Explanatory Note on the Accounting Statements

 
Explanatory notes to the accounting statements (June 30, 2001) - In R$000
 
 
Note 1 - BANCO CENTRAL AND ITS RESPONSIBILITIES
 
Banco Central do Brasil, a semi-autonomous federal agency and member of the National Financial System, was created on 12.31.1964 with the enactment of Law 4595, to operate as the agent of Brazilian society in fostering stability in the purchasing power of the nation’s currency, through the permanent pursuit of the following main objectives:
 
a) ensure an adequate level of liquidity in the economy;
b) maintain the nation’s international reserves at an adequate level;
c) stimulate savings at levels compatible with the nation’s investment requirements;
d) ensure stability and permanently encourgage improvements to the National Financial System.
 
Note 2 - PRESENTATION OF THE ACCOUNTING STATEMENTS
 
The accounting statements were prepared in accordance with the legislation applicable to Banco Central, particularly Law no. 4,320/1964, Law no. 4,595/1964 (altered by Decree Law no. 2,376/1987), Decree Law no. 278/1967, Law no. 7,862/1989, Provisional Measure no. 2,179/2001 (originally Provisional Measure no. 1,789/1998, incorporating the terms of nos. 1,852, 1,980 and 2,101) and Complementary Law no. 101/2000 (Fiscal Accountability Act). Based on the aforementioned legislation, Banco Central calculates its results and prepares half-yearly financial statements in June and December of each year, as well as trial balances in each of the other months. The financial statements for the half-year period ended June 30, 2000, were not subject to an independent audit, and are presented for purposes of comparison.
     
Given the nature of Banco Central’s operations, there is no segregation between Current and Long-Term Assets and Liabilities. The classification "Foreign" and "Internal" is used to record rights and obligations in foreign currency and in national currency, respectively.
 
For purposes of improving the comparison between the accounting statements, the following reclassifications of June 30, 2000 balances were effected:
 
a) Fines – in 2000, penalties levied were registered as Other Debtors in the group Other Accounts and, in 2001, these were classified to a specific account in the grouping of Other Credits;
 
b) Federal Government Deposits – these were reclassified to Other Deposits in order to adjust the Balance Sheet to the Institution’s plan of accounts;
 
c) Revenues from Penalties Levied – in the first half of 2000, these revenues were not segregated in the Income Statement;
 
d) Prepayments and expenditures to be appropriated – as of March 2001, expenditures and revenues to be appropriated are registered:
 
I – according to the net balance of amounts in NBCs, registered previously under assets as Expenditures to be Appropriated and, under liabilities, as Revenues to be Appropriated.
 
II – grouped under specific headings, with the composition reported in an Explanatory Note.
 
The accounting statements are released through publication in the "Diário Oficial da União" and on the Internet (www.bcb.gov.br).
 
Note 3 – SIGNIFICANT ACCOUNTING POLICIES
 
Revenues, expenditures, assets and liabilities are appropriated on an accrual basis as required by the sole paragraph of article 8 of Law no. 4,595/1964, with the text given in Decree Law no. 2,376/1987. However, one should note the impact of specific legislation, particularly § 6 of art. 5 of Complementary Law no. 101/2000 (Fiscal Accountability Law), which includes Banco Central administrative expenses in the Federal Government Budget.
 
Based on the legal provision cited above, the expenditure covered by Budget Law only has an impact on the results when and if approved by the National Congress, on the basis of the financial and budget programming defined by the Executive Power. Thus, the main effects are as follows:
 
a) liabilities incurred and acknowledged, to be settled with resources drawn from the Budget Law, maturing in subsequent fiscal years, are registered as as expenditure to be appropriated;
 
b) contingent liabilities resulting from judicial suits are acknowledged at the moment in which the judicially mandated payments are effected and not on the basis of an evaluation of the probability of the outcome .
 
Assets and liabilities in foreign currency and those subject to indexation are adjusted at the rate of exchange in effect on the balance sheet date, using the purchase rate of the currency for assets and the sale rate for liabilities, and the indexes contractually agreed and legal and regulatory provisions.
 
Until 2.28.2001, exchange indexing on securities earmarked to the US dollar was appropriated daily, based on the rate calculated on the preceding day. As of the balance sheet for March, these securities are corrected using the rate calculated on the same day, in accordance with the accruals principle.
 
Normal lending operations, for which no provisions are required, are stated at market value or present value, based on the following criteria:
 
a) those with adequate liquidity are recorded at market price;
 
b) those that do not have adequate liquidity are adjusted to their present value, observing the following when applicable:
 
- internal credits indexed to the exchange variation – discounted using rates for securities issued internally by the National Treasury and updated according to exchange rate variations;
 
- internal credits indexed to price indices or the Reference Rate (TR) – discounted using the negotiation rates for securities issued by the National Treasury and indexed to price indices or the TR;
 
- external credits – discounted at the rate for earnings from external debt securities of debtor countries;
 
 
The criteria for constituting and adjusting provisions are based on the following general rules:
 
a) when the credit is deemed difficult to recover – for the difference between the accounting value and that considered recoverable;
 
b) when an outside factor reduces the market value – for the difference between the accounting value and that in effect on the market.
 
Permanent Assets – Investments are recorded at acquisition value and updated for changes in the rates of the original currencies. Fixed assets are recorded at acquisition cost, real estate was revalued in 1994 with the respective constitution of a reevaluation reserve. Depreciation is charged based on the straight-line method, based on the following criteria:
 
a) fixtures and fittings:
- computer equipment, vehicles and tools – annual rate of 20%;
- other equipment, facilities and permanent materials – annual rate of 10%;
- library, museum and art collections are not depreciated;
 
b) real estate (excluding land): depreciation of 80% of the value of the property in 50 years with the annual rate calculated on the basis of its remaining useful life.
 
Note 4 - FOREIGN SECTOR OPERATIONS

 
6.30.2001
6.30.2000
Foreign Assets
US$ (*)
R$
US$ (*)
R$
Cash
206.940
476.809
572.032
1.029.200
Very short-term deposits
2.485.883
5.727.723
2.311.305
4.158.501
Fixed term deposits
16.690.190
38.455.868
11.151.336
20.063.483
Securities
18.935.690
43.629.722
12.500.267
22.490.481
Credits to countries
2.547.559
5.869.831
2.669.963
4.803.797
Contracted operations - to be liquidated
1.004.693
2.314.912
2.211.710
3.979.309
Gold operations
115.298
265.659
631.386
1.135.989
CCR operations
67.509
155.547
121.652
218.877
Other
28.784
66.322
47.633
85.701
Provisions
(43.727)
(100.752)
(41.078)
(73.908)
 
TOTAL
42.038.819
96.861.641
32.176.206
57.891.430
(*) In equivalent dollars at the date of balance.

