Extended the defi nitive antidumping duty for a period of up to fi ve years, applied to Brazilian imports of polyvinyl chloride resin, not mixed with other substances, obtained from the suspension process (PVC-S), from U.S. and Mexico, commonly classifi ed in item Common Mercosul Nomenclature (NCM) 3904.10.10, to be collected as specifi c rates.

86, dated 12.8.2010 – Applied defi nitive antidumping duty for a period of up to fi ve years, to Brazilian imports of polypropylene resins, homopolymer and copolymer, from the United States, commonly classifi ed in items Common Mercosul Nomenclature (NCM) 3902.10.20 and 3902.30.00, respectively, to be collected as specifi c fi xed rate, amounting to US$ 82.77/t (eighty-two U.S. dollars and seventy seven cents per ton).

87, dated 12.14.2010 – Altered the List of Exceptions to the Common External Tariff (TEC), dealt with in Annex II of Resolution no. 43, dated 12.22.2006.

88, dated 12.14.2010 – Changed the article 1 of Resolution no. 17, dated 6.6.2001, which provided for the rate of Export Tax on arms and ammunitions speciﬁ ed therein, when exported to South America and Central America, including the Caribbean.

89, dated 12.14.2010 – Changed to 2%, until 6.30.2012, the ad valorem rate of Import Tax on Informatics and Telecommunications Goods, speciﬁ ed therein, as ex-tariffs, as well as on components of Integrated Systems, and determined that, as from 1.1.2011, this tariff reduction should be adapted to the new special common systems and procedures, aimed to be established by the Southern Common Market (Mercosul); and extended the validity of the ex-tariffs listed therein.

90, dated 12.14.2010 – Changed to 2%, until 6.30.2012, the ad valorem rate of Import Tax on Informatics and Telecommunications Goods, speciﬁ ed therein, as ex-tariffs, as well as on components of Integrated Systems speciﬁ ed therein, and determined that, as from 1.1.2011, this tariff reduction should be adapted to the new special common regimes and procedures, aimed to be established by the Southern Common Market (Mercosul); and extended the validity of the ex-tariffs listed therein.

Circular of the Central Bank of Brazil

3,480, dated 1.14.2010 – Released the sample referred to in article 1 of Resolution no. 3,354, dated 3.31.2006, for purposes of calculating the Basic Financing Rate (TBF) and the Reference Rate (TR).

206 Boletim do Banco Central do Brasil – Annual Report 2010 3,481, dated 1.15,2010 – Approved the new regulation for the Special System for Clearance and Custody (Selic).

3,482, dated 1.21.2010 – Altered the Circular no. 3,467, dated 9.14.2009, which established criteria for the preparation of the report, evaluating the quality and adequacy of the system of internal controls and noncompliance with laws and regulations.

3,483, dated 1.22.2010 – Authorized the public servant’s participation in the regular meeting of the Monetary Policy Committee (Copom) on January 26 and 27, 2010.

3,484, dated 2.2.2010 – Provided for the procedures for the recognition, measurement and disclosure of provisions, contingent liabilities and contingent assets by the consortium managers.

3,485, dated 2.25.2010 – Altered the Circular no. 3,091/2002, which dealt with the reserve requirement and the compulsory payment and the reserve requirements on time deposits, and adopted other measures.

3,486, dated 2.24.2010 – Altered the Circular no. 3,144/2002, which dealt with the additional requirement on deposits.

3,487, dated 3.1.2010 – Altered the Circular no. 3,091/2002, which dealt with the compulsory payment and the reserve requirement on time deposits, and adopted other measures.

3,488, dated 3.18.2010 – Altered provisions of the regulation annexed to the Circular no. 3,100, dated 3.28.2002, regarding the nature of the orders for funds transfers, the means of access and tariffs of the Reserve Transfer System (RTS).

3,489, dated 3.18.2010 – Regulated the application to access to the Reserve Transfer System (STR) through through the world wide web (internet).

3,490, dated 3.23.2010 – Established procedures for requesting drafts, deposits and cash exchanges to be observed by ﬁ nancial institutions, holders of Bank Reserves or Settlement Account.

3,491, dated 3.24.2010 – Changed the International Exchange and Capital Market Regulations (RMCCI).

3,492, dated 3.25.2010 – Established conditions for the registration of foreign investments on the ﬁ nancial and capital markets.

VIII Main Economic Policy Measures 207 3,493, dated 3.24.2010 – Changed the International Exchange and Capital Market Regulations (RMCCI).

3,494, dated 5.3.2010 – Revoked the Circular no. 3,346, dated 3.28.2007.

3,495, dated 05.26.2010 – Established the opening hours to the public, on the agencies of the ﬁ nancial institutions and other corporations authorized to operate through the Central Bank of Brazil, on match days of the Brazilian football team during the World Cup 2010.

3,496, dated 6.4.2010 – Established the delivery period of the declaration of the Brazilian Capital Abroad Survey (CBE), referring to base date of December 31, 2009.

3,497, dated 6.25.2010 – Altered the rate of compulsory deposit and reserve requirements on demand deposits, dealt with in Circular no. 3,274, dated 2.10.2005.

3,498, dated 28.6.2010 – Altered provisions of Circulars no. 3,361, 3,362, 3,363, 3,364 and 3,366, all dated 9.12.2007; Circular no. 3,388, dated 6.4.2008; Circular no. 3389, dated 6.25.2008; and Circular no. 3,478, dated 12.24.2009, which established the procedures for calculating the Installment referring to the risk of operations subject to interest rate variation (PJUR), the Amount related to the risk of operations subject to change in stock price ( PACS), the Amount related to the risk of operations subject to change in the price of goods (commodities) (PCOM) and the Amount referring to risk exposure in gold, foreign currency and operations subject to foreign exchange variation (PCAM) of the Required Base Capital (PRE), dealt with in Resolution no. 3,490, dated 8.29.2007.

3,499, dated 6/29/2010 – Extended the deadline for asset acquisition and interbank deposits subject to deduction of reserve requirement and compulsory payment on time deposits.

