Brazil WT/TPR/S/212 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. The Brazilian economy grew at a fast pace during 2003-07, triggered by strong domestic 
demand and a favourable external environment.  Grow th reached an annual average rate of 4.5% in 
the 2004-07 period, and an annualized  rate of 6% in the first half  of 2008;  however, it will have 
slowed subsequently, reflecting weaker global activ ity.  Macroeconomic policies have continued to 
focus on achieving primary fiscal balance goals and in flation targets.  The inflation rate decreased 
until 2007 but picked up to 6.25% in the twelve m onths to September 2008.  Despite posting primary 
surplus and reduced interest payments, the overall c onsolidated public sector has remained in deficit 
(an estimated 2.1% of GDP in the first half of  2008).  Brazil maintains a floating exchange rate 
regime, within which the real appreciated by ove r 60% in nominal terms between 2004 and mid 2008.  
Foreign exchange regulations have been liberali zed but without full convertibility of the Real. 
2. Brazilian exports performed strongly between 2003 and 2007, increasing at a nominal average 
annual rate of almost 22% in U.S. dollars terms.  Imports grew even faster, at a nominal average rate 
of some 26% during the same period.  Brazil posted a surplus in the current account of the balance of 
payments throughout 2003-07, although a deficit w as recorded in the first half of 2008.  Brazil's 
export structure remained relatively stable over th e period under review;  Brazil is an important 
exporter of both manufactured and primary produc ts, and has benefitted from strong global demand 
and high prices for commodities.  Manufactures remained the largest importing sector, accounting for almost 71% of total imports in 2007.  The Eu ropean Communities continued to be the main 
destination for Brazil's merchandise exports, although its  share of total exports declined.  The share of 
the United States also decreased, while those of Ar gentina and China rose.  The shares of imports 
from Asia and Africa increased during the period, while those of the United States and Europe 
declined.  However, imports from all these sources increased in value terms. 
(2) O
UTPUT AND EMPLOYMENT  
3. Brazil's GDP per capita was some US$7,000 in 2007.  Gross National Income (GNI) 
per capita, in U.S. dollars, as measured by the World Bank's Atlas method, was US$5,910 in 2007;  
GNI per capita in terms of purchasing power was US$9,370 in the same year.1  The UNDP has 
classified Brazil as having a high level of human development, ranking it in 70th place out of 
177 countries, based on a range of indicators.2  Despite important advances, resulting in improved 
living conditions, income inequality and poverty leve ls remain high.  The World Bank estimates that 
some 22% of the population lived below the national poverty line in 2007 (less than US$2 a day).  
The OECD considers it essential to reduce widespread  informality and tax evasion in order to improve 
growth performance through better use of labour and to alleviate income disparities.3 
4. After expanding by just 1.1% in 2003, th e Brazilian economy entered a period of rapid 
growth in 2004, with an annual average grow th rate of 4.5% during 2004-07 (Table I.1).4  Growth 
during the period was supported by a positive intern ational environment and strong domestic demand.  
Fiscal and monetary discipline allowe d a reduction in interest rates.  There was also an increase in the 
potential growth rate during the period under review, which has been estimated at 4%. 
                                                      
1 World Bank (2008a) and (2008b).  GNI comprise s GDP plus net income received from abroad 
(notably interest and dividends).  GNI at purchasing power parity (PPP) is GNI converted to international 
dollars (dollar with the same purchasing power over GNI as a U.S. dollar in the United States) using PPP rates. 
2 UNDP (2008). 
3 OECD (2006). 
4 For more details see:  Central Bank of Brazil (2008k). WT/TPR/S/212 Trade Policy Review 
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5. The contribution of domestic demand to GDP gr owth has been strong, particularly since 
2006.  Private consumption growth has been str onger than GDP growth since 2004, supported by 
increasing wages  and facilitated access to credit.   Consumer spending has been gaining share of GDP 
since 2004, accounting for 60.9% in 2007.  After a period of weakness in 2003, gross fixed capital 
formation gathered strength in 2004 as interest rates fell, credit conditions and expectations about the 
economy improved, and private consumption increased.  The share of gross fixed capital formation in 
GDP consequently rose, while the savings/GDP ra tio remained relatively stable (Table I.1). 
Table I.1 
Basic economic indicators, 2003-08 
 2003 2004 2005 2006 2007 2008a 
Current GDP (R$ million)  1,700.0 1,941.5 2,147.2 2,332.9 2,558.8 2,766.0 
Current GDP (US$ billion) 556. 3 663.8 882.4 1,072. 0 1,313.9 1,536.7 
Per capita GDP (US$) 2,789.3 3,660.2 4,820.4 5,744.1 6,983.6 8,003.5 
Real GDP, growth rate (%) 1.1 5.7 3.2 3.8 5.4 6.0 
Real GDP per capita, growth rate  (%) -0.3 4.2 1.7 2.3 4.0 3.5 
Domestic demand, contribution to growth (%) 0.1 5.1 2.8 4.6 6.4 .. 
Private consumption, growth rate (%) -0.8 3.8 4.5 4.6 6.5 6.7 
Public consumption , growth ra te (%) 1.2 4.1 2.3 2.8 3.1 5.6 
    Gross investment, growth rateb (%) 1.7 11.8 -2.5 11.1 13.2 19.0 
Gross fixed capital formation, growth rate (%) -4.6 9.1 3.6 10.0 13.4 15.7 
Exports of goods and services, growth rate (%) 10.4 15.3 9.3 4.7 6.6 -1.6 
Imports of goods and services, growth rate (%) -1.6 13.3 8.5 18.3 20.7 22.4 
Foreign balance, contribution to growth (%) 1.7 0.7 0.5 -1.4 -1.4 -2.5 
Exports of goods and services, contributi on to growth (%) 1.5 2.3 1.5 0.7 1.0 0.2 
Imports of goods and services, contribution to growth (%) 0.2 -1.6 -1.1 -2.1 -2.4 -2.8 
GDP by type of expenditure (% of current GDP)  
Private consumption 61.9 59.8 60.3 60.4 60.9 60.9 
Government consumption 19.4 19.2 19.9 19.8 19.7 18.7 
Gross fixed capital formation 15.3 16.1 15.9 16.5 17.6 18.6 
Change in inventories 0.5 1.0 0.3 0.4 0.4 2.0 
Exports of goods and services 15.0 16.4 15.1 14.6 13.9 12.7 
Imports of goods and services 12.1 12.5 11.5 11.7 12.3 12.9 
Memo items       
Industrial production (% change) 0.1 8.3 3.1 2.8 6.0 6.3 
Gross savings c   (% of GDP) 16.0 18.5 17.3 17.7 17.6 17.9 
Population (million)   179. 0 181.6 184.2 186. 8 189.3 192.0 
Unemployment rate  12.3 11.5 9.8 10.0 9.3 7.8 
Unit labour costs (in R$, 2002=100) 94.3 101.5 107.3 122.0 133.7 133.6 
GDP deflator 13.7 8.0 7.2 4.7 4.1 4.0 
 