The amounts stated under "Contracted Operations – to be Liquidated" refer to deposit and securities contracted, where there is normally a two-day lag between the contracting date and the liqudidation date of the operation.
 
Note 5 – LOANS TO FINANCIAL INSTITUTIONS
 
The balance reported at 6.30.2000 refers to the financing granted under the Program to Encourage the Restructuring and Strengthening of the National Financial System – Proer. These credits were acquired by the National Treasury on 6.27.2001, through an onerous credit assignment contract between Banco Central and the Federal Government based on the provisions of MP 2,155, dated 6.22.2001, reissued on 6.28.2001 under number 2,196-1, which created the Program for Strengthening Federal Financial Institutions.
 
On the date on which the contract was signed, the value of this credit was R$ 8,888,692, and was paid-in-full from the issue of NTN-D securities.
 
Note 6 - FEDERAL PUBLIC SECURITIES

 
6.30.2001
6.30.2000
Quantity
Value
Quantity
Value
1) Free
LFT
28.581.573
33.805.568
15.284.890
16.885.347
LFT-A
37.321.089
59.103.257
32.633.168
48.445.468
LFT-B
517.318
600.433
590.845
592.322
LTN
34.755.000
31.993.818
24.398.447
23.050.829
NTN-D
17.581.772
23.759.677
    -
    -
 
SUM 1
118.756.752
149.262.753
72.907.350
88.973.966
 
2) Operations with Repurchase Commitment
LTN
1.945.000
1.756.716
4.902.390
4.517.140
LFT
5.171.193
6.018.785
    -
    -
LFT-A
982.432
1.566.577
5.670.353
8.207.172
 
SUM 2
8.098.625
9.342.078
10.572.743
12.724.312
 
  SUBTOTAL (1+2)
126.855.377
158.604.831
83.480.093
101.698.278
 
3) Non-negotiable
NTN-A10
2.024.090
1.970.904
2.024.090
1.772.745
NTN-P
2.785.442
2.995
2.746.962
3.085
 
SUM 3
4.809.532
1.973.899
4.771.052
1.775.830
 
4) Securitized
CVS
894.383
891.430
    -
    -
 
SUM 4
894.383
891.430
    -
    -
 
TOTAL
132.559.292
161.470.160
88.251.145
103.474.108

Securities with adequate liquidity on the secondary market are adjusted to market value, while those not classified as such are adjusted to their present value (Note 3).
     
National Treasury Notes – Series A10 – NTN-A10 were issued for an amount restricted to Banco Central do Brasil’s balance for external assets to be assumed by the National Treasury according to the terms of the Medium and Long-Term External Debt Restructuring Agreement with private banks and the Paris Club, and are similar to those of the aforementioned external liability. Since they are directly earmarked to the External Liabilities, these securities are registered at acquisition value, updated by the United States dollar plus the six-month Libor and a spread of 0.8125% per year.
 
Committed operations are understood as the sale/purchase of securities with repurchase/resale commitments for liquidation on a future date determined by mutual agreement between the parties.
 
CVS are papers resulting from the securitization of credits with the FCVS in accordance with Law no. 10,150/00, with maturity in 2027 and indexed based on the Reference Rate – TR plus interest of 3.12% per year, when originally earmarked to the FGTS, and 6.17% per year in all other cases. Interest will be paid as of January 2005 and the principal will be amortized as of January 2009.
 
Note 7 – CREDITS RECEIVABLE

 
6.30.2001
6.30.2000
Balance
Provision
Balance
Provision
1) Institutions in Liquidation
Banco Nacional - In extrajudicial liquidation
13.708.769
(4.495.896)
15.410.918
(5.741.429)
Banco Econômico - In extrajudicial liquidation
8.641.275
(1.020.103)
9.788.034
(2.174.895)
Banco Bamerindus - In extrajudicial liquidation
2.379.904
(1.126.355)
2.341.139
(704.428)
Banco Mercantil - In extrajudicial liquidation
477.108
    -
715.707
    -
Banco Banorte - In extrajudicial liquidation
543.686
(282.513)
534.830
(278.853)
Banco do Estado de Alagoas - In extrajudicial liquidation
322.979
(255.570)
317.718
(158.859)
Banco Crefisul - In extrajudicial liquidation
169.228
(71.772)
166.472
(10.806)
Banco Banfort - In extrajudicial liquidation
110.137
(79.143)
221.876
(65.005)
Banco Pontual - In extrajudicial liquidation
766.533
(577.110)
754.047
(407.041)
Other institutions in liquidation
104.785
(84.933)
131.562
(75.762)
SUM 1
27.224.404
(7.993.395)
30.382.303
(9.617.078)
 
2) Sundry Credits
FCVS
833.953
    -
788.669
    -
States
4.036.577
    -
3.647.027
    -
Other Operations
21.571
    -
7.017
(6.843)
SUM 2
4.892.101
    -
4.442.713
(6.843)
 
TOTAL ( 1 + 2 )
32.116.505
(7.993.395)
34.825.016
(9.623.921)

Credits with institutions in extrajudicial liquidation reflect the debt situation on the date of the financial statements, including the adjustments, accruals and monetary corrections required under current legislation, including also contingencies and external factors – for which there is generally some delay in registering the necessary information. These credits are accrued according to the legally determined indices and provisions are recorded for the difference between the value of the credits and the institution’s total assets, less labor and tax liabilities, since these have right of preference over Banco Central credits, considered equivalent to public finance, according to the bankruptcy legislation.
 
In order to determine the provisions to be recorded for Banco Central credits to companies in liquidation, the assets of these institutions are, whenever possible, evaluated at market value or according to criteria suited to each type of asset. Furthermore, the Special Administrative Measures Department (Deres) moritors and supervises any extrajudicial liquidation proceedings and judges appeals against decisions taken by Receivers during the process of claim filings, the purposes of which is to prepare the definitive creditors’ list.
 