3,500, dated 7.15.2010 – Released the sample referred to in article 1 of Resolution no. 3,354, dated 3.31.2006, for purposes of calculating the Basic Financing Rate (TBF) and the Reference Rate (TR).

3,501, dated 7.15.2010 – Provided for the ﬁ nancing of the organizational component of ombudsman of the consortium managers.

3,502, dated 7.26.2010 – Provided for the procedures to be followed by credit unions to conduct proceedings referring to applications for authorization, and adopted other measures.

208 Boletim do Banco Central do Brasil – Annual Report 2010 3,503, dated 7.26.2010 – Provided for additional procedures governing the operation of organizational component of ombudsman in ﬁ nancial institutions, or other corporations, authorized to operate through the Central Bank of Brazil and the buyer’s associations managers.

3,504, dated 6.8.2010 – Provided for the appointment of a director responsible for providing information by ﬁ nancial institutions, and other corporations, authorized to operate through the Central Bank of Brazil, and adopted other measures.

3,505, dated 9.21.2010 – Altered the International Exchange and Capital Market Regulations (RMCCI).

3,506, dated 9.23.2010 – Provided for the methodology for calculating the exchange rate real/dollar, announced by the Central Bank of Brazil through the System of Exchange Rate Control and Information (PTAX).

3,507, dated 10.8.2010 – Altered the International Exchange and Capital Market Regulations (RMCCI), with the purpose of regulating operations of simultaneous exchange contracts, in case of internal migrations between applications of investor non-resident in the Country, in situations speciﬁ ed therein.

3,508, dated 10.19.2010 – Altered Circulars nos. 3,354, dated 6.27.2007; 3,398, dated 7.23.2008; and 3,429, dated 1.14.2009, which provided for the classiﬁ cation of transactions in the trading portfolio, data remittance and procedures related to the assessment of the Required Base Capital (PRE), dealt with in Resolution no. 3,490, dated 8.29.2007.

3,509, dated 10.19.2010 – Deﬁ ned procedures for calculating the installment of the simpliﬁ ed Required Base Capital (PRE) for exposures weighted by risk factor (PSPR), dealt with in Resolution no. 3,490, dated 8.29.2007.

3,510, dated 10.26.2010 – Altered the procedures for replacing accounting documents sent to the Central Bank of Brazil.

3,511, dated 11.5.2010 – Approved the Regulation of the Special System for Clearance and Custody (Selic).

3,512, dated 11.25.2010 – Provided for the minimum value of the credit card bill, and adopted other measures.

3,513, dated 12.3.2010 – Altered Circulars no. 3,091, dated 3.1.2002, and 3,485, dated 2.24.2010, which dealt with the reserve requirements and compulsory payment on time deposits.

VIII Main Economic Policy Measures 209 3,514, dated 12.3.2010 – Altered Circular no. 3,144, dated 8.14.2002, which dealt with the additional requirement on deposits.

3,515, dated 12.3.2010 – Altered Circular no. 3,360, dated 9.12.2007, which established the procedures for calculating the amount of the required base capital (PRE) referring to exposures by weighted risk factor (P EPR), dealt with in Resolution no. 3,490, dated 8.29.2007.

3,516, dated 12.3.2010 – Extended the deadline for disclosing consolidated ﬁ nancial statements, prepared on the basis of international accounting standards referring to base date of December 31, 2010.

3,517, dated 12.7.2010 – Altered Circular no. 3,461, dated 7.24.2009, which consolidated the rules on the procedures to be adopted to prevent activities related to the crimes deﬁ ned in Law no. 9,613, dated 3.3.1998.

3,518, dated 12.22.2010 – Dealt with providing the Central Bank of Brazil with information on about funding abroad. Financial institutions and other corporations authorized to operate through the Central Bank of Brazil are required to provide information relating to funds obtained abroad to the Department of Off-site Supervision and Information Management (Desig).

3,519, dated 12.22.2010 – Changed the International Exchange and Capital Market Regulations (RMCCI) and extended until December 30, 2010, the deadline for shipment of goods or rendering of services, delivery of documents agreed upon by export exchange contract, dated 12.18.2009, by agreement between the bank buyer of foreign currency and the exporter, remaining the last business day of the 12th month following to the shipment of goods or rendering of service, as deadline for the execution of the exchange contract mentioned.

Circular of the Private Security Authority (Susep)

401, dated 3.4.2010 – Altered and consolidated the criteria for charging the cost of the policy, invoice and endorsement, including the hiring of export credit insurance, and repealed Circular no. 176/2001.

Circulars of the Foreign Trade Secretariat (Secex)

1, dated 1.5.2010 – Revealed that the Generalized System of Preferences (GSP) of the United States, of which Brazil is a beneﬁ ciary, was renewed up to December 31, 2010, by presidential approval to the project of the American Congress “H.R.4284.

210 Boletim do Banco Central do Brasil – Annual Report 2010 RDS-111th Congress (2009): To extend the Generalized System of Preferences and the Andean Trade Preference Act and for other purposes”.

3, dated 2.25.2010 – Revealed the way of public distribution, among the companies therein mentioned, of the total quota (sum of all ﬁ xed and variable), resulting from the application of the Sixty-Eighth Additional Protocol for the period of the second year of the Agreement, 7,355 units of cars and light commercial vehicles (up to 1,500 kg of load capacity) and utility vehicles (with load capacity above 1,500 kg and total gross weight of up to 3,500 kg), included in the codes of the Common Mercosul Nomenclature (NCM ) listed in Appendix I of the Agreement on the Common Automotive Policy between the Federative Republic of Brazil and the Oriental Republic of Uruguay, and that comply with the provisions of the Agreement, included with the beneﬁ t of 100% tariff preference in exports from Brazil to Uruguay.

4, dated 3.3.2010 – Revealed that the updating of reference prices for the calculation of antidumping duties applied to imports of polyvinyl chloride, not mixed with other substances, obtained from the suspension process (PVC-S), from the United States and Mexico.

5, dated 3.10.2010 – Voided the publication, of the Ofﬁ cial Daily Government Newspaper Ofﬁ cial Journal of the Union, dated 3.10.2010, Circular no. 3, dated 2.25.2010, commented above.

