Brazil achieves low overall compliance with international standards and codes, with a score of 39.2 out of 100 in our Standards Compliance Index. Brazil's compliance in the area of macroeconomic fundamentals is high, but in the area of institutional and market infrastructure it lags seriously behind, and there is paucity of information with regard to Brazil's observance in the area of financial supervision. Brazil has declared its intention to converge its accounting and auditing standards with international standards by December 2010. It has also undertaken far-reaching reforms to its corporate governance regime. Brazil has incorporated legislative improvements in its money laundering regime, and it has a satisfactory legal regime for payment systems. However, implementation of legislation appears to be a general problem.

Macroeconomic Policy and Data Transparency

Brazil has been a subscriber to the Special Data Dissemination Standard (SDDS) since 2001. On the basis of the metadata provided by the Brazilian authorities and reviewed by the International Monetary Fund (IMF), Brazil meets SDDS specifications for coverage, periodicity, and timeliness of data and for dissemination of advance release calendars. The information on the SDDS website indicates that Brazil satisfies most of the conditions for access, integrity and quality for most data categories. More »

Oxford Analytica (OA), in its 2005 Report on Monetary Policy Transparency in Brazil, rates Brazil's compliance with the International Monetary Fund's (IMF) 'Code of Good Practices on Transparency in Monetary Policy' as "Compliance in Progress". The Central Bank of Brazil (BCB) identifies its principal objective as being to promote the stability of the purchasing power of the Brazilian currency and the soundness of the nation's financial system. The framework, instruments, and targets of monetary policy in Brazil are clear and publicly available and the BCB's commitment to high standards of transparency and a good communication strategy, together with a well-trained staff, have been reinforced in 2005. However, the operational autonomy of the Central Bank of Brazil (BCB) remains a key issue to address. Its de facto autonomy in the conduct of monetary policy under an inflation-targeting system has been reaffirmed since the current government took office. The BCB commitment to high standards of transparency and a good communication strategy, together with a well-trained staff, have been reinforced in the past year. In the 2006 Article IV consultations, IMF Directors commended the overall disciplined macroeconomic management in which the central bank's skillful and resolute approach to monetary policy in the inflation-targeting framework has played a vital role by anchoring inflation expectations. More »

In a 2001 assessment, the International Monetary Fund (IMF) acknowledged that Brazil has achieved a high degree of fiscal transparency together with major improvements in the management of public finances. The cornerstone of this effort has been the enactment in May 2000 of the Fiscal Responsibility Law (LRF) which sets out for all levels of government not only fiscal rules designed to ensure medium-term fiscal sustainability, but also strict transparency requirements to underpin the effectiveness and credibility of such rules. In its 2005 Report on Fiscal Transparency, Oxford Analytica asserts that Brazil is a highly decentralized federation, with sub-national entities accounting for over one-third of total government spending and revenue collection. The structure and responsibilities of the government are well distinguished, both in legislation and in the production of fiscal data. The LRF establishes the quality requirements for fiscal data, which all levels of government are required to report. The lack of technical capacity and information at the sub-national level is still considered one of the most important obstacles to a successful and comprehensive strategy of fiscal transparency, although efforts continue to narrow this gap. In the 2006 Article IV Consultations, IMF Executive Board Directors noted that sustained fiscal discipline must be the bedrock of any growth strategy, and welcomed the Brazilian authorities' commitment to maintain the primary surplus targets stipulated in the draft Budget Guidelines Law through 2009. More »

Institutional and market infrastructure

The Brazilian government enacted Law No. 11.101/05 on February 9, 2005, after eleven years of congressional action, introducing new rules on bankruptcy and debt recovery procedures. The law also known as Corporate Recovery Law prioritizes the recovery of companies rather than the bankruptcy, which may maintain job positions and safeguard the interests of creditors, by preserving the company, its social-interest role and encouraging economic activities, provided that the continuance of the debtor's operations is viable. Among other changes, the new law replaces the concordata procedure (a debt reorganization procedure before a court to avoid bankruptcy) with procedures that, for the most part, will be direct arrangements between the debtor and its creditors in an out-of-court recovery process, unless recovery through litigation is necessary. The government also enacted the Supplementary Law 118/05, which includes corresponding changes to the Brazilian Tax Code. There is insufficient publicly available information regarding Brazil's compliance with the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems. More »