At the end of 1999, Deres instituted and now maintains a monitoring program to review and verify the balance sheets prepared by Receivers, who must comply with the legal norms applicable as well as the accounting criteria defined by Banco Central, particularly Circular no. 2,246, dated 11.5.1992, with periodic direct inspections of the institutions in liquidation and indirect analysis of the data and managerial information contained in their reports, thus making it possible to evaluate the quality and reliability of their accounting records.
          
It should be noted that part of the assets of institutions in liquidation is represented by securities issued by the federal government and directly tied to the original Proer contracts, which are controlled by Banco Central and registered in the Selic and Cetip systems. In this case, we confirm that the Nacional, Econômico and Mercantil banks which, together, hold assets equivalent to 83.8% of the total credits the Banco holds with the banks in liquidation.
 
These three institutions hold, respectively, 89.90%, 83.32% and 88.85% of their total assets in federal government papers, without credit risk and for which there is no doubt as the certainty and liability of these papers, , according to the verification and calculation procedures used by Deres. Furthermore, these assets were evaluated at their present values, based on mathematical discount models, using rates compatible with their nature and maturity terms, applied to the estimated cash flow from these credits.
 
In addition to the proceduresfollowed by Banco Central to confirm the consistency and ensure the accuracy and reliability of the values of the assets and liabilities of the companies in liquidation, the Banco Central Board of Directors decided to perform independent audits of institutions in extrajudicial liquidation, for those cases in which the complexity and dimensions of the operations justify such, this measure has been implemented by the Receivers since May 2001. Notwithstanding the fact that the auditors have not completed their work to date, the examinations completed have not revealed any situations that require rectification to Banco Central’s financial statements.
 
In more specific terms, one should note the following with regard to the chart presented:
 
a) the following amounts were recovered during the period:
- Banco Econômico: R$ 1,300,000 thousand;
- Banco Mercantil: R$ 250,000 thousand;
- Banco Nacional: R$ 1,950,000 thousand;
- Banco Banfort: R$ 115,000 thousand;
- Other institutions in liquidation: R$ 30,000 thousand.
 
b) the change in the provisions of Banco Bamerindus in extrajudicial liquidation is a consequence of fine levied on the institution by the Secretariat of Federal Revenue of R$ 400,000 thousand, together with the normal evolution of its asset situation;
 
c) the change in the provisions of Banco Pontual resulted from the reevaluation of its assets;
 
d) the changes in the provisions of other institutions in extrajudicial liquidation resulted from the normal evolution of their asset situations;
 
e) the change in the FCVS balance is, basically, a consequence of it adjusting for the information provided by the Fund’s managing entity with respect to the composition of the credit according to interest rates levied and securitization through renewal of part of the credits with the FCVS from the introduction of other securities (Note 6).
 
Note 8 – CREDITS TO BE PAID BY THE NATIONAL TREASURY/RESULT TO BE TRANSFERRED TO NATIONAL TREASURY
 
In accordance with Complementary Law 101 and Provisional Measure 2,179, the positive result of Banco Central, after constitution or reversal of reserves, constitutes a liability between the Bank and the Federal Government, to be transferred by the 10th business day following approval of the accounting statements by the CMN. If this result is negative, it becomes a credit for the Bank from the Federal Government, to be paid by the 10th business day of the year subsequent to that of approval of the statements. In both situations, these amounts should be updated by the same indices applied to National Treasury cash resources (Note 15).
 
The balances registered in the balance sheet correspond to the following:
 
a) On 6.30.2001, the balance to be covered by the National Treasury (R$ 4,079,562 thousand) refers to the balance of the result registered by the Bank during the first half of 2001;
 
b) On 6.30.2000, the balance to be covered by the National Treasury (R$ 14,207,027 thousand) refers to the balance, updated to this date, of the result registered in the second half of 1999, covered by the National Treasury on 1.15.2000, at the updated value of R$ 15,468,561 thousand;
 
c) On 6.30.2000, the balance to be transferred to the National Treasury (R$ 231,863 thousand) refers to the balance of the result registered by the Bank in the first half of 2000, transferred by the Bank to the Treasury on 9.12.2000, at the updated value of R$239,393 thousand.
 
Note 9 - RESOURCES MANAGED BY CENTRUS
 
The balance of R$ 1,662,463 thousand refers to the employer contributions to the Banco Central Pension Fund Foundation – Centrus up to December 1990, related to the employees covered by the Single Civil Service Employment System – RJU. In accordance with Law no. 9,650/98, these resources are managed by Centrus on behalf of Banco Central and are refunded in monthly installments in the amount equivalent to the retirements and pension payments under the RJU scheme are made, which is the responsibility of the Banco Central. These resources bear interest at the rate earned by Centrus’ assets, according to the regulations in Decree no. 2,842/98.
 
Note 10 – SECURITIES RECEIVABLE
 
Composed principally of guaranties received from operations with financial institutions. Since these operations are not overdue, they are adjusted to their present values (Note 3). These papers bear interest at the TR rate, with payment in 48 monthly installments and final maturity scheduled for 2004.
 
Note 11 – CREDITS REGISTERED UNDER DEBTS IN EXECUTION
     
According to the terms of article 39 of Law no. 4,320/1964, credits overdue are classified as debts in execution, and refer mainly to fines charged. A full provision is made against these credits, due to the uncertainties from recovering the amounts.
 
Note 12 – FINES
     
Refer mainly to penalties levied as a result of punitive administrative processes filed by Banco Central. A full provision is made against these fines, due to the uncertainties from recovering the amounts.
 
Note 13 – DEPOSITS EARMARKED TO APPEALS
 
Refer to judicial suits for which the Banco Central is required to effect deposits in order to file appeals. Almost all of these credits are duly provisioned in light of the uncertainties as to the outcome of these suits.
 
Note 14 – CREDITS WITH PROAGRO
 
These refer to the administration fee due to Banco Central by the Agricultural Activity Guarantee Program – Proagro, however, since the Program’s resources have been exhausted, and to avoid Central Banco having priority over other creditors, the Bank’s Board of Directors have suspended payment until the pending amounts due to other creditors have been settled. This fee is equivalent to 0.18% per month of Banco Central ‘s total administrative expenditures and is to be used to reimburse expenditures incurred from managing the Program.
 