6, dated 3.11.2010 – Announced that the Business Ofﬁ ce of the United States Trade Representative (USTR) published by the Federal Register, vol. 75, no. 43, on March 5, 2010, a communiqué named “Generalized System of Preferences (GSP): Announcing the Availability of Import Statistics Relating to Competitive Need Limitations (CNLS) and Inviting Public Comment on CNL Waivers Subject to Potential Revocation Based on New Statutory Thresholds, Possible de Minimis Waivers of, and Product Redesignations for the 2009 Annual Review”, through which publishes statistical data of U.S. imports for 2009, related to the CNL of the United States GSP, as well as allows to those interested to send public comments about the possibility of i) revocation of CNL waiver granted for ﬁ ve years or more; ii) granting of de minimis waiver and iii) reinsertion of products under the program.

8, dated 3.16.2010 – Voided the Circular no. 6/2010 and revealed that the Ofﬁ ce of the United States Trade Representative (USTR) published by the Federal Register, vol. 75, no. 43, on March 5, 2010, a report titled “Generalized System of Preferences (GSP): Announcing the Availability of Import Statistics Relating to Competitive Need Limitations (CNLS) and Inviting Public Comment on CNL Waivers Subject to Potential Revocation Based on New Statutory Thresholds, Possible De Minimis Waivers of, and Product Redesignations for the 2009 Annual Review”, by which publishes statistical data of U.S. imports for 2009, related to the CNL of the United States GSP as well as

VIII Main Economic Policy Measures 211 allows to those interested to send public comments about the possibility of i) revocation of CNL waiver granted for ﬁ ve years or more; ii) granting of de minimis waiver and iii) reinsertion of products under the program.

11, dated 4.5.2010 – Published the updating of reference prices for the calculation of antidumping duties applied to imports of polyvinyl chloride, classiﬁ ed in the item Mercosul Common Nomenclature (NCM) 3904.10.10, Polyvinyl chloride, not mixed with other substances, obtained from the suspension process (PVC-S), from the United States and Mexico.

12, dated 4.5.2010 – Considering that the decision of the Common Market Council (CMC) no. 16/2007 foresees that exports from Paraguay and Uruguay for other States Parties of Mercosul may not be subject to conditions of origin less favorable than exports from other countries, and Uruguay presented before the Mercosul Trade Commission a proposal of easing the Speciﬁ c Requirements of Origin existing in the Mercosul, which points to the tariff codes under the Common Mercosul Nomenclature (NCM)/Harmonized Commodity Description and Coding System (HS) in 2007, from the transposition of NALADI/HS 1993 Rules of Origin set out in the Economic Complementation Agreement no. 35 (Mercosul-Chile) and 36 (Mercosul-Bolivia), determined that the public should respond within 30 days and that opinions may be made exclusively by associations or entities and should be addressed through a written document, to the Department of International Negotiations (Deint), located on the Esplanade of Ministries, Block J, 8th ﬂ oor, room 814, as well as by digital copy to .

14, dated 4.19.2010 – Revealed the way of public distribution, among the companies mentioned therein, of the total quota (sum of all ﬁ xed and variable installments), resulting from the application of the Sixty-Eighth Additional Protocol to the Economic Complementation Agreement nº 2 for the period of the second year of the Agreement, 7,355 units of cars and light commercial vehicles (up to 1,500 kg of load capacity) and utility vehicles (with load capacity above 1,500 kg and total gross weight of up to 3,500 kg), included in the codes of the Mercosul Common Nomenclature (NCM) listed in Appendix I of the Agreement on the Common Automotive Policy between the two countries and that comply with the provisions of the Agreement, included with the beneﬁ t of 100% tariff preference in exports from Brazil to Uruguay, previously established by Circular no. 3/2010.

17, dated 3.25.2010 – Altered to 2%, until 12.31.2010, the ad valorem rates of Import Tax levied on Goods of Informatics and Telecommunications, as ex-tariffs, as well as on components of the Integrated System, speciﬁ ed therein.

54, dated 11.26.2010 – Opened, with effect from November 29, 2010, deadline for opinions about the European proposal for speciﬁ c requirements of origin for products

212 Boletim do Banco Central do Brasil – Annual Report 2010 classiﬁ ed in Chapters 25-97 of the Harmonized System for the negotiations of the Free Trade Agreement between the Southern Common Market (Mercosul) and the European Union, which ends at 17h, Brasília-DF time, dated 1.14.2011. The European proposal for speciﬁ c requirements of origin is available on the site: and expressions of interest should be exclusively made by associations or professional associations and conveyed through a written document addressed to the Department of International Negotiations (Deint), located on the Esplanada dos Ministérios, Bloco J, 8º andar, sala 814, and digital copy addressed to .

56, dated 12.6.2010 – Extended, until 1.24.2011, the deadline established in Circular no. 54, dated 11.26.2010, to be submitted statements about the European proposal for speciﬁ c requirements of origin, for products listed in Chapters 25 to 97 of the Harmonized System for the negotiations of the Free Trade Agreement, between the Southern Common Market (Mercosul) and the European Union. This mentioned deadline expires at 5 pm Brasília-DF time, 1.24.2011 and observations not sent or received beyond deadline will not be considered for evaluation by the Foreign Trade Secretariat.

58, dated 12.9.2010 – Announced that the new rules of origin and their respective procedures and methods of administrative cooperation for the management and control of origin, under the Generalized System of Preferences of the European Union (EU), are established by the Regulation (EU) no. 1,063/2010 and repealed Annex IV (Speciﬁ c Requirements of Origin) of Circular no. 92/2008.

Directives of the Ministry of Development, Industry and Foreign Trade (MDIC)

84, dated 4.22.2010 – Altered provisions of the Department of External Trade Operations (Decex) Directive no. 8/1991, dealing with the import of used equipment.

163, dated 07.28.2010 – Determined that the record of the operations referred to in paragraph I of article 1 of Decree no. 6,761/2009, referring to market research or promotion of Brazilian products and services abroad, must be processed through the Registration of Promotion Information System (Sisprom) and repealed Directive no. 89/2009.