.. Not available. 
 a First half;  growth rate compared with the same period the previous year. 
b Gross domestic investment or gross capital formation include s gross fixed capital formation, changes in inventories, and 
acquisitions, less disposals of valuables (s uch as jewellery and works of art).  It  includes both private and public investment . 
c Measured as disposable income minus final consumption.  
Source:  WTO, based on information provided by the Central Bank of Brazil and by the IBGE. 
6. Exports of goods and services performed well during most of the period under review.  
Growth during the 2003-05 received a positive contri bution from net exports, but the appreciation of 
the real and strong demand for imports turned this contribution negative since 2006.  Exports of goods 
and services increased at an average annual rate of  9.2% between 2003 and 2007, while imports grew 
at an average annual rate of 11.5%.  Exports and imports of goods and services as a proportion of 
GDP decreased slightly from 27.1% in 2003 to 26.2% in 2007. Brazil WT/TPR/S/212 
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7. Reflecting strong growth, the unemployment rate  declined considerably during the period 
under review, from 12.3% in 2003, to 9.3% in 2 007 and 7.8% in mid 2008.  Employment growth 
during the period was accompanied by an increase in real wages, reflecting a nominal average wage 
increase of over 33% between 2003 and 2007.5  Unit labour costs increased by over 40% between 
2003 and 2007.  Productivity growth was 4.1% in the twelve months to December 2007, up from 
2.3% in December 2006. 
8. The sectoral composition of the Brazilian economy remained broadly stable over 2003-08, 
although traditional activities such as agriculture have b een subject to cyclical variations (Table I.2).  
Services continue to generate the largest share of GDP. 
Table I.2 
Sectoral data on GDP and employment 
 2003 2004 2005 2006 2007 2008a 
Structure of GDP (% of current GDP at factor cost, including imputed bank service charges)  
Agriculture, hunting, forestry and fishing 7.4 6.9 5.7 5.1 5.5 7.2 
Industry 27.9 30.1 29.3 30.1 28.7 27.0 
  Manufacturing 15.6 19.0 18.1 18.3 17.8 15.7 
  Electricity and water 3.5 3.8 3.8 4.1 3.7 3.3 
  Construction 4.7 5.1 4.9 5.1 5.3 5.4 
  Mining and quarrying (including petroleum) 1.7 1.9 2.4 2.6 2.0 2.5 
Services (total) 64.7 62.9 65.0 64.7 65.8 65.8 
  Distributive trade (including restaurants and hotels) 10.6 11.1 11.2 10.8 11.0 10.9 
  Transport 4.6 4.7 5.0 5.2 5.5 5.6 
  Communications 3.6 3.8 4.0 3.8 3.9 3.6 
  Financial and insurance services 7.1 5.8 7.1 7.0 7.6 8.3 
  Real estate 9.6 9.1 9.0 8.7 8.8 8.6 
  Government services 15.1 14.7 15.0 14.7 15.0 14.7 
  Other services 14.0 13.9 13.8 14.2 14.0 14.0 
GDP at basic prices 100.0 100.0 100.0 100.0 100.0 100.0 
Structure of employment (% of the total)       
Agriculture, hunting, forestry and fishing 4.1 4.2 3.9 3.9 3.7 .. 
Mining and quarrying (including petr oleum) 0.4 0.5 0.5 0.5 0.5 .. 
Manufacturing 18.1 18.9 18.5 18.8 18.8 .. 
Electricity and water 1.1 1.0 1.0 1.0 1.0 .. 
Construction 3.6 3.6 3.7 4.0 4.2 .. 
Services (total) 72.8 71.9 72.4 71.9 71.8 .. 
  Distributive trade (including restau rants and hotels) 17.3 17.8 18.1 18.0 18.1 .. 
  Government services 23.7 22.6 22.7 22.0 20.9 .. 
  Other services 31.8 31.5 31.6 31.9 32.8 .. 
 
a First half. 
 .. Not available. 
 