Note 15 - FEDERAL GOVERNMENT DEPOSITS
 
Based on the provisions in paragraph 3 of article 164 of the Federal Constitution, Federal Government cash resources are deposited at Banco Central and earn interest according to the provisions of article 1 of Provisional Measure 2,179 at the weighted average rate for the intrinsic return on Federal Internal Public Securities Debt issued by the National Treasury and held by Banco Central. This interest is calculated daily and capitalized on the final day of the subsequent ten-day period.
 
In the period between 6.20 – 6.26.2001, appreciation of the Real against the United States dollar generated a negative impact on the profitability of the Bank’s security portfolio and, consequently, on the indices used to calculate interest on Federal Government Deposits. Consequently, the profitability of these resources for the last ten days of June was negative, which had an impact onthe balance of Federal Government Deposits on 7.10.2001. In the half-year period, the costs incurred from these resources were R$ 7,261,535 thousand.
 
At 6.30.2001, of the total of R$ 84,467,330 thousand, R$ 22,719,653 thousand was allocated to Public Debt management. At 6.30.2000, this segregation did not exist.
 
Note 16 – PREPAID EXPENDITURE OR EXPENDITURES TO BE APPROPRIATED / AMOUNTS TO BE DEPOSITED
     
Refers to expenditure incurred in connection with subsequent periods. The major amounts are:
 
a) NBC (-R$ 46,194 thousand):
 
- Until the balance sheet for the first half of 2000, profits or losses on security sales (the difference between issue value registered in rectifying asset accounts and the sale value) were appropriated fully in the month of the operation. As of the second half of 2000, this result has been registered "pro rata" according to the maturity period of the security in question;
 
- as of 2001, current liabilities only include those papers held by the market. Thus, these balances refer to amounts that existed prior to these alterations, which will disappear as the papers are redeemed;
 
b) Centrus:
 
- refers to the balance of Centrus’ mathematical reserves to be paid-in by Banco Central to enable this Foundation to fully assume retirement and pension payments up to December 1990, under the terms of the General Social Security System – RGPS, according to Law no. 9,650/98;
 
- this amount is indexed by the IGP-M plus interest of 6% per year and the corresponding entry is recorded to "Amounts to be Deposited" under liabilities. Payments will be effected in 10 annual and consecutive installments of no less than one tenth of the original indexed balance and, any amounts transferred in excess of this minimum can be offset in future periods. . In December 2000, the first installment of R$ 119,000 thousand was paid;
 
- in 2001, the balance was R$ 599,973 thousand compared to R$ 645,813 thousand in 2000.
 
Note 17 – CAPITAL QUOTAS IN INTERNATIONAL FINANCIAL ORGANIZATIONS

 
6.30.2001
6.30.2000
US$ (*)
R$
US$ (*)
R$
International Monetary Fund - IMF
3.774.365
8.696.514
4.052.009
7.290.374
Bank for International Settlements - BIS
35.878
82.666
35.878
64.551
 
TOTAL
3.810.243
8.779.180
4.087.887
7.354.925
(*) In equivalent dollars at the date of balance.

The country’s participation in the IMF and BIS, approved by the National Congress, is through capital shares paid-in by the Banco Central do Brasil. The negative variation in the IMF balance in equivalent dollars is a result of the difference between the valuation of the dollar compared to the Special Drawing Rights – SDR, the IMF’s accounting currency.
 
Note 18 - FOREIGN LIABILITIES

 
6.30.2001
6.30.2000
US$ (*)
R$
US$ (*)
R$
Foreign Currency Liabilities
7.200.796
16.597.115
5.828.562
10.491.411
Brazilian Financing Plan
861.633
1.985.979
979.963
1.763.933
Paris Club
2.884
6.648
54.325
97.785
International Monetary Fund - IMF
3.699.811
8.527.695
1.852.108
3.333.794
Reciprocal Credits Agreements - CCR
82.968
191.233
139.221
250.597
Deposits earmarked to the exchange market
285.415
657.852
87.879
158.182
SDR allocations - IMF
449.175
1.035.302
484.013
871.224
Contracted operations - to be liquidated
1.004.784
2.315.928
2.212.190
3.981.943
Foreign Currency Securities Op. - Repurchase Agr.
797.301
1.837.699
    -
    -
Other Liabilities
16.825
38.779
18.863
33.953
 
International Financial Organizations Deposits
3.954.485
9.114.691
4.240.471
7.632.847
International Development Association - IDA
1.074
2.475
1.074
1.934
Multilateral Agency for Investment Guaranty - MIGA
1
2
1
1
Interamerican Development Bank - IDB
106.354
245.136
165.707
298.273
Interamerican Bank for Reconstruction and Dev. - IBRD
9.033
20.819
10.696
19.253
International Monetary Fund - IMF
3.837.232
8.844.437
4.062.925
7.313.265
African Development Fund - ADF
1
2
2
3
Fin. Fund for the Dev. Of the River Plate Basin - Fonplata
789
1.819
65
117
African Development Bank - ADB
1
1
1
1
 
Sundry Accounts
26.399
60.847
30.694
55.251
Funds Earmarked to Loans and Fin. in For. Currency
26.399
60.847
30.694
55.251
 
TOTAL
11.181.680
25.772.653
10.099.727
18.179.509
(*) Em dólares equivalentes na data do balanço.

Liabilities with the IMF registered an increase, mainly as a result of receiving R$ 4,494,912 thousand on 6.28.2001, from the 4th tranche of the loan granted by the IMF, under the Brazil Stand-By Arrangement.
 
The balance for "Deposits Earmarked to Exchange Market" refers to deposits, with Banco Central, of excess foreign exchange long positions, by financial institutions, effected according to the terms of Circular no. 2,566/1995.
 
The balance for "Contracted Operations – to be Liquidated" refers to the corresponding entry for asset operations for which there is a normal lag of two days between the contracting and liquidation dates.
 
The balance for "Operations with Securities in Foreign Currencies – Repurchase Commitments" refers to liabilities from committed short-term operations effected abroad with securities from the Banco Central portfolio and initiated in May 2001.
 
The balances for "International Financial Organizations Deposits" refer principally to these organizations’ cash deposits held with the Banco Central, resulting mainly from adjustments to wealth, income from internal soruces, overseas remittances and expenditure incurred in Brazil, and payment of quotas in national currency, with the value being maintained.
 