208, dated 10.20.2010 – Provided for the exports of goods and services eligible for the Export Financing Program (Proex), in the modalities of Equalization and Finance, and repealed Directive no. 98, dated 5.7.2009.

VIII Main Economic Policy Measures 213 Directive of the Ministry of Mines and Energy

67, dated 3.1.2010 – Established the general procedures for obtaining authorization to export Liqueﬁ ed Natural Gas (LNG), in the short-term market, so-called spot market.

Directives of the National Treasury Secretariat (STN)

236, dated 4.28.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$7,372,696.53 (seven million, three hundred seventy-two thousand, six hundred ninety-six reais and ﬁ fty three cents), referenced on April 15, 2010, to be used in payment of equalization of interest rates of funding to the export of Brazilian goods and services, supported by the Export Financing Program (Proex).

298, dated 5.26.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$11,263,214.40 (eleven million, two hundred and sixty-three thousand, two hundred and fourteen reais and forty cents), referenced on May 15, 2010, to be used in payment of equalization of interest rates of funding to the export of Brazilian goods and services, supported by the Export Financing Program (Proex).

299, dated 5.26.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$1,312,784.62 (one million, three hundred twelve thousand, seven hundred eighty-four reais and sixty-two cents), referenced on May 15, 2010, to be used in payment of equalization of interest rates o funding to the export of Brazilian goods and services, supported by the Export Financing Program (Proex).

360, dated 6.28.2010 – Authorized the issuance of National Treasury Notes – Series F (NTN-F), amounting to R$2,680,320,478.88, in favor of the Export Guarantee Fund (FGE), replacing 90 million common shares issued by the Banco do Brasil S.A., held by this Fund, which will be transferred to the Union, subject to the economic equivalence of the operation and the characteristics described by the legislation.

361, dated 6.29.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$6,869,641.63, referenced on June 15, 2010, to be used in equalization payments of interest rates of funding to exports of Brazilian goods and services, supported by the Export Financing Program (Proex).

362, dated 6.29.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$8,396,859.00, referenced on June 15, 2010, to be used in equalization payments of interest rates of funding to the export of Brazilian goods and services, supported by the Export Financing Program (Proex).

214 Boletim do Banco Central do Brasil – Annual Report 2010 438, dated 7.29.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$51,837,598.91, referenced on July 15, 2010, to be used in equalization payments of interest rates of ﬁ nancing to the export of Brazilian goods and services, supported by the Export Financing Program (Proex).

439, dated 7.29.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$6,434,578.67, referenced on July 15, 2010, to be used in equalization payments of interest rates of ﬁ nancing to the export of Brazilian goods and services, supported by the Export Financing Program (Proex).

549, dated 9.27.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$23,544,753.49 (twenty-three million, fi ve hundred and forty four thousand, seven hundred and fi fty three reais and forty-nine cents), referenced on September 15, 2010, to be used in payment of equalization of interest rates of fi nancing to the export of Brazilian goods and services, supported by the Export Financing Program (Proex).

614, dated 11.4.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$3,593,554.81 (three million five hundred ninety-three thousand, fi ve hundred fi fty-four reais and eighty one cents), referenced on October 15, 2010, to be used in payment of equalization of interest rates of fi nancing to the export of Brazilian goods and services, supported by the Export Financing Program (Proex).

615, dated 11.4.2010 – Authorized the issuance of National Treasury Notes – Series I (NTN-I), amounting to R$11,409,206.84 (eleven million, four hundred and nine thousand, two hundred and six reais and eighty-four cents), referenced on October 15, 2010, to be used in payment of equalization of interest rates of ﬁ nancing to the export of Brazilian goods and services, supported by the Export Financing Program (Proex).

Directives of the Foreign Trade Secretariat (Secex)

3, dated 3.9.2010 – Altered articles 10, 131, 132, 133-A and 152 and Annex A (tariff quota) of Directive no. 25/2008, which provided for the rules and procedures applicable to foreign trade operations, and revoked the article 4C of Annex N (Export of Products Subject to Special Procedures) and Indent IX of Annex O (Documents that May Integrate the Export Process).

4, dated 4.1.2010 – Revoked § § 2 and 3 of article 10 of Directive no. 25/2008, which dealt with the rules and procedures applicable to foreign trade operations.

VIII Main Economic Policy Measures 215 6, dated 4.22.2010 – Altered articles (related to similarity test and export trading company) of Directive no. 25/2008, which provided for the rules and procedures applicable to foreign trade operations.

10, dated 5.24.2010 – Consolidated rules and procedures applicable to foreign trade operations and repealed Directive no. 25, dated November 27, 2008 and other regulations.

14, dated 7.12.2010 – Altered Directive no. 10/2010, which consolidated the rules and procedures applicable to foreign trade operations.

21, dated 10.18.2010 – Determined that the extent of the antidumping measure dealt with in article 10-A of Law no. 9,019/1995, established by Law. no. 11,786/2008, to imports of products from third countries, as well as parts, pieces and components of the product subject to the antidumping measure in force, in case of misleading practices that frustrate the implementation of the antidumping measure in force, pursuant to Camex Resolution no. 63/2010.

22, dated 10.19.2010 – Provided for the import licensing for petroleum, petroleum products, natural gas and biofuels.

24, dated 11.10.2010 – Altered, according to implementation of the Export Siscomex Web environment, the Directive no. 10, dated 5.24.2010, which consolidated the rules and procedures applicable to foreign trade operations.

Directive of the Federal Revenue Secretariat of Brazil (RFB)

520, dated 7.14.2010 – Temporarily transferred competence to perform audits on Computerized Systems of Customs Control, established for the warehouses and the beneﬁ ciaries of special customs regimes.

Directive of the National Institute of Metrology, Standardization and Industrial Quality (Inmetro)

77, dated 3.18.2010 – Exempted from compulsory certiﬁ cation by the Brazilian System of Conformity Assessment (SBAC), on an exceptional basis, for a period of 180 days, the manufacture, import and commercialization of synthetic rubber surgical gloves, under sanitary surveillance regime, in accordance with the Board of Directors Resolution (RDC)/National Health Surveillance Agency (ANVISA) no. 12/2010.