Source : WTO, based on IBGE a nd Ministry of Labour and Employment  data, at http://www.ibge.gov.br and 
http://anuariorais.caged .gov.br, respectively. 
9. Brazilian economic policy during the review period has been geared at promoting sustainable 
growth based on foreign trade and consumption, and supported by fiscal commitment and inflation 
                                                      
5 Ministry of Labour online information.  Viewed  at:  http://anuariorais.caged.gov.br/index1.asp? 
pag=remuneracao; and BCB online information.  Viewed at:  http://www.bcb.gov.br/pec/boletim/ banual2007/rel2007 cap1p.pdf. WT/TPR/S/212 Trade Policy Review 
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control.6  This has gone hand in hand with a policy of  seeking further integration into the world 
economy.  A recent study suggests that Brazil has a st rong incentive to liberalize further, since trade 
reform in Brazil has improved the distribution of income and productivity.  The study concludes that 
traditional exporters have much to gain from liberaliz ation and, that, although all this can be achieved 
unilaterally, WTO multilateral liberalization would impl y larger benefits and lower adjustment costs.7 
(3) FISCAL POLICY  
10. Fiscal policy is implemented under the umbre lla of the Fiscal Responsibility Law of 2000 
(Supplementary Law No. 101 of 4 May 2000), which sets the rules for the management of public 
resources and establishes limits to federal, regional, and local government expenditure.8  F u r t h e r  
elements of fiscal reform were set out in the Mu lti-Year Plan 2004-07, including proposals to review 
taxation and the pension system. 
11. The Government seeks to maintain fiscal discip line by setting annual targets for the primary 
surplus of the public sector.  Targets are set in monetary terms taking into account existing macroeconomic conditions as well as medium-term prospects and debt dynamics.  Targets were 
relatively stable as a share of GDP during most of 2003-07, a target equivalent to 4.25% of GDP was 
maintained for the primary surplus of the non-financial consolidated public sector.  This goal was set 
at R$95.9 billion for 2007, which due to an upward revision in the calculation of GDP, was equivalent 
to 3.8% of GDP.  In 2008, the primary surplus target  reached R$105.1 billion, equivalent to 3.8% of 
forecasted GDP, but the authorities indicated that the Government will save an additional 0.5% of GDP, and the primary surplus will reach 4.3% of GDP .  The primary surplus target for 2009 was set 
at R$118.3 billion, equivalent to 3.8% of the forecasted GDP. 
12. The Central Government primary balance (Federal  Government plus the Central Bank) was in 
surplus throughout the period under review (Table I.3).  Strong revenue growth has resulted in 
primary fiscal surpluses, which have somewhat exce eded primary targets, while current spending has 
also grown rapidly.  In 2007, the public sector's  primary surplus was equivalent to 4% of GDP, 
compared with a 3.8% target.  Fiscal accounts im proved during 2008, when the public sector posted 
an estimated primary surplus of 4.6% of GDP during the twelve-month period to September 2008, 
above the revised target for the year.  Despite a decrease in the interest payments burden since 2005, 
to 4.7% of GDP in 2007 (Table I.3), primary su rpluses have not been sufficient to cover them 
completely, resulting in an overall Central Govern ment deficit of 2.2% of GDP in 2007, and a 
consolidated public sector deficit of 2.3% of GDP. 
13. Considering that expenditure has been growi ng at a faster pace than revenue, and while, 
recognizing Brazil's progress on the fiscal front, in its 2008 Article IV consultation with Brazil, the 
IMF recommended containing public spending growth while protecting priority areas to help alleviate 
the burden of adjustment on monetary policy.  The IMF also recommended, in the context of 
heightened uncertainty about future revenue, a cautious approach to revenue and expenditure 
projections for 2009, to minimize risks to the fiscal outlook.
9 
14. The authorities consider tax reform a priority and have identified a number of problems to be 
addressed, including:  high compliance costs;  impr oving tax neutrality;  reducing tax complexity;  
eliminating distortions and fiscal competition;  abo lishing cumulative taxes;  elimination levels of 
                                                      