Note 19 – FINANCIAL INSTITUTIONS DEPOSITS
 
The deposits made by these financial institutions are used by Banco Central mainly as a monetary policy instrument, since the lending capacity of financial institutions is restricted since a compulsory reserve is required for part of these deposits. These reserves can be required in cash or in federal public securities, in which case they are recorded in a rectifying account, since these papers earmarked to the operations remain registered at Selic in the name of the depositing institution.
     
The major headings under this item are as follows:
 
a) Banking Reserves: compulsory reserves on demand deposits at the rate of 45% - Circular no. 3,002/2000;
 
b) Brazilian Savings and Loans System Deposits: at the rate of 15% (Resolution no. 2,519/1998);
 
c) Compulsory Reserve on Judicial Deposits: deposit of up to 60% of the balance of judicial deposits reported in the balance sheets/financial statements of financial institutions (Circ. no. 2,462/1994).
 
Note 20 – DEPOSITS EARMARKED TO OPERATIONS GUARANTIES
 
They refer to the resources of financial institutions in extrajudicial liquidation originating from the redemption of federal public securities received in guaranty of operations prior to liquidation being decreed and that remain deposited with Banco Central and are invested in public securities as a way of guarantying their value, and are consequently recorded to a rectifying account.
 
Note 21 – SECURITIES FOR WHICH THE INSTITUTION IS LIABLE

 
Issued
In Portfolio
On Market
In 6.30.2001
Quantity
Quantity
Quantity
Value
NBCE
362.000.000
266.285.100
95.714.900
126.580.063
NBCF
2.400.000
1.100.000
1.300.000
2.390.263
 
TOTAL
364.400.000
267.385.100
97.014.900
128.970.326
 
In 6.30.2000
Quantity
Quantity
Quantity
Value
LBC
4.000.000
3.660.000
340.000
513.938
NBCA
4.000.000
4.000.000
    -
    -
NBCE
166.700.000
101.022.400
65.677.600
67.362.684
NBCF
3.200.000
1.900.000
1.300.000
1.733.590
 
TOTAL
177.900.000
110.582.400
67.317.600
69.610.212

Securities issued by Banco Central and used as monetary policy instruments are registered at their sale value and adjusted daily for charges incurred. As of March 2001, securities linked to the US dollar exchange rate have been registered at the rate in effect on the balance sheet date and no longer at the rate in effect on the previous day (Note 3).
 
According to the Fiscal Accountability Act, as of May 2002, Banco Central will no longer issue federal public debt securities. Thus, the Bank, in conductioning discussions with the National Treasury, in order to take measures to ensure that the Bank will have the instruments required for monetary policy purposes.
 
Note 22 - CURRENCY
 
Currency is represented by the volume of bank notes and coins in circulation, held by the public and financial institutions and registered at their issue value.
The distribution of bank notes and coins according to denominations in circulation on June 30, was as follows:

 
2001
2000
 
Quantity
Value
Quantity
Value
Notes
1.755.206.857
26.851.769
1.566.733.253
22.357.089
R$1,00
652.384.809
652.385
627.200.426
627.200
R$5,00
181.109.032
905.545
163.566.174
817.831
R$10,00
534.677.671
5.346.777
459.356.516
4.593.565
R$50,00
375.129.471
18.756.474
306.850.418
15.342.521
R$100,00
11.905.874
1.190.588
9.759.719
975.972
 
Coins
6.827.309.677
897.349
6.576.720.976
869.518
R$0,01
2.416.892.247
24.169
2.320.900.621
23.209
R$0,05
1.501.065.570
75.053
1.447.090.968
72.355
R$0,10
1.599.168.537
159.917
1.551.745.541
155.175
R$0,25
542.361.050
135.590
513.289.810
128.322
R$0,50
530.403.859
265.202
506.473.499
253.237
R$1,00
237.418.414
237.418
237.220.537
237.220
 
Commemorative Coins
431
286
 
TOTAL
27.749.549
23.226.893

Various factors influenced the increase in currency during the period, including monetary stability, which has favored monetization of the economy, low opportunity costs, which influence retention of cash by the public, growth in the informal economy, charging of the CPMF and the increase in the number of cash point machines.
 
Note 23 - NET WORTH
 
a) Banco Central's equity refers to the equity registered when Banco Central was created and the results registered by Banco Central up to the 1987 fiscal year, monetary corrected to December 1995;
 
b) the balance in the Contingency Reserve of R$ 404,406 thousand was constituted according to the terms of § 3 of Art. 2 of Provisional Measure 2,179, for the purpose of reducing losses on amortization of securities from the Bank’s portfolio and, consequently, maintain conditions considered adequate for monetary policy;
 
c) realization of the Reevaluation Reserve is effected on the final day of each month, and transferred to Results at the end of each semester. . On 6.30.2001, R$ 5,188 thousand was transferred, corresponding to the realization of reserves during the first half of 2001.
 
Note 24 - RESULT FOR THE 1st HALF OF 2001
 
The negative result of R$ 4,084,749 thousand registered in the first half of 2001 is to a great extent explained by the exchange exposure observed in Banco Central’s balance sheet. The major items are as follows:
 
a) Operations with Securities:

 
Revenues
Expenses
Result
Commited Operations
161.590
(953.733)
(792.143)
LFT and LTN
9.622.002
   -
9.622.002
NTN-D
3.767.193
(414.446)
3.352.747
NBC
3.353.386
(25.900.806)
(22.547.420)
Other
464.534
(46.338)
418.196
Adjustment to Current/Market Value
1.261.375
(3.164.115)
(1.902.740)
 
TOTAL
18.630.080
(30.479.438)
(11.849.358)

Include income from National Treasury Securities held in portfolio and charges on securities issued by the Bank.
     
When the value of the Brazilian real increases in relation to the American dollar during the month, papers in the Banco Central portfolio issued by the National Treasury and indexed to the dollar generate charges, while those issued by the institution itself and indexed to the same currency generate revenues.
 
b) Foreign Sector Operations:

 
Revenues
Expenses
Result
Operations earmarked to international reserves
15.989.830
(3.225.734)
12.764.096
Operations earmarked to external debt
62.166
(1.129.778)
(1.067.611)
International organizations and agreements
359.056
(1.535.805)
(1.176.749)
Loans and financing in foreign currency
1.044.879
(135.722)
909.158
Revaluations of assets in gold
148.617
(46.987)
101.630
Other operations
122.083
(159.464)
(37.382)
Adjustment to current/market value
2.845.397
(2.593.929)
251.468
 
TOTAL
20.572.028
(8.827.419)
11.744.610

Foreign sector operations include earnings on foreign assets and charges on foreign liabilities. The surplus registered from these operations was due primarily to the fact that, throughout the semester, the value of the assets was greater than the liabilities of the same nature and to valuation of the currencies in which income is earned from these operations.
          
