Explanatory Note on the Accounting Statements

 
Notes to the financial statements - December 31, 2003
(In thousands of Reais)
 
 
Note 1 - The Banco and its duties
 
The Banco Central do Brasil, a federal government agency which is part of the National Financial System, was established on December 31, 1964 under Law 4,595, and has the mission of ensuring the stability of the purchasing power of Brazilian currency and the soundness of the National Financial System.
 
 
Note 2 - Presentation
 
Accounting statements are prepared in accordance with the legislation applicable to the Banco Central do Brasil (BCB), especially Law 4,595/64 - which grants the National Monetary Council (CMN) powers to take decisions on BCB’s balance sheets, interim balance sheets and internal accounting system, without prejudice to the competence of the Federal Audit Court, Provisional Measure 2,179-36 (August 24, 2001) and Supplementary Law 101/2000 (Fiscal Responsibility Law), which define the form of distribution of BCB’s financial results. Such rules require that BCB presents half-yearly financial statements on July 30 and December 31.
 
In order to harmonize BCB’s accounting procedures with best international practices, the National Monetary Council determined a thorough revision of the BCB’s accounting policy, which began with the financial statements as of June 30, 2002, and shall be completed with the publication of the first set of comparative financial statements, in December 2006.
 
 
Note 3 - Main accounting policies
 
a. Accounting system:
 
Revenues and expenses are recorded on an accrual basis.
 
b. Exchange rate restatement of assets and liabilities in foreign currency
 
Rights and obligations expressed in foreign currency are adjusted at the exchange rates prevailing on the balance sheet date, using the bid rate to restate assets and the sale offer rate to restate liabilities. The exchange rates of the Real against the main currencies are:
 
 
2003
2002
Buy
Sell
Buy
Sell
United States Dollar
2.8884
2.8892
3.5325
3.5333
Euro
3.6431
3.6506
3.6932
3.7012
Yen
0.0270
0.0270
0.0297
0.0298
SDR
4.2835
4.3019
4.7755
4.7957
Gold (gram)
38.3280
38.5026
38.7684
38.9417
 
SDR - Special Drawing Rights is the accounting unit used by the International Monetary Fund - IMF and its rate is related to a basket of currencies, which are freely usable in international transactions. It currently includes the euro (ECU), the Japanese yen (JPY), the sterling pound (GBP), and the United States dollar (USD).
 
c. Assessment of operations with securities determined in foreign currencies and with gold:
 
Such assets are recorded at their cost of acquisition and are valued daily based on quotations disclosed by the main international information providers.
 
d. Assessment of federal government securities:
 
The Banco Central do Brasil (BCB) security portfolio is classified under “securities for trading” and “securities held to maturity”. Securities held to maturity are valued at adjusted historical cost and securities for trading are valued at market value according to the following criteria:
 
- National Treasury Bills - LTN, National Treasury Notes Series D - NTN-D and Treasury Financial Bills - LFT: assessed considering secondary market prices and published by the National Open Market Institutions - ANDIMA;
 
- Securitized Credits - CVS: valued by the average of CVSA traded in the 2nd half of 2003.
 
- Central Bank Notes - NBC are recorded at their inflation-adjusted cost.
 
e. Assessment of derivatives:
 
Swap operations are valued at market value, according to prices published by the Futures and Commodities Exchange - BM&F. Forward operations are valued according to rates published by BCB (Ptax).
 
f. Assessment of other assets
 
Financial assets without adequate liquidity are valued by their cash flow adjusted to present value. Those that are linked to price indexes or to the Referential Rate - TR are discounted at the secondary market rates applicable to National Treasury securities with similar characteristics, weighted by the quantities traded.
 
g. Allowance for doubtful debtors:
 
The criteria for recording and adjusting the allowance are as follows:
 
- When a credit is considered difficult to receive, the allowance is recorded at the amount corresponding to the difference between the carrying amount and the amount likely to be received;
 
- When a supervening fact lowers the debt’s market value, the allowance is recorded at the amount corresponding to the difference between the carrying amount and the market value.
 
Therefore, allowances related to credits with institutions under extra-judicial liquidation are recorded based on the difference between the value of the operation and the value of total assets of such institutions, valued, whenever possible, at market value, taking into consideration the preferential liabilities in relation to BCB’s position.
 
h. Depreciation
 
Real estate is recorded at the value of the respective revaluation conducted by experts under ABNT (Brazilian Association of Technical Standards) Note NBR 5676 - Assessment of Urban Real Estate, and in view of the apparent age of the buildings (Note 13). Fixtures and Fittings are recorded at their cost of purchase. Depreciation is provided using the straight-line method in accordance with the following criteria:
 
I - Fixtures and fittings:
 
- Data processing equipment, vehicles and tools - 20% p.a.;
- Other equipment, facilities and permanent materials - 10% p.a.;
- Library and museum collections and works of art are not depreciated;
 
II - Real Estate (except land), 100% depreciated in 62.5 years at an annual depreciation rate calculated according to the remaining useful life of the property.
 