216 Boletim do Banco Central do Brasil – Annual Report 2010 Joint Directive of the Federal Revenue of Brazil and the Secretariat of Foreign Trade

467, dated 3.25.2010 – Regulated the special system of Integrated Drawback, which suspended the payment of taxes speciﬁ ed therein and repealed the Joint Directives of the Federal Revenue Secretariat of Brazil (RFB)/Foreign Trade Secretariat (Secex) no. 1,460/2008 and 1/2009 and article 90 of the Secex Directive no. 25/2008.

Directive of the Manaus Free Port Authority (SUFRAMA)

178, dated 4.22.2010 – Altered Annex A of Directive no. 192/2000, which provided for procedures relative to the authorization of imports of foreign goods in the encouraged areas managed by the Manaus Free Port Authority.

Normative Instructions of Federal Revenue Secretariat of Brazil (RFB)

1,013, dated 3.1.2010 – Altered Normative Instruction of the Federal Revenue Secretariat (SRF) no. 285/2003, which provided for the application of the special customs regime for temporary admission.

1,014, dated 3.1.2010 – Revoked item 1 of subparagraph “b” of indent II of article 2 of the Normative Instruction no. 650/2006, which established procedures enabling importers and exporters of the Manaus Free Trade Zone to operate in the Integrated Foreign Trade System (Siscomex) and accreditation of their representatives to perform activities related to the customs clearance.

1,021, dated 4.1.2010 – Altered article 24 of the Normative Instruction of the Federal Revenue Secretariat (SRF) no. 680/2006, which governed the import customs clearance.

1,025, dated 4.16.2010 – Altered article 6 of the Normative Instruction no. 757/2007, which provided for the Special Customs System for Industrial Deposit with Information System Control (Recof).

1,026 dated 4.19.2010 – Included products classiﬁ ed in code 2204 of the Industrialized Products Tax Table (Tipi) to Annex I of Normative Instruction of the Federal Revenue Secretariat (SRF) no. 504/2005, which provides for special register for producers, bottlers and producer cooperatives, traders, wholesalers and importers of alcoholic beverages, and about the control label.

VIII Main Economic Policy Measures 217 1,053, dated 7.13.2010 – Provided for the Special Register for producers and importers of biodiesel, and repealed the Normative Instruction of the Federal Revenue Secretariat (SRF) no 516/2005.

1,060, dated 8.3.2010 – Regulated the special procedure of compensation of contribution credits to the Social Integration Program/Civil Service Asset Formation Program (PIS/Pasep), of Contribution to Social Security Financing (Coﬁ ns) and lndustrialized Products Tax (IPI), calculated in relation to costs, expenses and charges related to the export revenue.

1,068, dated 8.24.2010 – Provided for the procedures related to the export of products through an Exporter Commercial Company (ECE).

1,070, dated 9.13.2010 – Altered Normative Instruction no. 844/2008, which provided for the implementation of Petroleum and Natural Gas Research and Production Activities (Repetro), and repealed Normative Instruction no. 941, dated 5.25.2009.

1,073, dated 10.1.2010 – Provided for the computerized customs control of the operations and Customs Clearance of Import and Export of Express Shipments.

1,074, dated 10.1.2010 – Provided for the Special Regime of Incentives for the Infrastructure Development of Oil Industry in the North, Northeast and Central-West regions (Repenec).

1,082, dated 11.8.2010 – Instituted the Electronic Declaration of International Physical Movement of Values (e-DMOV), among other measures.

1,083, dated 11.8.2010 – Altered Normative Instruction of the Federal Revenue Secretariat (SRF) no. 49, dated 5.2.2001, which established ﬁ scal documents for controlling operations with gold, as a ﬁ nancial asset or exchange instrument.

1,098, dated 12.14.2010 – Provided for the qualiﬁ cation and accreditation of stockholders to support the operations of the Uniﬁ ed Taxation System (RTU) on imports, by land, of goods originating from Paraguay.

218 Boletim do Banco Central do Brasil – Annual Report 2010 Appendix

Members of the National Monetary Council

Banco Central do Brasil Management

Central units (departments) of the Banco Central do Brasil

Regional ofﬁ ces of the Banco Central do Brasil

Acronyms Members of the Conselho Monetário Nacional (December 31, 2010) Guido Mantega Minister of Finance – President Paulo Bernardo Minister of Planning and Budget Henrique de Campos Meirelles Governor of the Banco Central do Brasil

Banco Central do Brasil Management (December 31, 2010) Board of Directors

Henrique de Campos Meirelles Governor Alexandre Antonio Tombini Deputy Governor Alvir Alberto Hoffmann Deputy Governor Anthero de Moraes Meirelles Deputy Governor Antonio Gustavo Matos do Vale Deputy Governor Carlos Hamilton Vasconcelos Araújo Deputy Governor Mário Magalhães Carvalho Mesquita Deputy Governor Luiz Awazu Pereira da Silva Deputy Governor

Board of Governors Executive Secretariat Executive Secretary: Carolina de Assis Barros Secretary for the Board of Governors and for the National Monetary Council: Henrique Balduino Machado Moreira Secretary for Institutional Relations: José Linaldo Gomes de Aguiar

Consultants for the Board of Governors Andréia Laís de Melo Silva Vargas Dalmir Sérgio Louzada Emanuel Di Stefano Bezerra Freire Everaldo José da Silva Júnior José Irenaldo Leite de Ataíde Katherine Hennings Otavio Ribeiro Damaso

Appendix 221 Central units of the Banco Central do Brasil (December 31, 2010)

Banking Operations Department (Deban) Edifício-Sede – 18º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Daso Maranhão Coimbra

Congressional Affairs Ofﬁ ce (Aspar) Edifício-Sede – 19º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Luiz do Couto Neto

Currency Management Department (Mecir) Av. Rio Branco, 30 – Centro 20090-001 Rio de Janeiro (RJ) Head: João Sidney de Figueiredo Filho

Department of Analysis and Control of Disciplinary Actions (Decap) Edifício-Sede – 7º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Claudio Jaloretto