It should be noted that in the months in which the real rises in value against the foreign currency, assets generate charges and liabilities generate exchange indexing revenues.
 
c) Operations with the National Treasury:

 
Revenues
Expenses
Result
Earnings on the Credit to be Paid by National Treasury
91.220
   -
91.220
Earnings on Federal Government deposits
30.416
(7.261.535)
(7.231.119)
Earnings on Positive Result
   -
(53.742)
(53.742)
 
TOTAL
121.636
(7.315.277)
(7.193.641)

The result under this item was generated by:
 
I. earnings from the credit with the National Treasury, as a consequence of the negative result calculated by this Institution at 12.31.1999 (Note 8);
 
II. charges on federal government deposits at Banco Central (Note 15);
 
III. cancellation of prior period expenditures on the Federal Government Deposits, as a result of theremuneration adjustment;
 
IV. earnings from the positive result calculated at 12.31.2000.
 
d) Banking Sector Operations:

 
Revenues
Expenses
Result
Loans to Financial Institutions
428.283
   -
428.283
Financial Institutions' Deposits at Banco Central
   -
(589.672)
(589.672)
Sundry Accounts
22.165
(25.799)
(3.634)
Adjustment to Current Value
216.669
   -
216.669
 
TOTAL
667.117
(615.471)
51.646

Income earned basically from Proer operations (Note 5). The charges refer to earnings on Brazilian Savings and Loan System deposits at Banco Central.
 
e) Penalties Applied

 
Revenues
Expenses
Result
Surveillance of Illegal Activities Area
706.114
   -
706.114
Exchange Operations Area
22.589
   -
22.589
Records and Informations Area
7.685
   -
7.685
Sundry Accounts
1.562
(5.143)
(3.581)
 
TOTAL
737.950
(5.143)
732.807

The revenues stated in this item have been fully provisioned and do not affect the result of the fiscal year. Outlays of R$ 5,143 thousand represent cancellation of revenues of previous years and due to its immaterial value have not been itemized in the Income Statement (included in the heading "Others").
 
f) Credits and Securities Receivable:

 
Revenues
Expenses
Result
Earnings on Credits and Securities Receivable
704.346
   -
704.346
Other
36.718
   -
36.718
Adjustment to Current Value
686.552
(93.174)
593.378
 
TOTAL
1.427.616
(93.174)
1.334.442

The revenues refer mainly to monetary updating and interest on special regime and States operations, and also adjustments to their present value.
 
g) Allowances:

 
Revenues
Expenses
Result
Reversion of Allowances
1.398.708
   -
1.398.708
Constitution of Allowances
   -
(908.464)
(908.464)
Monetary/Exchange Updating of Allowances
33.780
(88.195)
(54.415)
 
TOTAL
1.432.488
(996.659)
435.829

The result reflects the constitution and reversals of provisions effected according to criteria defined in Note 3 and the updating of the provision, using the same indexing factors as that used for the principal account of the operation.
 
h) Administrative Expenditures:
 
Refers to the operating expenses of the Institution, included in the General Federal Government Budget and approved by the National Congress, performed on the basis of financial and budget programming defined by the Executive Power;
 
i) Non-Operating Result:

 
Revenues
Expenses
Result
Exchange Updating of Financial Int. Org. Quotas
1.263.841
(271.249)
992.592
Centrus - Positive Worth Variation
189.126
   -
189.126
Inscription/Cancellation in Debts in Execution
434
(34.259)
(33.825)
Depreciation
   -
(12.192)
(12.192)
Compensation for Cost of Use of Sisbacen
15.790
   -
15.790
Sundry Accounts
10.630
(2.379)
8.251
 
TOTAL
1.479.821
(320.079)
1.159.742

As demonstrated above, the non-operating result during the first half of 2001 was basically due to exchange indexing of the quotas with the International Monetary Fund – IMF and the Bank for International Settlements – BIS and also the Positive Asset Variation of credits with Centrus.
 
Note 25 – FISCAL ACCOUNTABILITY ACT – REQUIRED INFORMATION
 
a) the fiscal impact and cost of its operations - Complementary Law 101 §2nd of Art. 7th :
 
Sole paragraph of art. 8 of Law no. 4,595/1964, with the text provided in Decree Law no. 2,376/1987, states that the "results earned by the Banco Central do Brasil, including the revenues and expenditures from all its operations, will be calculated on an accrual basis and transferred as of January 1, 1988 to the National Treasury, after possible losses of previous fiscal years have been duly offset". Furthermore, the accrual basis should be in accordance with Banco Central’s accounting peculiarities as described in Note 3.
 
This provision was partially altered by the heading and paragraph 1 of art. 7 of the Fiscal Accountability Act.
 
"Art. 7 – The results calculated by Banco Central do Brasil, after the constitution or reversal of reserves, constitute National Treasury revenues and shall be transferred by the tenth business day subsequent to approval of the half-year balance sheets.
§ 1 – The negative result will constitute a Treasury liability with Banco Central do Brasil and will be specified in the federal budget."
 
According to clause II of Art. 2 of Provisional Measure no. 2,179/2001, this negative result must be fully paid up by the 10th business day of the fiscal year subsequent to that in which the balance sheet is approved by the National Monetary Council.
 
Observe furthermore that:
 
I. Banco Central do Brasil’s result includes the revenues and expenditures from all of its operations;
 
II. the positive results are transferred as revenues and the negative results are covered as National Treasury expenditure;
 
III. these results are specified in the Fiscal Budget under the National Treasury account.
 
Thus, the result from the Banco Central’s operations represents the fiscal cost; during the first half of 2001, the Bank recorded a negative result of R$ 4,084,749 thousand (Note 24), constituting a Federal Government obligation with the Bank and payment of such must be effected by the tenth business day of the fiscal year subsequent to that in which the balance sheet is approved by the National Monetary Council.
 
b) the cost of remunerating National Treasury cash funds - Complementary Law 101 §3 of Art. 7.
 
The federal government’s cash funds are deposited at Banco Central and, according to the terms of article 1 of Provisional Measure no. 2,179/2,001, earn interest based on the weighted arithmetic average rate of the intrinsic return on internal Federal Public Debt securities issued by the National Treasury and held by Banco Central.
 
