Brazilian Debt ManagementTransparency

Luiz Fernando Alves June, 2015

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A diretriz para a definição dos objetivosestratégicos e metas foisemelhante à 2012

Avanços em relação a dinâmica das metasconjuntas: participaçãodos consultores para reuniõesquadrimestrais

1986 The National Treasury

Secretariat is created

Strengthening of public finance

and responsible management

of public resources

Public Debt (SUDIP)

Fiscal Policy

Subnationals

Statistics and Fiscal

Planning

Governmental Accounting

Institutional Development

and IT

MINISTRY OF

FINANCE

NATIONAL

TREASURY

NATIONAL TREASURY SECRETARIAT: INSTITUTIONAL STRUCTURE

Strategic Planning Dept(Middle-Office)

Development of medium and long term strategies, risk management, macroeconomic scenario, and investor relations

Register, control and payment of the domestic and external debts, being also responsible for the budget and debt official statistics.

Development of short term strategies related to securities issuances in the domestic and external markets; domestic market auctions and external issuances; structured operations.

Public Debt Undersecretariat(DMO)

Operations Department(Front-Office)

Control Department(Back-Office)

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FEDERAL PUBLIC DEBT MANAGEMENT: INSTITUTIONAL STRUCTURE

STRATEGIC PLANNING AND TRANSPARENCY IN BRAZIL

2014

2009

2003

1999

2005

2000

1992

Treasury begins

its regular bond

issuances

Debt

Committee

First Annual

Debt Report SUDIP is created

and searches for

benchmarks in

the international

experience

First Annual

Borrowing Plan

• Long Term

Optimal Debt

Composition

• Medium Term

Planning

• External debt

management

SUDIP

modernization

project

The Brazilian

experience is

published in a

book

3

STRATEGIC PLANNING, TRANSPARENCY AND COMMUNICATION

5

» The National Treasury of Brazil has come a long way from transparency to build trust in agents.

» Simple and robust indicators are used in the APB and for the long term optimum composition as well as setting

targets for these indicators. The ABP set targets for the debt composition and for its maturity structure.

» It is essential to publicize the goals and responsibilities of debt management to ensure credibility. Transparency

reduced the market uncertainties related to debt management goals and made political decisions more consistent.

» There are no demands on law concerning mandatory design and publication of financing strategies, ABP or MTDS.

» Nevertheless, Congress has control elements with respect to the management of public debt

» There are some legal limits to the public indebtedness level in Brazil, constraining the amount of new credit

operations in a year, as well as the stock of debt (net and gross debt)

» Besides, the Budgetary Guidelines Law (LDO) requires an assessment of fiscal risks that may arise from public debt.

» A report on debt management is also part of an Annual Presidential Message to the Congress.

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Accomplish economic

and financial research;

Participate on the

middle and long term

financing strategy;

Monitor, analyze and

forecast domestic and

external scenarios.

Maintain and improve

relationship with investors

and opinion makers;

Broaden the investor

base;

Provide uniformity and

publicity on the

information about debt

management;

Management of Tesouro

Direto Program.

Develop studies on

public debt management;

Research and

development technology

to improve the Public

Debt management;

Give support in

technical themes related

to institutional

responsibility of COGEP.

Monitor risk exposure

indicators of public debt,

focus on Federal Public

Debt;

Identify and propose

the optimal structure of

public assets and

liabilities;

Elaborate middle and

long term strategy.

Risk Scenarios Investor Relations Special Studies

Strategic Planning Dept(Middle-Office)

TRANSPARENCY AS GUIDELINES: INSTITUTIONAL RELATIONS UNIT

TRANSPARENCY AS GUIDELINE: MAIN PUBLICATIONS

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» In 2001, an Institutional Relations Unit within the Middle Office was created: direct channel with the press, rating

agencies and market agents in order to provide information about the public debt

»Main Publications:

» The Optimal Federal Public Debt Composition, published in 2011, bringing the desired profile for the

debt structure in the medium-term;

» The Annual Borrowing Plan, since January 2000, which presents the National Treasury’s objectives,

guidelines, financing needs, strategies and targets to the end of the year;

» The Annual Debt Report, which offers a retrospective analysis of PDM for previous year, describing the

goals and targets, and its results.

» The Monthly Debt Report, which presents information and statistics on issuances, buybacks,

outstanding debt and its average maturity and life, maturity profiles and average costs for the FPD,

including domestic and external federal debt, for which the Treasury is responsible.

» The Yearly Issuance calendar, which, at the start of each year, list the dates of auctions, as well the types

of bonds to be offered in each auction.

OBJECTIVE AND GUIDELINES RELEASED SINCE THE FIRST ABP, IN 2001

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The objective of the Federal Public Debt Management is that of efficiently meeting the National

Treasury Borrowing Requirements, at the lowest possible long-term financing costs, while ensuring the

maintenance of prudent risk levels. Additionally, the aim is to contribute to the smooth operation of the

Brazilian government securities market.

