*BANCO BNP PARIBAS BRASILLouis Bazire

Brazil: Stable and Foreseeable*Marcelo Carvalho Head of Latam Economic Research marcelo.carvalho@br.bnpparibas.com55-11-3841-3418

Agenda*Brazil A comparison with other BRIC economiesBrazil Stable and ForeseeableInvestors want to finance the next expansion cycle in BrazilMedium and long term scenario a positive growth outlookShort term scenario Brazilian Quarterly Outlook: Reaping RewardsInflation convergence toward targetsFiscal and monetary policy outlook Tug of warPolitical landscape elections in October 2010.Forecasts

Brazil: A comparison with other BRIC economies*

BRIC economies: General characteristics*

BRIC economies: real GDP growth varies*

BRICs: Investment and Saving rates are still relatively low in Brazil Differences in investment rates, also in saving rates*

What has changed within BRICs since 2003?All BRICs have become global players on both economic and geopolitical fronts

With similarities and differences in the globalisation process

Similarities in the process, even if differences in the magnitude

Increase in potential growth: increase in saving and investment to GDP ratios, but to a lesser extent for Brazil

Increase in globalisation: trade and financial integration and Foreign Direct Investment

Decrease in country risk(1) : increase in foreign exchange reserves, decrease in external public debt

*(1) In the narrow sense: sovereign risk and transfer risk

What has changed within BRICs since 2003?Differences in terms of growth sustainability

Brazil: Higher potential growth, probably sustainableIndia: New model of growth (more linked to manufactured goods), sustainable under certain key conditionsChina: Current growth model not sustainable in the medium termRussia: Growth still highly dependent on oil price

Differences in terms of external financial vulnerability

China: Very low external financial vulnerabilityBrazil: Strong decrease in external financial vulnerabilityIndia: Moderate decrease in external financial vulnerability Large companies still depend on the financing in foreign currencyRussia: No decrease in external financial vulnerability Even if the problem of external public debt has been solved, large private companies have become overindebted, mainly in foreign currency. Dollarization of the economy is still high. *

What has changed within BRICs since 2003? Similarities and differences: quantitative illustration*

BRICs: SummaryBrazil: from moderate GDP growth (2.5%-3% per year) with high vulnerabilities to slightly higher growth (4%), more sustainable and less vulnerable

Russia: no significant changes during the decade: fairly high growth (3%-6%) but still very vulnerable to commodity prices and financial shocks

India: from fairly high growth (5%-6%) with vulnerabilities to high and more sustainable growth (7%-8%)

China: very high growth relatively stable (roughly 10%) and not too much vulnerable(1). But the growth model relying on exports and investment may not be sustainable in the medium-long term

*(1) Low vulnerability to external financial shocks, high vulnerability to downturn in the global business cycle

Conclusion: What next in the medium term? (3)Brazil: Probably the best mix within BRICs in terms of growth potential and risks

GDP growth potential is accelerating progressively to 4-5% per year but probably not to 7-9% as India or China

The process of acceleration has started recently (saving, public and private investment, financial intermediation, decrease in real interest rate ). The pursuing of this movement, notably for infrastructure investment, is key to consolidate this evolution

Nevertheless, Brazils growth has become more sustainable and less vulnerable to external shocks than that of China and, to a lesser extent, that of India

From 1994-2007(1), Brazil has solved huge problems of macro economic imbalances, established credible economic policies, strongly increased its State and corporate governance, diversified its export base (both on a geographical and sector point of view) and reduced its external financial vulnerability

Even if is GDP growth potential considered closer to that of Russia, its sustainability is higher and its vulnerability is much lower

Notably in terms of export diversification, State and corporate governance, monetary policy capability, financial sector robustness and external financial vulnerability*(1) Particularly since 2003-04

BNP PARIBAS GROUP IN BRAZIL*

BNP Paribas in Brazil: A group of 2.328 employees*

BNP Paribas Brazil: 4th Largest Foreign Bank by Total Assets *

20062007 2008 2009Total Assets7,50015,40026,39114,245

Net Worth626792983993Net Income77176266250ROE12.2%22.2%27.1%25.2%

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