The cost from remunerating National Treasury deposits was R$ 3,457,723 thousand in the first quarter of 2001 and R$ 3,803,812 thousand in the second quarter, totaling R$ 7,261,535 thousand for the first half-year period.
 
c) the cost of maintaining exchange reserves - Complementary Law 101 §3 of Art. 7:
     
For the quarter ended June 30, 2001, exchange reserves deposited at Banco Central do Brasil were equivalent to R$ 81,449,122 thousand, according to the criterion of average daily balances. Earnings on these reserves in national currency came to 8.4039% in the period. Whilst average earnings on the liabilities of the institution came to 5.5646% in the period, resulting in a spread of 2.8393%. In monetary terms, net revenues of R$ 2,312,585 thousand were recorded from maintaining exchange reserves during this period.
 
Revenues and expenditures from exchange reserves deposited at Banco Central had a direct impact on its results.
 
d) the return on Banco Central’s securities portfolio, with emphasis on federal government issues, was as follows - Complementary Law 101 §3 of Art. 7:

 
Revenues
Expenses
Net Result
1st Quarter
8.135.746
(13.994.924)
(5.859.178)
Federal Government Securities
8.013.871
(1.493.164)
6.520.707
Own Securities
121.875
(12.501.760)
(12.379.887)
 
2nd Quarter
10.494.334
(16.484.514)
(5.990.177)
Federal Government Securities
7.236.450
(3.085.468)
4.150.982
Own Securities
3.257.884
(13.399.046)
(10.141.160)
 
1st Half/2001
18.630.080
(30.479.438)
(11.849.358)
 
 

In the second quarter, as in the first, the negative result is to a great extent explained by the following factors:
 
I – Federal government securities – the positive result from Federal Government securities of R$ 4,150,982 thousand is basically due to:
- net revenues from monetary updating, interest and discounts on fixed income securities;
- net expenses from committed operations and adjustments to market/present value;
 
II – securities issued by Banco Central - the negative net result of R$ 10,141,162 thousand is basically a consequence of net expenditure from monetary updating and interest on NBC.
     
It should be remembered that in months in which there is appreciation of the Real in relation to foreign currency, assets generate charges and liabilities produce exchange-indexing revenues.
 
e) financial and actuarial situation – Complementary Law 101 § 2 of Art. 4:
     
Law no. 8,112/90, in § 1 of article 185, states that retirement and pension benefits will be granted and maintained by the organs and entities with which the employees are connected. Furthermore, Complementary Law 101/2000 determines that the budget guidelines law will contain an appendix with an evaluation of the financial and actuarial situation of the specific civil service system (art. 4, § 2, clause IV.a).
 
Thus, the Law no. 10,266/2001 (LDO/2002) considered this evaluation globally, except for those public employees from institutions, such as this Central Bank, that do not participate in the Integrated System of Personnel Management – Siape, which is operated by the Ministry of Planning, Budget and Management. This exception was due to the fact that a data base was not available to make the calculation as a result of the operational difficulties in completing the corresponding spreadsheets, according to the terms of Law no. 9,650/98 – dealing with the Career Plan of Banco Central do Brasil employees – based on available information related to the employees of the organs included in that System.
     
Banco Central is adopting the measures necessary to include data on its employees as required under the Budget Guidelines Law, which will be remitted for the next fiscal year. With respect to LDO/2002, the actuarial evaluation of the social security benefits granted and to be granted to its employees has been provided to the consolidating entity.
     
The specific values related to Banco Central employees has not been registered, considering that:
a) the treatment of this information will be compatible with that of other public entities;
 
b) as of 2002, Banco Central will be included as part of the overall information that will accompany future budget guidelines bills, implying that it will not be necessary to recalculate the subgrouping of Banco Central employees and, consequently, it will be impossible to present updating of isolated data in the future.
 
Note 26 - OTHER INFORMATION
 
a) Financial relationship with the National Treasury

 
6.30.2001
6.30.2000
Debt Balances
Notes
165.892.240
117.693.024
National Treasury Notes - NTN
25.733.576
1.775.830
National Treasury Financial Bills - LFT
101.094.620
74.130.309
National Treasury Bills - LTN
33.750.534
27.567.969
Securitized Credits - CVS
891.430
    -
Credit to be Paid by National Treasury
4.079.562
14.207.027
Judicial Deposits in Favor of National Treasury
3.701
3.701
Earnings on Fed. Government Deposits - to be Transferred
315.152
    -
External Debt - MYDFA - Bonds issued in excess
    -
8.174
Adjustment Concerning MP 2.179
    -
1
Credits to be Repaid
23.665
10
Taxes and Contributions, to Recover
    -
3
 
Credits Balances
84.506.081
68.692.864
Federal Government Deposits
84.467.330
68.041.682
Result to be Transferred to National Treasury
    -
231.863
Earnings on Fed. Government Deposits - to be Transferred
    -
242.383
Proagro
279
949
Deposits in Foreign Currencies - Paris Club/Res. 1.564/89
3.894
65.752
Resources Earmarked to External Debt Management
11.525
88.148
Judicial Deposits Consequent upon Final Decision
9.026
8.888
Cash Reserve Availabilities
    -
1
Taxes and Contributions, to be Paid
14.027
13.198

The balance at 6.30.2001 of "Deposits in Foreign Currency" only includes liabilities related to the Paris Club still being reconciled with the National Treasury, since the liabilities that refer to Resolution no. 1,564/89 have been reconciled and transferred.
     