6 Ministry of Finance (2008a). 
7 OECD (2008b). 
8 For the text of the law in English see:  http ://www.planejamento.gov.br/ar quivos_down/lrf/integra_ 
ei/lei_101_ingles.PDF. 
9 IMF (2008b). Brazil WT/TPR/S/212 
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different state value-added taxation;  and reducin g excessive taxation on payrolls.  The authorities 
consider that Brazil currently has the fiscal space for tax reform.10  To this end, as at October 2008, a 
tax reform Bill was under examination by Congr ess.  The authorities estimate that the measures 
contained in the Tax Reform Bill could prop up GDP growth by half a percentage point per year over 
a 20-year period.11 
Table I.3 
Financial accounts of the Central Government, FY2003-08 
(Percentage of GDP) 
 2003 2004 2005 2006 2007 2008a 
Revenue 21.2 21.8 22.8 23.3 24.2 23.9 
Treasury 15.2 14.8 15.5 15.4 16.3 15.6 
   Tax on industrial products (IPI) 1.1 1.1 1.1 1.2 1.2 1.3 
  Earmarked social taxes (COFINS; PI S/PASEP, CSLL) 5.4 6.1 6.2 6.1 6.4 6.6 
   Trade taxes 0.5 0.5 0.4 0.4 0.5 0.5 
   Income taxes 4.9 4.7 5.4 5.4 5.8 6.0 
  Financial operations tax (IOF) 0.3 0.3 0.3 0.3 0.3 0.7 
   Bank debit tax 1.4 1.4 1.4 1.4 1.4 0.0 
Social security contributions 4.7 4.8 5.0 5.3 5.5 5.6 
Other revenue 1.9 2.2 2.3 2.7 2.4 2.6 
Transfers to states and munici palities 3.5 3.5 3. 9 4.0 4.1 4.3 
Total net revenue 17.7 18.3 18.9 19.3 20.1 19.6 
Expenditure 15.0 15.3 15.9 16.5 17.1 16.7 
Current expenditure 18.5 18.8 19.8 20.5 21.3 21.0 
Capital expenditure 0.3 0.5 0.5 0.7 0.7 0.8 
Public sector primary balance 3.9 4.2 4.4 3.9 4.0 4.6 
Central Government primary bala nce  2.3 2.7 2.6 2.2 2.3 3.1 
State governments primary balance 0.7 0.8 0.8 0.7 1.0 1.0 
Municipal governments primary balance 0.1 0.1 0.2 0.1 0.2 0.1 
Public enterprises primary balance 0.8 0.6 0.8 0.8 0.5 0.4 
Central Government nominal interest payments -5.9 -4.1 -6.0 -5.4 -4.7 -3.5 
Public sector overall balance -4.6 -2.4 -3.0 -3.0 -2.3 -1.3 
Central Government overall balance -3.7 -1.4 -3.4 -3.2 -2.3 -0.4 
State and municipal governments overall balance -1.6 -1.8 -0.3 -0.7 -0.5 -1.3 
Public enterprises overall balance 0.6 0.7 0.7 0.9 0.6 0.4 
Memo item       
Total net public debt (as a percentage of GDP) 53.7 49.3 46.7 45.8 45.0 40.3b 
 
a Cumulative twelve-month da ta up to September 2008. 
b September 2008. 
 Note: There may be slight differences in the totals as they have been rounded off. 
 
Source: Information provided by the Brazilian authorities;  Cent ral Bank of Brazil online information.  Viewed at:  
 www.bcb.gov.br;  and Ministry of  Finance online information.  Viewed at:  www.fazenda.gov.br. 
15. During the period under review, Brazil repaid all its outstanding debt to the IMF, amounting 
in December 2005 to SDR10.79 billion (some US$15.5 billion).12  The net public debt ratio fell 
considerably during the period, from 53.7% of GDP in 2003, to 40.3% in September 2008.  This 
partly reflects the prepayment of debt to the IM F and payment to other creditors, higher GDP growth, 
                                                      
10 Ministry of Finance (2008a). 
11 Ministry of Finance (2008b). 
12 IMF Press Release No. 05/275, 13 December 2005.  Viewed at:  http://www.imf. org/external/ 
np/sec/pr/2005/pr05275.htm.  See also, Ministry of Finance online information.  Viewed at:  http://www.fazenda.gov.br/ portug ues/releases/2005/r131205.asp. WT/TPR/S/212 Trade Policy Review 
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lower interest rates, the posting of a private sector  primary surplus and the appreciation of the real 
during the period, which lowered the domestic  value of foreign external debt.   
16. In May 2008, the Minister of Finance announced  the creation of the Brazilian Sovereign Fund 
(FSB) (Chapter IV).  A bill in this respect w as presented to Congress in June;  in October 2008, 
discussions were still being held with respect to the na ture of the FSB.  The objective of the FSB are:  
to increase public savings;  to reduce the effect of economic cycles;  and to promote investment in Brazil and abroad.  The IMF has recommended that FSB resources not be used to add directly or indirectly to domestic demand pressures, and has noted  that the transparency of the operations of the 
fund would be critical to maintaining confidence in macroeconomic policy.
13 
(4) MONETARY AND EXCHANGE RATE POLICY  
17. The National Monetary Council (CMN) has u ltimate responsibility for formulating and 
conducting monetary policy.  The CMN sets the infla tion target and the main monetary policy goal, 
and is responsible for coordinati ng monetary and fiscal policies.  The Central Bank of Brazil (BCB), 
an autonomous federal institution part of the organizati onal structure of the Ministry of Finance, is in 
charge of implementing monetary policy, executing CMN policies by issuing Resolutions.  The 
Monetary Policy Committee (COPOM) is responsible  for setting the monetary policy stance, and 
establishing the target for th e overnight inter-bank loans collateralized by government bonds (SELIC) 
interest rate, the BCB's principal monetary policy instrument.  After each meeting of the COPOM, a 
decision is announced with respect to the SELIC rate, and/or monetary bias (decision to ease or 
tighten the monetary stance);  to keep the SELI C rate at or around its target, the BCB conducts 
liquidity management operations in the domestic money market.  
18. Brazil has been implementing an inflation-ta rgeting framework for monetary policy since 
June 1999, when it was established by Decree No. 3, 088 of 21 June 1999.  Under the inflation-
targeting framework, annual inflation targets for th e Broad Consumer Price Index (IPCA) are set by 
the CMN and announced by the Minister of Fina nce.  Monetary policy decisions are based on 
inflation forecasts, conditional on alternative interest  rate paths, and taking into account the state of 
the economy and the probable future development of exogenous variables.  According to a recent IMF 
study, inflation targeting has increased the r esponse of inflation levels to monetary policy.14 
19. During the period under review, there was an in itial period of tighter monetary policy, 
followed by a loosening in 2006 and 2007, and a new tightening in 2008 due to the resurgence of inflationary pressures.  The IPCA annual inflation targets and the tolerance intervals have remained 
stable since 2005, at 4.5% +/-2 percentage points.
15  Since 2004, inflation targets, including their 
limits of variation have always been met, although  in 2008 IPCA inflation was running close to the 
higher part of the interval. 
20. Inflation was in the 3.6-6.9% range between  2004 and 2007;  it declined between 2003 and 
2006, but has been increasing since 2007, triggered pa rtly by higher food and oil prices, and despite 
the positive effects of the appreciation of the real (Table I.4).  The IPCA increased in the twelve 
months to October 2008 to reach 6.4%.  Although the prices of tradable goods increased, those of 
non-tradable goods, particularly services, increased by more, evidencing, according to the COPOM, 
                                                      