To achieve this objective, the guidelines underlying FPD management are as follows:

Increase the average maturity of the outstanding debt

Smooth the maturity profile, with special attention given to short-term maturities

Gradual replacement of floating-rate securities by fixed-rate and inflation-linked instruments

Improvement of the External Federal Public Debt (EFPD) profile through issuance of benchmark securities, buyback program and structured

operations

Development of the yield curve on both domestic and external markets and growth in the liquidity of federal government securities on the

secondary market

Broadening of the investor base

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DECISION MAKING PROCESS – DEBT MANAGEMENT COMMITTEE

Cash Management

Short term Strategy

Auction

Risk Management

Targets Monitoring

Benchmark

MTDS

External Market

Domestic Market

Public Debt Under-Secretary

Head of Front-Office

Head of Middle-Office

Head of Back-Office

Debt Committee

Treasury Secretary

Annual Borrowing Plan

Medium Term Strategy

Benchmark

Technical Staff

ANNUAL BORROWING PLAN: MAIN INFORMATION DISCLOSED

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» The mid-range indicators for 2015’s indicators show stability for the FPD profile towards the end of the year

»Another important guideline relies on lengthening the average maturity, which is expected to reach a new record in 2015.

Minimum Maximum

Stock of FPD (R$ bn)

FPD 2,295.9 2,450.0 2,600.0

Profile (%)

Fixed Rate 41.6 40.0 44.0 45.0 +/- 2.0

Inflation Linked 34.9 33.0 37.0 35.0 +/- 2.0

Floating Rate 18.7 17.0 22.0 15.0 +/- 2.0

Exchange Rate 4.9 4.0 6.0 5.0 +/- 2.0

Maturity Structure

% Maturing in 12 months 24.0 21.0 25.0 20.0 +/- 2.0

Av. Maturity (years) 4.4 4.4 4.6 5.5 +/- 0.5

Av. Life (years) 6.6 _ _ _ _

Indicators 2014Limits for 2015 Long Term Limits

Reference

THE DISCLOSURE OF THE ANNUAL TARGETS MAKE THEM BINDING FOR THE DEBT MANAGER: DEBT COMPOSITION

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0

10

20

30

40

50

% o

f FP

D

Fixed Rate

0

10

20

30

40

50

% o

f FP

D

Inflation Linked

0

10

20

30

40

50

% o

f FP

D

Floating Rate

0

10

20

30

40

50

% o

f FP

D

Exchange Rate

12

10

15

20

25

30

35

40

45

50

% o

f FP

D

% in 12 Months

2

3

4

5

Year

s

Average Maturity

THE DISCLOSURE OF THE ANNUAL TARGETS MAKE THEM BINDING FOR THE DEBT MANAGER: MATURITY STRUCTURE

RETAIL DEBT PROGRAM (TESOURO DIRETO)

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» To offer to Brazilian citizens a safe and profitable savings alternative, paring up with the what is available

to institutional investors

» Uses roughly the same on-the-run instruments for debt roll-over with the same yields;

» Attractive for low-scale investors:

» Low Minimum Ticket (around USD 10);

» Competitive Fees;

» Financial Education Purpose:

» Provide transparency over the yields paid by the govern to finance itself;

» Increase the interest about public debt management and fiscal policy.

IMPORTANCE OF TRANSPARENCY

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» Rating Agencies highlight the importance of transparency:

» Moodys

» Analysis based on four macro indicators: Economic, Institutional, Fiscal andRisk Exposure. Transparency is key in the institutional factor:

“Transparency and accountability of the public sector is a key focus of thisindicator.”

» S&P

» Analysis based on five factors: Political, Economic, Fiscal, External Sector andMonetary Policy. Transparency is key in the Political Factor:

“The transparency and accountability of institutions, data, processes, aswell as the coverage and reliability of statistical information”

IMPORTANCE OF TRANSPARENCY IN BRAZIL

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» The S&P, in its 2008 report when Brazil was rated as investment grade, wrote:

“Generally pragmatic and predictable policy and fairly transparent institutions

have underpinned macroeconomic stability in Brazil. This has facilitated a

sounder foundation for economic growth and fiscal improvement over the past

five years.”

» Brazilian Debt Management has been recognized as adopting good practices in

transparency: the IIF Report has classified Brazil among the top emerging countries

in investor relations

LESSONS LEARNED ON GOVERNANCE DIMENSIONS OF DEBT MANAGEMENT STRATEGY

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» Debt management requires a well defined (long term) objective and clear

guidelines

» Transparency itself is a powerful enforcement mechanism to allow the DMO

to implement debt strategies according to its preferences and analytical work

» The definition of targets involves balancing transparency and flexibility to react

to shifting in market conditions, without shifting the long term goal

» Institutional aspects are important to support strategy design and

dissemination

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For additional information access the National Treasury website:

www.tesouro.fazenda.gov.br/en

Or contact Institutional Relations area:

brazildebt@fazenda.gov.br

The information on this presentation is issued by the Brazilian Debt Management Office (DMO) for informational purposes. It does not contain and is notan invitation or offer to buy or sell securities.

Translation of the original text of this document is provided only for the convenience of the reader. While reasonable care has been taken to ensure theauthenticity of the translation, its accuracy cannot be guaranteed. Reliance upon this translation shall be at the reader's own risk. Under no circumstances,shall the Brazilian National Treasury, its officers, employees or agents be liable to the reader or anyone else for any inaccuracy, error, inconsistency,omission, deletion, defect or alteration of the content of the translation from the original Portuguese text, regardless of cause, or for any damagesresulting therefore. The original Portuguese text of this document is the only official version, which can be found inhttp://www.stn.fazenda.gov.br/index.asp. In the event of any discrepancy or contradiction between the Portuguese and translated version, thePortuguese version shall prevail.