Department of Bank Liquidation (Deliq) Edifício-Sede – 13º andar SBS – Quadra 3 – Zona Central 700074-900 Brasília (DF) Head: Dawilson Sacramento

Department of Economics (Depec) Edifício-Sede – 10º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Altamir Lopes

Department of External Debt and International Relations (Derin) Edifício-Sede – 14º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Wagner Thomaz de Aquino Guerra Junior

Department of Financial System Organization (Deorf) Edifício-Sede – 19º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Luiz Edson Feltrim

Department of Financial System Regulation (Denor) Edifício-Sede – 5º subsolo SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Sergio Odilon dos Anjos

222 Boletim do Banco Central do Brasil – Annual Report 2010 Department of Human Resources Administration (Depes) Edifício-Sede – 17º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: José Clóvis Batista Dattoli

Department of Information Systems Management (Deinf) Edifício-Sede – 2º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: José Antonio Eirado Neto

Department of International Reserves Operations (Depin) Edifício-Sede – 5º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Márcio Barreira de Ayrosa Moreira

Department of Material Resources Administration (Demap) Edifício-Sede – 1º subsolo SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Antônio Carlos Mendes Oliveira

Department of Off-site Supervision and Information Management (Desig) Edifício-Sede – 4º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Sidnei Corrêa Marques

Department of Open Market Operations (Demab) Av. Pres. Vargas, 730 – 6º andar 20071-900 Rio de Janeiro (RJ) Head: João Henrique de Paula Freitas Simão

Department of Planning and Management Overview of Supervisory Activities (Decop) Edifício-Sede – 6º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Arnaldo de Castro Costa

Department of Supervision of Credit Unions and Non-banking Financial Institutions and Financial System Consumer Complaints (Desuc) Edifício-Sede – 6º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: José Angelo Mazzillo Júnior

Department of Surveillance of Illegal Activities and Supervision of Foreign Ex- change and International Capital Flows (Decic) Edifício-Sede – 7º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Ricardo Liáo

Appendix 223 Financial Administration and Budget Department (Deaﬁ ) Edifício-Sede – 16º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Eduardo de Lima Rocha

Internal Auditing Department (Audit) Edifício-Sede – 5º subsolo SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Osmane Bonincontro

Legal Department (PGBC) Edifício-Sede – 11º andar SBS – Quadra 3 – Zona Central 700074-900 Brasília (DF) General Attorney: Isaac Sidney Menezes Ferreira

Ofﬁ ce of the Corregidor (Coger) Edifício-Sede – 12º andar SBS – Quadra 3 – Zona Central 700074-900 Brasília (DF) Corregidor: Jaime Alves de Freitas

Ofﬁ ce of the Ombudsman (Ouvid) Edifício-Sede – 21º andar SBS – Quadra 3 – Zona Central 700074-900 Brasília (DF) Ombundsman: Hélio José Ferreira

On site Supervision Department (Desup) Av. Paulista, 1.804 – 14º andar Bela Vista 01310-922 São Paulo (SP) Head: Carlos Donizeti Macedo Maia

Planning and Budget Department (Depla) Edifício-Sede – 9º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Adalberto Felinto da Cruz Júnior

Research Department (Depep) Edifício-Sede – 13º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Adriana Soares Sales

Security Department (Deseg) Edifício-Sede – 1º subsolo SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Gontron Magalhães Júnior

224 Boletim do Banco Central do Brasil – Annual Report 2010 Executive Ofﬁ ce

Exchange and Foreign Capital Regulation Executive Ofﬁ ce (Gence) Edifício-Sede – 3º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Geraldo Magela Siqueira

Executive Ofﬁ ce for Monetary Policy Integrated Risk Management (Gepom) Edifício-Sede – 5º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Isabela Ribeiro Damaso Maia

Executive Ofﬁ ce for Projects (Gepro) Edifício-Sede – 17º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: André Pinheiro Machado Mueller

Executive Ofﬁ ce for Special Studies (Geesp) Edifício-Sede – 14º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Maria Goreth Miranda Almeida Paula

Executive Ofﬁ ce for Supervisory Affairs (Geﬁ s) Edifício-Sede – 7º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Eduardo de Andrade Castro

Investor Relations Group (Gerin) Edifício-Sede – 1º subsolo SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Renato Jansson Rosek

Proagro Executive Ofﬁ ce (Gerop) Edifício-Sede – 19º andar SBS – Quadra 3 – Zona Central 70074-900 Brasília (DF) Head: Deoclécio Pereira de Souza

Appendix 225 Regional Ofﬁ ces of the Banco Central do Brasil (December 31, 2010)

1st Region – Regional Ofﬁ ce in Belém (ADBEL) Regional Delegate: Antonio Cardoso da Silva Jurisdiction: Acre, Amapá, Amazonas, Pará, Rondônia and Roraima Boulevard Castilhos França, 708 – Centro Caixa Postal 651 66010-020 Belém (PA)

2nd Region – Regional Ofﬁ ce in Fortaleza (ADFOR) Regional Delegate: Luiz Edivam Carvalho Jurisdiction: Ceará, Maranhão and Piauí Av. Heráclito Graça, 273 – Centro Caixa Postal 891 60140-061 Fortaleza (CE)

3rd Region – Regional Ofﬁ ce in Recife (ADREC) Regional Delegate: Cleber Pinto dos Santos Jurisdiction: Alagoas, Paraíba, Pernambuco and Rio Grande do Norte Rua da Aurora, 1.259 – Santo Amaro Caixa Postal 1.445 50040-090 Recife (PE)

4th Region – Regional Ofﬁ ce in Salvador (ADSAL) Regional Delegate: Genival Silva Coutinho Jurisdiction: Bahia and Sergipe Av. Anita Garibaldi, 1.211 – Ondina Caixa Postal 44 40210-901 Salvador (BA)

5th Region – Regional Ofﬁ ce in Belo Horizonte (ADBHO) Regional Delegate: Fernando Luís Nevesr Jurisdiction: Minas Gerais, Goiás and Tocantins Av. Álvares Cabral, 1.605 – Santo Agostinho Caixa Postal 887 30170-001 Belo Horizonte (MG)