13 IMF (2008b). 
14 IMF (2008c). 
15 Resolution CMN No. 2,615 of 30 June 1999.  Viewed at:  http://www5.bcb.gov.br/ 
pg1Frame.asp?idPai=NORMABUSCA&urlPg=/ixpress/correio/correio/DETALHAMENTOCORREIO.DML?N=099145783&C=2615&ASS=RESOLUCAO+2.615. Brazil WT/TPR/S/212 
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the influence of domestic factors over inflationary dynamics.16  In this respect, in the context of 
Brazil's 2008 Article IV Consultation, the IMF welc omed the tightening in monetary policy in early 
2008, noting that further tightening may be needed in order to preserve macroeconomic stability, and 
that further fiscal discipline, particularly containi ng public spending, would help alleviate the burden 
of adjustment on monetary policy.17 
Table I.4 
Main monetary indicators, 2003-08 
(Per cent) 
 2003 2004 2005 2006 2007 2008a 
Money and credit (12-month rate of change)        
Base money (12-month rate of change) -0.1 21.2 14.1 19.6 21.1 -9.4 
M1 (12-month rate of change) 1.7 16.7 13.2 20.4 32.7 -19.4 
M2 (12-month rate of change) 20.5 19.5 18.0 13.6 18.1 10.3 
M3 (12-month rate of change) 21.8 17.9 18.0 18.1 17.4 6.8 
M4 (12-month rate of change) 18.9 15.8 18.3 18.8 20.9 8.3 
M4 (per cent of GDP) 55.0 54.5 60.8 65.6 69.9 69.9 
Multiplier (M2/base money) 5.6 5.6 5.8 5.5 5.3 6.5 
Interest rates       
Average lending rate (end of period) 45.82 44.58 45.93 39.82 33.83 38.03 
Average savings rate (end of period) 15.81 17.82 17.31 12.61 11.49 13.45 
Interest rate spread (end of period) 30.01 26.76 28.68 27.21 22.34 24.58 
CDI (Certificate of Deposit) 16.81 17.46 18.15 13.14 11.11 11.99 
SELIC rate (end of period) 16.91 17.50 18.24 13.19 11.18 13.39d 
Long rate interest rate TJLP (fixed for 90 days) 11.0 9.75 9.75 6.85 6.25 6.25 
Inflation       
Inflation target 4.0 +/-2.5 5.5+/-2. 5 4.5+/-2.5 4.5+/-2 4.5+/-2 4.5+/-2 
Consumer price index (IPCA) (period average % change) 14.7 6.6 6.9 4.2 3.6 6.1c 
Consumer price index (end-of-period % change) 9.3 7.6 5.7 3.1 4.5 7.3c 
Wholesale price index (end-of-period %) 6.3 14.7 -1.0 4.3 9.4 14.7c 
General market price index (end-of-period %) 8.7 12.4 1.2 3.8 7.9 12.3c 
Exchange rate       
Exchange rate (R$ per US$ period average) 3.07 2.92 2.43 2.18 1.95 1.62 
Nominal exchange rate (change, BCB index)b -4.8 4.8 16.8 10.6 10.5 9.4 
Change in real effective rate (IMF index)b -15.3 5.7 22.6 12.5 9.3  
Terms of trade -1.4 0.5 0.9 5.1 3.5 -1.9 
 
a First half. 
b A negative sign indicates deppreciati on;  a positive sign appreciation. 
c Last twelve months (October). 
d September 2008. 
 Note: M1 is currency in circulation plus demand deposits;  M2 is M1 plus savings deposits;  M3 is M2 plus long-term deposits an d 
operations;  M4 is M3 plus federal,  state, and municipal debt titles. 
 