 
Note 4 - Foreign sector operations
 
Banco Central do Brasil (BCB), as the depositary of gold, foreign currency and Special Drawing Rights comprising the Brazilian official reserves, operates to secure the regular operation of the foreign exchange market, the relative stability of foreign exchange rates, and the equilibrium of the balance of payment, and for such purposes BCB may buy and sell gold and foreign currency, as well as realize loans abroad. In managing such reserves, BCB aims at minimizing the exposure of the Brazilian Government to exchange rate fluctuations by allocating its portfolio in such a way as to hedge the short-term external sovereign debt. The allocation of currencies is variable and its current configuration is, approximately: 60% in US dollars, 33% in euros, and 7% in Japanese yens.
 
Reflecting a conservative profile, typical of a central bank, the Brazilian international reserves are invested in a low maturity portfolio, with a duration of about one year. Money-market investments (fixed-term and very short term deposits) are made with maturities of up to six months and operations with securities have an average duration of 1.8 years.
 
Forward operations - purchase of foreign currency for settlement in excess of two days - are used by the BCB as a way of building hedge and to operate the active strategy of reserves, complying with the conditions established by the BCB’s Board of Governors. Operations selling foreign currency coupled with its future repurchase, the balances of which are settled since the previous half-year, are instruments of foreign exchange policy.
 
Repurchase operations - Sale of securities with a commitment to repurchase (repo) and purchase of securities with a commitment to resale (reverse repo) - are performed to obtain gains with rate differentials on securities demanded by the market.
 
Brazilian foreign debt securities are traded by BCB as an alternative investment to international reserves and as an instrument to manage the Republic’s foreign liabilities.
 
The risk management of such operations is concentrated on the assessment and control of the following segments:
 
a. Market risk - active management of international reserves is monitored on a daily basis using the Value at Risk (V@R) method. The model used to calculate V@R is based on RiskMetrics, originally developed by JPMorgan, with a level of confidence of 95%. The Board of Governors authorizes deviations from the reference portfolio within the defined V@R limit, so as to take advantage of market opportunities as they arise. Quarterly backtestings are performed upon presentation of the Bank’s results to the Board of Governors in order to assess the model’s adequateness;
 
b. Credit risks - the investments of the BCB follow a clear and objective policy of ceilings of the risk rating for institutions and for maximum concentration by counterpart. The minimum currently authorized rating is “A” in accordance with the rating by Moody’s, and the maximum limit by counterpart varies according to the size of the institution, limited to an amount predetermined by the Board of Governors. Operations with institutions bearing a risk rating lower than “A” are made based on specific authorization by the Board of Governors;
 
c. Liquidity risk - there are limits to the total amount that may be acquired of a given issue, as well as to the maximum amount of each issue in the total portfolio, in such a way so as to assure that the securities acquired may be traded in the secondary market at a low cost.
 
d. Operating risk - BCB relies on computerized systems that enable control of all steps of each operation, from contracting to recording, control and financial settlement. In addition, operating limits are controlled on a daily basis and the Board of Governors is automatically informed in the event an authorized limit is exceeded.
 
The following main operations are also recorded in the accounting of the BCB as operations of the foreign sector:
 
a. The obligations with the International Monetary Fund - IMF are the result of: withdrawals made by the Brazilian Government in the context of the agreed financial assistance programs; allocations of Special Drawing Rights - SDR, that reflect the use of amounts available to the member countries by the IMF; and deposits that the Fund holds in the country, which stands for the Brazilian participation quota;
 
b. Deposits of other international financial organizations: corresponding to available cash maintained in Brazil by multilateral organizations (especially IBRD and IDB) to cover their administrative and operating expenses in Brazil;
 
c. The Brazilian Financing Plan - PBF: corresponding to the portion of the Brazilian foreign debt renegotiated with private international banks (1988 MYDFA Agreement) and to deposits pending bilateral agreement in the Paris Club;
 
d. Operations in foreign currency related to the Reciprocal Payment Netting Agreement - CCR, executed by the BCB and the central banks of the member countries (Argentina, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Dominican Republic, Uruguay and Venezuela) and the Brazil-Hungary Adjustment. The interest rates are the same for asset and liability operations: four-month LIBOR for CCR and three-month LIBOR for the Brazil-Hungary Adjustment;
 
e. Amounts reported in excess of the long position are related to deposits made by banks for the amount above the ceiling authorized for contracting foreign exchange operations, and amounts recorded under the item “Contracted Operations - to be Settled” relate to operations to be settled two days after their trading date.
 
Reductions recorded in operations of purchase and sale of foreign currency in the domestic market and in advances on export foreign exchange contracts are due to contract settlements.
 
In the semester, the result of foreign operations was negative by R$884,315, mostly due to foreign exchange fluctuations (in the second half of 2002 it was positive by R$18,013,719).
 