6th Region – Regional Ofﬁ ce in Rio de Janeiro (ADRJA) Regional Delegate: Felipe Beer Frenkel Jurisdiction: Espírito Santo and Rio de Janeiro Av. Presidente Vargas, 730 – Centro Caixa Postal 495 20071-900 Rio de Janeiro (RJ)

7th Region – Regional Ofﬁ ce in São Paulo (ADSPA) Regional Delegate: David Falcão Jurisdiction: São Paulo Av. Paulista, 1.804 – Bela Vista Caixa Postal 894 01310-922 São Paulo (SP)

8th Region – Regional Ofﬁ ce in Curitiba (ADCUR) Regional Delegate: Roberto Siqueira Filho Jurisdiction: Paraná, Mato Grosso and Mato Grosso do Sul Av. Cândido de Abreu, 344 – Centro Cívico Caixa Postal 1.408 80530-914 Curitiba (PR)

Appendix 227 9th Region – Regional Ofﬁ ce in Porto Alegre (ADPAL) Regional Delegate: José Afonso Nedel Jurisdiction: Rio Grande do Sul and Santa Catarina Rua 7 de Setembro, 586 – Centro Caixa Postal 919 90010-190 Porto Alegre (RS)

228 Boletim do Banco Central do Brasil – Annual Report 2010 Acronyms

Abras Brazilian Association of Supermarkets ACC Advance on Exchange Contracts ACSP São Paulo Trade Association AFRMM Extracharge on Freight Aladi Latin American Integration Association Anda National Association for the Fertilizer Dissemination Anfavea National Association of Automotive Vehicle Manufacturers ANP National Petroleum Agency Anvisa National Health Surveillance Agency b.p. basis points BCB Central Bank of Brazil BCBS Basle Committee on Banking Supervision BDR Brazilian Depositary Receipt BIB Exit Bond BIS Bank for International Settlements BNDES Brazilian Development Bank BNDESpar BNDES Participações S.A. BoE Bank of England BoJ Bank of Japan Bovespa São Paulo Stock Exchange GMP Good Manufacturing Practice for Medicinal Products Caged General File of Employed and Unemployed Persons Camex Foreign Trade Council CBE Brazilian Capital Abroad Survey CCFCVS Board of Trustees of Wage Variations Fund CCI Consumer Confi dence Index CCM Mercosul Trade Commission CDB Bank Deposit Certifi cate CDFMM Merchant Navy Fund Board of Directors CDFSB Deliberative Board of the Brazilian Sovereign Fund CDS Credit Default Swap CEF Caixa Econômica Federal Cemla Center for Latin American Monetary Studies CGFS Committee on the Global Financial System Cide Contribution on Intervention in the Economic Domain CIF Cost, Insurance and Freight CMC Common Market Council CMN National Monetary Council CNI National Confederation of Industry CNL Competitive Need Limitations Cofi g Export Financing and Guarantee Committee Cofi ns Contribution to Social Security Financing Copom Monetary Policy Committee CPI Consumer Price Index CPSS Committee on Payment and Settlement Systems

Appendix 229 CSI Current Situation Index CSLL Social Contribution on Net Corporate Profi t CVM Securities and Exchange Commission CZPE National Board on Export Processing Zones DAX Deutscher Aktienindex Decex Department of External Trade Operations Deint Department of International Negotiations Desig Department of Off-site Supervision and Information Management Dimof Information Statement of Financial Operations DNIT National Department of Transportation Infrastructure DOU Offi cial Daily Government Newspaper DPFe Federal Public External Debt DPGE Time Deposit with Special Guarantee DR Depositary Receipts EBMEG ethylene glycol monobutyl ether ECB European Central Bank ECE Exporter Commercial Company e-DMOV Electronic Declaration of International Physical Movement of Values EGF Federal Government Loans EI Expectations Index Eletrobras Brazilian Power Plants Embi+ Emerging Markets Bond Index Plus Embraer Brazilian Aviation Company EPE Energy Research Company EU European Union FAC Coffee Acquisition Financing FAT Worker Support Fund FCL Flexible Credit Line FCVS Wage Variation Compensation Fund FDI Foreign Direct Investments Fecomercio SP Trade Federation of the State of São Paulo Fed Federal Reserve Fenabrave National Federation of Automotive Vehicle Distribution FFIE Fiscal Investment and Stabilization Fund FGC Credit Guarantee Fund FGCE Freign Trade Guarantee Fund FGE Export Guarantee Fund FGHab Popular Housing Guarantee Fund FGTS Employment Compensation Fund FGV Getulio Vargas Foundation Fiel Fund for Payment of Benefi ts in Case of Loss of Income and Temporary Disability Fies Higher Education Student Financing Fund FIFA International Federation of Association Football Finame Special Industrial Financing Agency Fipe Institute of Economic Research Foundation FMM Merchant Navy Fund FNE Northeast Financing Constitutional Fund

230 Boletim do Banco Central do Brasil – Annual Report 2010 FOMC Federal Open Market Committee FPR Risk Weighting Factor FSAP Financial Sector Assessment Program FTSE 100 Financial Times Securities Exchange Index Funcafé Coffee Economy Defense Fund Funcex Foreign Trade Studies Center Foundation GAB General Arrangements to Borrow GDP Gross Domestic Product GEM Global Economy Meeting GFCF Gross Fixed Capital Formation GFSR Global Financial Stability Report GGGD General Government Gross Debt GMC Common Market Group GNL Liquefi ed Natural Gas GSP Generalized System of Preferences HICP Harmonized Index of Consumer Prices HS Harmonized Commodity Description and Coding System HST High Speed Train IASB International Accounting Standards Board IBC-Br Central Bank Index of Economic Activity – Brazil IBGE Brazilian Institute of Geography and Statistics Ibovespa São Paulo Stock Exchange Index/ Bovespa Index IC-Br Commodities Index – Brazil Icea Current Economic Situation Index ICI Industrial Confi dence Index ICMS Tax on Circulation of Merchandises and Services ICS Services Confi dence Index IEC Consumer Expectations Index IGP-DI General Price Index – Domestic Supply IIP International Investment Position IMF International Monetary Fund INC National Confi dence Index INCC National Cost of Construction Index Inmetro National Institute of Metrology, Standardization and Industrial Quality INPC National Consumer Price Index IOF Financial Operations Tax IOF Tax on Credit, Exchange and Insurance Operations, or Stock and Bond Operations Iosco International Organization of Securities Commissions IPA-DI Broad Producer Price Index – Domestic Supply IPCA Extended National Consumer Price Index IPI lndustrialized Products Tax IRPJ Corporate Income Tax IS Integrated Systems ISP Investment Support Program LCD Liquid crystal displays LDO Budget Guidelines Law