Source:  Central Bank of Brazil, Monthly Bulletin , various issues;  and BCB online information.  Viewed at:  
 www.bcb.gov.br. 
21. Although progress has been made since Brazil's last review with respect to the reduction of 
interest rates spreads, these remain  large.  As at July 2008, the average lending rate was 39.4%, while 
the average savings rate was 13.8%, yielding a sp read of 25.6%, albeit down from 40.5% reported in 
February 2004.18  The Central Bank considers that high spr eads are a result of a still high delinquency 
                                                      
16 Central Bank of Brazil (2008). 
17 IMF (2008b). 
18 Central Bank online information.  Viewed at:  http://www.bcb.gov.br/ftp/NotaEcon/NI200808 
pmi.zip. WT/TPR/S/212 Trade Policy Review 
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rate, high bank profit margins, and hi gh administrative costs, as well as a lack of competition and 
transparency in the market (see also Chapter IV(6)(ii)).19 
22. Brazil has maintained a floating exchange rate  regime since 1999.  The real appreciated 
sharply (by over 60% in nominal terms) betwee n 2004 and mid 2008 (Table I.4),  which contributed 
to keeping inflation under control.20  However, as a result of the e ffects of the financial crisis of 
autumn 2008, and despite strong macroeconomic and financial indicators, the real depreciated by 
some 30% in nominal terms with respect to th e dollar and other major currencies in September-
October 2008.  In response to the crisis, the Gove rnment adopted a number of measures to increase 
liquidity in the domestic financial system, including  auctions of U.S. dollars, the reduction of reserve 
requirements, and the purchase of debt titles. 
23. Provisional Measure No. 442, of 6 October 2008 enhanced the Central Bank's powers to 
combat the effects of the crisis in Brazil, mainly  through the commitment by the Central Bank to buy 
credit portfolios of financial institutions in distr ess, mainly through rediscount operations.  Various 
other measures were taken to boost liquidity.  It w as also decided, in early October 2008, to enhance 
by R$5 billion the pre-shipment BNDES-EXIM line, as a response to the reduction of liquidity caused 
by the international credit crisis (Chapter III(3)(v)). 
24. Foreign exchange regulations were libera lized further during the period under review, 
although the reform has run short of achieving full  convertibility of the real.  In March 2005, the 
foreign exchange markets were unified, and the requirement for residents transferring foreign 
exchange abroad to do so through non-resident  financial institutions accounts was eliminated.  
Moreover, limits and restrictions for the purchase a nd sale of foreign exchange and for international 
transfers in reais were eliminated in August 2006.   Foreign currency controls at the Central Bank on 
export proceeds and import payments were abolished.  Exporters were allowed to keep up to 30% of 
their export proceeds abroad;  this limit was in creased to 100% in March 2008.  In April 2007, 
regulations on investments abroad by inv estment funds were liberalized further. 
(5) BALANCE OF PAYMENTS  
25. Brazil posted a surplus in the current account of the balance of payments throughout 2003-07, 
contrasting with the recurrent deficits described in Brazil's previous Review.  However, after reaching 
1.8% of GDP in 2004, the surplus began to shrink, to  reach just 0.1% of GDP in 2007 (Table I.5).  
The current account balance deteriorated further in  the first half of 2008, when a deficit of 
US$17 billion was posted, corresponding to the con tinued increase in imports of goods and services, 
not matched by the increase in exports. 
26. Brazil traditionally posts a deficit in its services ba lance;  this deficit has been expanding with 
economic growth, particularly since 2005, as impo rts have increased more rapidly than exports.  
Brazil's income balance is traditionally in significan t deficit:  profit remittances and other operations 
linked to foreign investment in Brazil largely exceed inflows.  Interest payments on the public sector's 
foreign debt also contribute to the deficit;  howev er, as these fall in line with the reduction of Brazil's 
external debt, the share of profit remittances in the deficit is likely to become more important, 
particularly since Brazil is an increasingly large reci pient of foreign direct investment (the FDI flow 
doubled between 2006 and 2007). 
                                                      
19 Central Bank of Brazil (2008j). 
20 A recent IMF study found that the exchange rate has important effects on disinflation (IMF, 2008c). Brazil WT/TPR/S/212 
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27. The current account surplus posted between 2003 and 2007, combined with a surplus in the 
capital and financial account since 2005, has allowe d a sizeable accumulation of foreign exchange 
reserves, which exceeded US$200 billion (12 months of  imports of goods and services) in early 2008. 
Table I.5 
Balance of payments, 2003-08  
(US$ million, unless otherwise indicated) 
 2003 2004 2005 2006 2007 2008a 
Current account balance (% of GDP) 0.8 1.8 1.6 1.3 0.1 -1.1 
Current account balance (US$ mil lion) 4,177 11,679 13,985 13,643 1,712 -17,402 
 Merchandise trade balance 24,794 33,641 44,703 46,457 40,027 11,349 
  Exports f.o.b. 73,084 96,475 118,308 137,807 160,649 90,645 
  Imports f.o.b. -48,290 -62,835 -73,606 -91,351 -120,622 -79,296 
 Services balance -4,931 - 4,678 -8,309 -9,640 -13,052 -8,512 
   Receipts 10,447 12,584 16,047 19,476 23,809 14,239 
  Payments -15,378 -17,261 -24,356 -29,116 -36,861 -22,751 
 Balance on goods and services 19,863 28,963 36,394 36,816 26,975 2,837 
 Income balance -18,552 -20,520 -25,967 -27,480 -29,291 -22,091 
   Receipts 3,339 3,199 3,194 6,462 11,493 6,042 
   Payments -21,891 -23,719 -29,162 -33,942 -40,784 -28,133 
 Transfers 2,867 3,236 3,558 4,306 4,029 1,852 
   Receipts 3,132 3,542 4,051 4,847 4,972 2,529 
   Payments -265 -306 -493 -541 -943 -677 
Capital and financia l account 5,111 -7,523 -9,464 16,229 88,924 40,794 
 Capital account balance 498 372 663 869 756 423 
 Financial account 4,613 -7,895 -10,127 15,430 88,168 40,371 
  Foreign direct investment (net) 9,894 8,339 12,550 -9,380 27,5189 8,124 
   Abroad -249 -9,807 -2,517 -28,202 -7,067 -8,579 
   In Brazil 10,144 18,146 15,066 18,822 34,585 16,702 
  Portfolio investment 5,308 -4,750 -4,885 9,081 48,390 13,292 
   Assets 179 -755 -1,771 56 286 10 
   Liabilities 5,129 -3,996 6,655 9,076 48,104 13,283 
  Derivatives -151 -677 -40 341 -710 -380 
   Assets 683 467 508 482 88 -15 
   Liabilities -834 -1,145 -548 -441 -799 -365 
  Other investments -10,438 -10,806 -27,521 15,688 12,970 19,335 
   Assets -9,752 -2,085 -5,035 -8,416 -18,552 2,031 
   Liabilities -686 -8,721 -22,486 24,104 31,521 17,304 
 Errors and omissions -793 -1,912 -201 628 -3,152 - 4,154  
Change in foreign exchange reserves (net)c -8,496 -2,244 -4,319 -30,569 -87,484 -19,238 
Memorandum       
Gross official reserves (US$ billion) 49.3 52.9 53.8 85.8 180.3 203.6 
  Months of imports of goods and services 7.8 6.5 5.4 6.5 10.1 9.7 
Gross external debt (US$ million) 214,930 201,374 169,450 172,589 193,219 205,536b 
Gross external debt/GDP (%) 38.8 30.3 19.2 16.1 14.7 14.1b 
Gross external public debt/GDP (%) 21.6 17.3 9.9 7.1 5.4 4.7b 
Debt service ratio/exports of goods and services 63.4 47.5 49.2 36.2 28.2 19.8b 
 