The change noted in the item "Resources Earmarked External Debt Management" resulted from release of guaranties totaling R$ 86,395 thousand from the Brazilian Financing Plan, transferred to the National Treasury in December 2000.
 
b) Financial Flow with National Treasury

 
1st half/2001
1st half/2000
Federal Public Securities
5.569.847
21.894.660
Acquisition
(22.305.068)
(51.493.022)
Redemption
26.319.993
66.952.229
Interest
1.554.922
6.435.453
 
Other Inflows
(8.925.584)
(5.844.511)
Earnings on Available Funds
(7.785.299)
(2.431.183)
Earnings on Applications with Reversion Agreement
    -
(3.409.268)
2000 2nd Half Result Transfers
(1.137.615)
    -
1998 2nd Half Result Transfers
    -
(4.060)
External Debt Transfers - Paris Club
(2.670)
    -
 
Net Financial Flow
(3.355.737)
16.050.149
 
 
 

Includes only the movements on the account Federal Government Deposits, resulting from Banco Central funding and lending operations.
 
c) Law no. 9,650/1998
     
With the classification of Banco Central employees within RJU, Banco Central and the National Social Security Institute (INSS) are calculating the amounts to be refunded by this Institute. The reconciliation of accounts will include employer and employee contributions, as well as the amounts to be transferred to the Civil Service Social Security Plan (PSS). For FGTS deposits for the period 1991 to 1996, Law no. 9,650 requires that these amounts be returned to Banco Central by CEF and those employees who effected withdrawals. It should be stressed that this measure can only be put into effect if the existing judicial interdiction is suspended.
 
d) Judicially Determined Payments and Claims
 
According to § 1 of article 100 of the Federal Constitution, public entities are obligated to include allocations in their budgets to cover judicially determined payments submitted by July 1 of each year, for payment by the close of the following fiscal year.
     
In this context, every year Banco Central receives various instruments from the judiciary demanding that specific payments be made to petitioning parties. With publication of Constitutional Amendment no. 30, dated September 13, 2000, payments of claims judged up to 12.31.1999 are to be liquidated at their real value in current currency plus legal interest, in equal and successive annual installments over a maximum period of ten years, with the exception of credits such as meal supplements and small value items.
 
With implementation of this amendment, R$ 13,792 thousand was approved for payment in the Federal Government Budget in the 2001 fiscal year, with the balance of R$ 83,593 thousand to be paid over nine years.
 
At 6.30.2001, Banco Central was cited in 56,415 legal suits as presented below and analyzed according to the nature of the suit and the underlying causes:

Nature of Suit
Quantity
Nature of Suit
Quantity
Temporary Injunction
3.415
Collor Plan
41.456
Execution
2.943
SFH
1.627
Declaratory
2.311
FGTS
2.627
Preventive Injunction
1.848
Extrajudicial Liquidation
837
Statutory Law
39.662
Bankruptcy
478
Labor Law
980
Rural Credit - Proagro
695
Interlocutory Appeal
3.510
Cadin, Cadip, Serasa
331
Bankruptcy
478
Exchange
401
Other
1.268
Financial Charges
449
 
Civil Servant
544
Debt Suject to Judicial Execution
1.533
Tender Processes
83
Services Provided
87
Group Buyer Association
410
Public Debt Securities
160
Other
4.697
Total
56.415
Total
56.415

Once these cases have been settled, the impact on the Banco Central will depend on the amount the Bank is required to settle. It is not practical to estimate the possible financial impact prior to a definitive judgment since some cases involve simply reviewing previous decisions, while in other cases the amount claimed is incompatible with value of the sentence. The following chart indicates the judicially determined payments effected in the last three fiscal years.

Year
Values Effectively Paid
1998
13.557
1999
6.354
2000
15.621

e) Funds and Programs Managed by Banco Central
 
Under legal or regulatory provisions, Banco Central is required to manage the following:
 
I. Reserve for Fostering Currency Stability and the Use of Checks (Recheque): aimed to promote and encourage the stability of the national currency, enhancing the importance of checks as a payment instrument, improvements in banking operations and covering expenses from preparing and publishing the register of Issuers of Checks without Sufficient Funding – CCF;
 
II. Deposit and Security Guaranty Fund (FGDLI): the purpose of this fund was to guarantee savings deposits (except rural savings) and securities against the risks of insolvency of the contributing institutions that raise such deposits;
 
III. Farm Activity Guaranty Program – Decree 175/91 (Proagro): the objective of this Program is to free the rural producer from financial liabilities related to rural credit expenditure operations, when settlement of these liabilities has become difficult as a result of natural phenomena, plagues and diseases that affect plantations and herds and to indemnity producers when they use their own funds and losses are incurred as a result of the factors mentioned above;
 
IV. Cash Reserve: aims to ensure normal operations on the financial and capital markets.
 
Resolution no. 2,211/1995 regulatesn the Credit Guaranty Fund (FGC), a private nonprofit entity responsible for the mechanisms designed to protect holders of credits against financial institutions. According to CMN Resolution no. 2,197/1995, which authorized creation of this Fund, the assets of Recheque and the FGDLI were to be transferred to the FGC. However, this transfer was suspended as a result of an injunction issued by the Federal Supreme Court (STF) in a case that challenged the constitutionality of the operation (no. 1,398/1996). The case is now awaiting a final decision by the Court.
 
Registration of these reserves, the fund and the program administered by Banco Central must comply with the same accounting guidelines applicable to the Bank. Consequently, half-yearly balance sheets are submitted to independent auditing and published on the Banco Central homepage in the Internet (www.bcb.gov.br).
 
It should be noted that, despite being managed by the Bank these funds do not receive funding from the Institution which is refunded for any costs through payment of administration fees, as authorized by the CMN.
 
Presented below is a summary of the asset situation and of the results of Recheque, FGDLI, Proagro and the Cash Reserve.

 
6.30.2001
6.30.2001
Assets/Liabilities
Net Worth
Assets/Liabilities
Net Worth
Recheque
849.571
849.571
854.339
854.339
FGDLI
1.330.669
1.312.388
1.382.569
1.365.367
Proagro
120.549
(118.168)
128.047
(127.029)
Cash Reserve
1.040.780
1.040.780
937.183
937.183
 
Result
1st half/2001
1st half/2000
Recheque
58.333
24.325
FGDLI
(6.741)
68.652
Proagro
9.164
(16.102)
Cash Reserve
73.736
(1.136.354)

The available resources of the Funds are classified as liabilities of the Banco Central and amounted to R$ 4 thousand at 6.30.2001.
 
Proagro’s negative Net Worth is due to the fact that its liabilities are greater than the revenues from the Program.
 
 
President: ARMINIO FRAGA NETO
 
Directors: CARLOS EDUARDO DE FREITAS, DANIEL LUIZ GLEIZER, EDISON BERNARDES DOS SANTOS, LUIZ FERNANDO FIGUEIREDO, SERGIO DARCY DA SILVA ALVES, ILAN GOLDFAJN and TEREZA CRISTINA GROSSI TOGNI
 
Head of the Financial Administration Department: JEFFERSON MOREIRA
Accountant: CRC-DF 7,333