According to a 2006 report prepared by the United Nations Conference on Trade and Development (UNCTAD), Brazil is undergoing a gradual process of converging its accounting standards with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). The main institutions that are leading the convergence process are the Brazilian Securities Commission (Comissão de Valores Mobiliários, or CVM), the Brazilian Institute of Independent Auditors (Instituto dos Auditores Independentes do Brasi, or IBRACON), and the Central Bank of Brazil (Banco Central do Brasil, or BCB). A number of developments have advanced Brazil's progress towards IFRSs. In March 2006, the BCB announced its intention to converge the accounting standards applicable to financial institutions and to other institutions authorized by the BCB with IFRSs by December 31, 2010. The CVM has also promoted efforts aimed at the gradual adoption of IFRSs by companies listed on Brazil's capital markets. However, despite recent changes that have occurred in the Brazilian accounting system, there are still important remaining differences between Brazilian accounting standards and IFRSs. Some practical and operational factors such as the legal environment and economic, tax, cultural and educational issues, tend to place obstacles in the path of convergence. As of 2006, a draft Law 3,741/00 which revises and updates the accounting requirements of the Corporation Act was under consideration by the Chamber of Deputies' Finances and Tax Commission in the Brazilian Congress. The law is expected to abandon the current scope of prescriptive accounting rules and will instead take on an authorizing role. It is hoped that the changes introduced by this law will increase the quality and speed of convergence with IFRSs. More »

In 2003, the Organisation for Economic Cooperation and Development (OECD) published a White Paper on Corporate Governance in Latin America. According to the report, Brazil has seen a comprehensive and far-reaching set of corporate governance reforms and other initiatives. The 2001 reform of the Corporation Law strengthened minority shareholders rights and improved standards of disclosure, with improved laws on tag-along rights, de-listing, non-voting shares, election of board members by minority shareholders and private arbitration. In conjunction with this, there was also a reform of the Securities Commission (Comissão de Valores Mobiliários, or CVM) Law, giving the CVM greater functional and financial independence. Subsequently, during the course of 2002 and 2003, the CVM issued various regulations, which complemented these legal reforms. In July 2002, the CVM published its Recommendations on Corporate Governance that apply to all listed companies on a comply-or-explain basis. In 2001, the Sao Paulo Stock Exchange (Bovespa) launched three new market segments: "the Special Corporate Governance Levels 1 and 2" and the "Novo Mercado" with each market segment requiring progressively stricter standards of corporate governance. Parts of the voluntary Brazilian Institute of Corporate Governance's (IBGC) Code of Best Practices was since incorporated by the listing rules of Bovespa's special corporate governance segments. Overall, observers concur that considering the generally improved quality of the current legal environment, priority must be on enforcement of existing legislation and speeding up judgment of current administrative procedures. More »

Brazilian auditing standards (which are a part of Brazilian accounting standards) are issued jointly by the Federal Accounting Council (Conselho Federal de Contabilidade, or CFC) and the Brazilian Institute of Independent Auditors (Instituto dos Auditores Independentes do Brasil, or IBRACON). These standards are accepted by other regulators, namely by the Securities Exchange Commission (Comissao de Valores Mobiliarios, or CVM) and the Central Bank of Brazil (Banco Central do Brasil, or BCB). According to the self-assessment prepared by the IBRACON as part of the International Federation of Accountants' (IFAC) Member Body Compliance Program, Brazilian auditing standards are based on International Standards on Auditing (ISAs). No further information on the extent of compliance of Brazilian standards with ISAs is publicly available. In March 2006, the BCB issued Communication No. 14.259 announcing its intention to develop procedures for the convergence of the auditing standards applicable to financial institutions and to other institutions authorized by the BCB with ISAs. The procedures were to be developed by December 31, 2006 with the expected date of full convergence of December 31, 2010. The BCB stated that it will promote constant monitoring of ISAs to ensure that, once achieved, the convergence remains. More »

Based on the findings of a 2005 joint assessment by the Financial Action Task Force (FATF) and the International Monetary Fund (IMF) on Brazil's anti-money laundering (AML) regime, Brazil has established a comprehensive legal and regulatory framework to combat money laundering. Law 9613/98 and sector-specific regulations incorporate the financial supervisors into the regime, and they appear to be broadly ensuring compliance by participants in the financial sector. Brazil has made legislative improvements since its first mutual evaluation (by the FATF in 2000) and has broadened the range of predicate offences for money laundering to include terrorist financing and bribery of foreign public officials. Over 24,000 suspicious transaction reports (STRs) have been received as of September 2003, and the Federal Police have undertaken an increasing number of money laundering investigations. However, according to the 2005 assessment, deficiencies remain and improvements must be made; most important of which is the adoption of more comprehensive combating the financing of terrorism (CFT) measures, especially adequately criminalizing the financing of terrorism to be able to comply fully with the United Nations (UN) Security Council Resolutions and improve measures to freeze and seize assets related to terrorist financing. According to a 2006 U.S. Department of State (DoS) report on Brazil, although terrorist financing is considered to be a predicate offense for money laundering, terrorist financing is not an autonomous crime. Furthermore the U.S. DoS report also indicates that as of early 2006 there have been no money laundering prosecutions in Brazil in which terrorist financing was a predicate offense, and so it remains to be seen if the financing of terrorism could be contested as an enforceable predicate offense due to the lack of legislation specifically criminalizing it. More »