a January-June. 
b March. c A minus sign indicates a gain in reserves. 
 
Source : Central Bank of Brazil;  at http://www.bcb.gov.br. 
28. Brazil's total external debt declined subs tantially between 2003 and 2005, but resumed 
growth, albeit moderately, thereafter.  Most of the new debt, however, is private-sector debt;  the share of public sector external debt has fallen from over ha lf to a third of the total.  Total external debt WT/TPR/S/212 Trade Policy Review 
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has continued to fall in terms of reais, due to the appreciation of currency vis-à-vis  the U.S. dollar.  
Reflecting the appreciation of the real and the resu lting increase in the nominal value of GDP in terms 
of U.S. dollars, the external debt/GDP ratio fell sh arply from 38.8% in 2003 to 14.7% in 2007, and to 
an estimated 14.1% in the first half of 2008.  Th e reduction in the debt and the significant increase in 
exports has also allowed the debt service/exports of  goods and services ratio to fall considerably, from 
63.4% in 2003 to 28.2% in 2007. 
(6) DEVELOPMENTS IN TRADE AND INVESTMENT  
(i) Developments in merchandise trade 
29. Brazil's total merchandise trade grew significantly,  at a nominal annual average rate of 23.3% 
between 2003 and 2007, reflecting solid economic gr owth and strong external demand for Brazilian 
products.  Exports grew at an average annual ra te of 21.7%, reflecting partly higher commodity 
prices, and imports at 25.7%, during the same pe riod.  While the value of exports was over 50% 
higher than the value of imports during 2003-06, th e gap has been shrinking since 2006 due to faster 
expansion of imports.  This resulted in the contrac tion of the trade surplus in 2007, as exports were 
33% higher than imports. 
(a) Composition of trade 
30. In value terms, exports increased by a bout 120% between 2003 and 2007, to reach 
US$160 billion (Table AI.1).  Exports of primary products were US$80 billion in 2007 (more than 
twice the 2003 level).  Agricultural exports were  US$48 billion in 2007, twice their 2003 level.  
Exports of mining products tripled over the period, reflecting in particular strong demand from other 
emerging markets, to reach US$32 billion in 200 7, while exports of manufactured goods totaled 
almost US$76 billion.  Although Brazil's export stru cture remained relatively stable over 2003-06, in 
2007 primary products displaced manufactured products as the major export category, both as a result of strong demand and high prices for commodities.  Due to the strong export perfomance of primary 
products, the share of manufactured products in to tal exports decreased from 50.9% in 2003 to 47.2% 
in 2007, despite doubling in value terms (from US $37.3 billion to US$75.8 billion).  Machinery and 
transport equipment was the main export subsector among manufactures, followed by automotive 
products and chemicals. 
31. The value of imports reached US$120 billion in 2007, or 2.5 times the 2003 level 
(Table AI.2).  Imports of primary products increased faster than imports of manufactures during the period, with annual average growth of 27.8% a nd 24.8%, respectively.  However, manufactures 
remained the largest importing sector, accounting for 70. 6% of total imports in 2007 (72.5% in 2003).  
Machinery and transport equipment remained the mo st important single import category, representing 
more than 36% of total imports.  The share of primary products increased by almost 2 percentage 
points over the period, to 29.4% in 2007;  fuels and other mining products accounted for over 23% of 
total imports, and comprised the second largest impo rt category.  The share of agricultural imports 
declined by 2.5 percentage points over the period, to 6% in 2007. 
(b) Direction of trade 
32. Exports and imports from most countries rose subs tantially in value terms during the 2003-07 
period, and there were some changes with respec t to the direction of trade.  Exports to the 
United States lost considerable market share,  partly reflecting the strength of the real vis-à-vis  the 
U.S. dollar.  Exports to Africa were three times higher in 2007 than in 2003, partly reflecting higher 
economic growth in this part of the world.  Br azilian imports from the United States and the European 
Communities lost market share, while those from China increased significantly. Brazil WT/TPR/S/212 
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33. The EC remained the main destination for Br azil's merchandise exports.  However, although 
Brazil's imports from Europe increased in value terms from US$20 billion in 2003 to US$43 billion in 
2007, their share declined slightly from 27.2% in 2003 to 26.9% in 2007.  Despite a significant decline of the U.S. share of total exports betw een 2003 and 2007, it remained the most important 
single destination for Brazilian exports, represen ting 15.8% of total exports in 2007, (down from 
23.1% in 2003).  Exports to Argentina were three times higher in value terms in 2007 than in 2003;  
they represented 9% of total exports in 2007, ma king Argentina Brazil's second largest single export 
destination (Table AI.3). 
34. Exports to China increased at an annual av erage rate of 24% between 2003 and 2007, but 
their share of total exports increased by only 0.5 per centage points.  Brazil's exports to Africa rose 
from US$2.9 billion to US$8.6 billion. 
35. The shares of imports from the United States a nd from Europe declined significantly during 
the period, while those of Asia and Africa increa sed.  However, the EC remained Brazil's main 
supplier in 2007, with 22% of total imports (dow n from 27% in 2003).  The United States remained 
the largest single origin of imports, accounting for more than 15% of total imports, followed by China 
more, than 10% of total imports and Argentina (8.6 %).  The share of imports from Africa increased to 
more than 9% in 2007, up from 6.8% in 2003, mos tly on account of a substantial increase in oil-
related imports, particularly from Nigeria (Table AI.4). 
(ii) Trade in services 
36. Brazil runs a traditional deficit in services, which has been increasing rapidly since 2004, as 
imports have grown faster than exports.  In 2007, exports of services (receipts) totaled 
US$23.81 billion, while imports (payments) were US$36.86 billion (Table AI.5).  During the period under review, the largest deficits were in equipment leasing, transportation, and travel.  The deficit in 
transportation increased significantly, as paym ents more than doubled between 2003 and 2007, 
reflecting a reduced participation of Brazilian airlines  in the international travel market.  The travel 
industry reverted to a deficit in 2005, due mainly  to a sharp increase in travel payments made by 
Brazilians traveling abroad.  Brazil also has a trad itional deficit in the remaining services, with the 
exception of professional and technical services, where it posted a widening surplus in the 2003-07 period. 
(iii) Foreign direct investment 
37. Foreign direct investment (FDI) inflows increased strongly over the review period, to 
US$34.3 billion in 2007 (from US$13.1 billion in 2003)  (Table AI.6).  FDI inflows over the period 
totalled US$112.8 billion.  The Netherlands was Brazi l's main single investor, with 21.3% of total 
FDI, followed by the United States (19.2%), the Cayman Islands, Spain, Germany, France, and 
Luxembourg (Table AI.6).
21  These seven investors accounted for some two thirds of all FDI inflows 
during the period. 
38. Investment in services accounted for over half of total FDI during 2003-07, in value terms, 
totalling US$57.5 billion, compared with US$43.5 billion for manufacturing, and US$11 billion for primary activities (Table AI.7).  FDI inflows have been particularly strong in financial services, 
commerce, and electricity, gas, and water.  The sh are of industrial activities in total investment has 
                                                     