Appendix 231 LEC Special Trade Credit Line LFT Treasury Financing Bills LNG Liqueﬁ ed Natural Gas Loas Social Assistance Law LSPA Systematic Survey of Agricultural Production LTN National Treasury Bills Mapa Ministry of Agriculture, Livestock and Supply mbd Million barrels/day MCR Rural Credit Manual MDIC Ministry of Development, Industry and Foreign Trade Mercosur/sul Southern Common Market MME Ministry of Mines and Energy Moderagro Program for Modernization of Agriculture and Conservation of Natural Resources Moderfrota Program of Modernization of the Farm Tractor Fleet and Like Implements and Harvesters MTE Ministry of Labor and Employment MYDFA Multi-Year Deposit Facility Agreement NAB New Arrangements to Borrow Nafta North American Free Trade Agreement NASDAQ National Association of Securities Dealers Automated Quotation NCM Common Mercosul Nomenclature Novoex Siscomex Export Web NPA Note Purchase Agreement NTN-B National Treasury Notes – Series B NTN-C National Treasury Notes – Series C NTN-I National Treasury Notes – Series I Nuci Installed Capacity Utilization Level p.p. Percentage points p.y. Per year PAC Growth Incentive Program

PACS Amount related to the risk of operations subject to change in stock price PAF Annual Financing Plan Pasep Civil Service Asset Formation Program PBC People’s Bank of China

PCAM Amount referring to risk exposure in gold, foreign currency and operations subject to foreign exchange variation PCL Precautionary Credit Line

PCOM Amount related to the risk of operations subject to change in the price of goods Petrobras Brazilian Petroleum Company PGPAF Price Guaranty Program for Family Agriculture PIM-PF Monthly Industrial Survey – Physical Production PIS Social Integration Program

PJUR Installment referring to the risk of operations subject to interest rate variation

232 Boletim do Banco Central do Brasil – Annual Report 2010 PMAE Program for Modernization of Administration of Revenue and Fiscal, Finance and Property Management of the State Administration PMC Monthly Trade Survey PMCMV My House, My Life Program PME Monthly Employment Survey PPI Broad Producer Price Index PPSA Brazilian Company for the Management of Petroleum and Gas Corp. - Sub-Salt Oil Corp. PRE Required Base Capital Proagro Farm Activity Guarantee Program Proagro Mais Guarantee Program for Farming Activity and Family Agriculture Procap-Agro Capitalization Program of Farm Cooperatives Produsa Program of Incentive to Sustainable Farm Production Proex Export Financing Program Programa ABC Program for Reduction of Emission of Greenhouse Gases in Agriculture Pronaf National Program for Strengthening Family Agriculture Pronaf mais Alimentos Special Line of Credit for Investment in Food Production Pronamp National Program for Support of the Medium Rural Producer Propﬂ ora Program of Commercial Planting of Forests Prouca Program One Laptop per Child Provias Highway Intervention Program PSND Public Sector Net Debt PTAX System of Exchange Rate Control and Information PVC-S Polyvinyl chloride, not mixed with other substances, obtained from the suspension process CR Credit Registration RDC Board of Directors Resolution ER Export Registration Recine Special Tax Regime for Movie Exhibition Development Recof Special Customs System for Industrial Deposit with Information System Control Recompe Special Regime for the Acquisition of Computers for Educational Use Recopa Tax Regime for Construction, Enlargement, Renovation or Modernization of Football Stadiums Recor Common Registry of Rural Operations Reidi Special System of Incentives for Infrastructure Development Renuclear Special Incentive System for the Development of Nuclear Power Plants Repenec Special Incentive Regime for the Oil Industry Development in the North, Northeast and Central-West regions Repetro Petroleum and Natural Gas Research and Production Activities Reporto Tax System for the Incentive to Port Structure Modernization and Expansion Retaero Special Regime for Brazilian Aeronautical Industry

Appendix 233 RFB Federal Revenue Secretariat of Brazil RGPS General Social Security System RMCCI International Exchange and Capital Market Regulations RMSP São Paulo Metropolitan Region RMV Lifetime Monthly Income ROSC Reports on the Observance of Standards and Codes RS State of Rio Grande do Sul RTS Reserve Transfer System RTU Uniﬁ ed Taxation System S&P 500 Standard and Poor’s 500 SBAC Brazilian System of Conformity Assessment SBPE Brazilian System of Savings and Loans SDR Special Drawing Rights Secex Foreign Trade Secretariat Selic Special System for Clearance and Custody SF Social Fund SFH Housing Financing System SFN National Financial System SH/SFH Homeowner Insurance of the Housing Financing System Siape Integrated System of Human Resources Management Siscomex Integrated Foreign Trade System Sisprom Registration of Promotion Information System SRF Federal Revenue Secretariat STN National Treasury Secretariat Susep Private Security Authority SVS Secretariat of Health Surveillance TBF Basic Financing Rate TDCC The Dow Chemical Company TDF Term Deposit Facility TEC Total effective cost TEC Common External Tariff TIPI Industrialized Products Tax Table TJLP Long-Term Interest Rate TR Reference Rate UNCTAD United Nations Conference on Trade and Development USA United States of America USTR United States Trade Representative VIX Chicago Board Options Exchange Volatility Index WEO World Economic Outlook WTI West Texas Intermediate WTO World Trade Organization ZPE Export Processing Zone

234 Boletim do Banco Central do Brasil – Annual Report 2010