According to a joint report issued by the Center for Latin American Monetary Studies (CEMLA) and the World Bank (WB) in 2004, the National Monetary Council (Conselho Monetário Nacional, or CMN) Resolution 2,882 strictly follows the Core Principles for Systemically Important Payment Systems, except for Principle VI, which is placed in Central Bank of Brazil (Banco Central do Brasil, or BCB) Circular 3,057. Furthermore, the report also indicates that the Brazilian payment system operates under nine basic principles applicable to all participants and the implementation of these principles along with changes in the legal framework and the institutional architecture brought about the reduction of systemic risk, a more appropriate sharing of the associated risks between the central bank and private market players, and the compliance of Brazil's systemically important payment systems with international standards and best practices. According to a 2006 Financial Stability Report by the BCB, there are several systemically important payment systems in Brazil. The Reserve Transfer System (Sistema de Transferência de Reservas, or STR) is a real-time gross settlement (RTGS) system operated by the BCB. The other systemically important payment systems explicitly identified by the BCB in its 2006 report are the Funds Transfer System (Sistema de Transferência de Fundos, or SITRAF); the Brazilian Mercantile & Futures (Bolsa de Mercadorias & Futuros, or BM&F) Foreign Exchange Clearinghouse; and the Clearinghouse for Custody and Settlement (Câmara de Custódia e Liquidação, or CETIP). More »

Financial Regulation and Supervision

According to the International Monetary Fund (IMF), there has been considerable strengthening of Brazil's banking system in recent years. Overall, banks are well capitalized and profitable and capital adequacy ratios are high by international standards, although financial institutions remain significantly exposed to the public sector. However, further steps to strengthen the prudential framework would help the central bank to deal even more effectively with banking distress, thereby limiting the likelihood of contagion from problems in individual banks to the system as a whole. According to a report published by the Institute of Brazilian Business & Public Management Issues (IBI) at the George Washington University in 1999, the findings of a 1998 self-assessment by the Central Bank of Brazil (Banco Central do Brasil, or BCB) concluded that ten of the Core Principles (CPs) for Effective Banking Supervision were being fully implemented by Brazil. However, there is no subsequent information validating this compliance level or any further information publicly available as to Brazil's compliance with the CPs. More »

According to a 2005 Organization for Economic Cooperation and Development (OECD) report, the 2001 reform strengthened the Brazilian Securities Commission's (Comissiao de Valores Mobiliarios, or CVM) enforcement powers and autonomy. In addition, during the depressed capital markets period (2001- 2003), the CVM worked on reshaping and modernizing its regulatory framework and also to issue new rules after the corporate law reform. Therefore, since 2004, the main priority is to focus on enforcement of such rules. In addition, the São Paulo Stock Exchange (BOVESPA), claims in a 2006 publication that the principles and recommendations of the Federations and Associations, such as the World Federation of Exchanges (WFE) Market Principles and the International Organization of Securities Commissions (IOSCO) Principles, are fully adopted and followed by BOVESPA, its rules and by-laws and its members and executive boards. However, overall, there is insufficient publicly available information regarding Brazil's compliance with the IOSCO Objectives and Principles of Securities Regulation. More »

According to a 2006 KPMG report, an agenda for structural changes in the insurance industry in Brazil is being discussed in various segments, some already in Congress, aiming at increasing the size of the market by breaking the monopoly on reinsurance operations, privatizing work accident insurance and reducing the tax burden on certain types of insurance, especially life insurance. Also, creating a new insurance sector regulatory agency, similar to those in Canada, Japan and Scandinavia, is being studied. The new agency would combine the Superintendency of Private Insurance (Superintendencia de Seguros Privados, or SUSEP), the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários, or CVM), and part of the Finance Ministry that oversees pension fund administration. As of 2006, the Brazilian insurance market faced innumerable challenges, such as, for example, the levels of fraud in claims and the increase in the level of competition. However, there is no publicly available information regarding Brazil's compliance with the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS). More »

Legend:

Credit Ratings

Moody's Ba1/Stable

Fitch BBB-/stable

Standard & Poor's BBB-/Stable

Macroeconomic Data

2007 GDP (Current Prices): 1313.59 billion USD (IMF)

2007 GDP (Per Capita): 6,938 USD (IMF)

2008 GDP (Growth Forecast): 4.8% (IMF)

2008 Inflation (CPI): 4.8% (IMF)

2007 Unemployment: 9.8% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 18.782 billion USD (UNCTAD)

FDI (Outward): 28.202 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 82 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)