 
21 Figures reflect the country where the investment comes from;  in many cases, this investment is by 
companies of third countries, mostly holdings with cr ossed participations, registered, for example in the 
Cayman Islands, Bermuda or Luxembourg. WT/TPR/S/212 Trade Policy Review 
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declined from 80% in 2000 to 39% in 2003-07.  Invest ment in industry were focused mainly in the 
foods and beverages subsector, as well as in basic metallurgy. 
(7) OUTLOOK  
39. As at late 2008, the main risks for Brazil's economic outlook stemmed from the slowdown in 
the world economy and the possible effects of the fina ncial crisis, which was dr ying up international 
credit and bringing down commodity prices.  Despite this, the Brazilian authorities were estimating GDP growth of 5% for 2008 and 4% for 2009.
22  A public sector primary surplus of 3.8% of GDP was 
expected, and additional saving at 0.5% of GDP in 2008.   An inflation target of 4.5% has been set for 
both 2008 and 2009. 
40. In mid 2008, the OECD was forecasting real GDP growth of 4.8% in 2008 and 4.5% in 2009, 
inflation (CPI) of 4.9% and 4.5%, respectively;  a pr imary fiscal surplus equivalent to 3.8% of GDP in 
each of the two years, and an overall fiscal deficit e qual to 1.9% of GDP in 2008 and 1.5% in 2009.  
The OECD expected the deficits on current account of  the balance of payments to widen from 1% of 
GDP in 2008 to 1.4% in 2009.23  In late 2008, the IMF was forecasting solid growth for the Brazilian 
economy in 2008 and 2009, despite the global financial crisis.  GDP growth was expected to be 5.2% 
in 2008, before slowing to 3.5%  in 2009.  The CPI was estimated to increase by 5.1% in 2008 and 
5.7% in 2009;  the current account of the balance of payments was expected to post a deficit equivalent to 1.8% of GDP in 2008 and 2% of GDP in 2009, respectively.
24 
                                                      
22 Ministry of Finance (2008a). 
23 OECD (2008c). 
24 IMF (2008d).