The following tables show foreign assets and liabilities grouped according to maturity terms, currencies, risk rating, country or geographic area and counterpart. We point out that the data was taken from accounting and managerial information.
 
a. Operations broken down by maturity
 
 
At December 31
Foreign Assets
Maturity Term (Days)
Total
0 to 7
8 to 30
31 to 60
61 to 90
91 to 180
> 180
2003
2002
Cash
1,835,254
    -
    -
    -
    -
    -
1,835,254
2,209,185
Monetary Gold
531,280
    -
    -
    -
    -
    -
531,280
533,069
Deposits
13,334,716
32,035,590
9,667,528
2,996,012
4,112,447
    -
62,146,293
45,130,134
- Very Short Term
4,561,536
    -
    -
    -
    -
    -
4,561,536
6,693,206
- Fixed Term
8,737,398
32,035,590
9,400,838
2,542,087
4,112,447
    -
56,828,360
37,667,747
- Gold
35,782
    -
266,690
453,925
    -
    -
756,397
769,181
Securities
5,503,225
579,644
    -
    -
4,410,286
74,259,008
84,752,163
85,920,938
- Notes
    -
    -
    -
    -
    -
63,985,099
63,985,099
66,681,819
      Cost
    -
    -
    -
    -
    -
63,814,194
63,814,194
65,603,445
      Adjustment to Market Value
    -
    -
    -
    -
    -
170,905
170,905
1,078,374
- Bonds
    -
    -
    -
    -
    -
    -
    -
344,815
      Cost
    -
    -
    -
    -
    -
    -
    -
338,235
      Adjustment to Market Value
    -
    -
    -
    -
    -
    -
    -
6,580
- Brazilian Foreign Debt
    -
    -
    -
    -
4,410,286
5,680,178
10,090,464
13,696,286
      Cost
    -
    -
    -
    -
4,403,121
5,218,079
9,621,200
13,059,501
      Adjustment to Market Value
    -
    -
    -
    -
7,165
462,099
469,264
636,785
- Under Foreign Management
    -
    -
    -
    -
    -
4,593,731
4,593,731
5,198,018
- Repurchase Operations
5,503,225
579,644
    -
    -
    -
    -
6,082,869
    -
Agreements in Foreign Currencies
    -
190,312
    -
11,184
    -
    -
201,496
239,789
Forward Operations
935,200
7,912,800
4,083,104
1,481,292
    -
    -
14,412,396
8,998,736
Sale of Foreign Currency Subject to Repurchase
    -
    -
    -
    -
    -
    -
    -
6,980,220
Contracted Operations - to be Settled
3,915,797
    -
    -
    -
    -
    -
3,915,797
4,084,988
Other
41,373
    -
    -
2,515
10,060
39,585
93,533
80,958
 
Total Foreign Assets
26,096,845
40,718,346
13,750,632
4,491,003
8,532,793
74,298,593
167,888,212
154,178,017
 
At December 31
Foreign Liabilities
Maturity Term (Days)
Total
0 to 7
8 to 30
31 to 60
61 to 90
91 to 180
> 180
2003
2002
International Monetary Fund - IMF
    -
    -
683,292
3,946,140
3,946,140
88,691,944
97,267,516
90,248,724
- Financial Assistance Program
    -
    -
679,553
3,946,140
3,946,140
74,085,832
82,657,665
73,960,864
- Deposits
    -
    -
    -
    -
    -
13,063,167
13,063,167
14,562,113
- SDR Allocations
    -
    -
3,739
    -
    -
1,542,945
1,546,684
1,725,747
International Financial Agencies' Deposits
    -
    -
    -
    -
    -
319,858
319,858
420,544
Brazilian Financing Plan
    -
    -
    -
190,493
    -
1,395,945
1,586,438
2,382,856
Agreements in Foreign Currencies
4,222
25,090
    -
9,972
    -
81,054
120,338
216,219
Forward Operations
938,697
7,939,092
4,079,723
1,488,257
    -
    -
14,445,769
9,063,808
Excess Long Positions
928,211
    -
    -
    -
    -
    -
928,211
105,917
Repurchase Operations
5,504,345
579,805
    -
    -
    -
    -
6,084,150
    -
Contracted Operations - to be Settled
3,919,520
    -
    -
    -
    -
    -
3,919,520
4,936,751
Other
15,100
    -
    -
3,039
    -
98,553
116,692
169,848
 
Total Foreign Liabilities
11,310,095
8,543,987
4,763,015
5,637,901
3,946,140
90,587,354
124,788,492
107,544,667
 
b. Operations broken down by currency
 
At December 31
Foreign Assets
Currency
Total
US Dollar
Euro
Yen
SDR
Gold
Other (*)
2003
2002
Cash
38,168
10,821
1,767,260
6,610
    -
12,395
1,835,254
2,209,185
Monetary Gold
    -
    -
    -
    -
531,280
    -
531,280
533,069
Deposits
32,691,822
25,152,305
3,545,769
    -
756,397
    -
62,146,293
45,130,134
- Very Short Term
4,129,835
431,701
    -
    -
    -
    -
4,561,536
6,693,206
- Fixed Term
28,561,987
24,720,604
3,545,769
    -
    -
    -
56,828,360
37,667,747
- Gold
    -
    -
    -
    -
756,397
    -
756,397
769,181
Securities
64,826,979
19,920,317
4,867
    -
    -
    -
84,752,163
85,920,938
- Notes
45,734,768
18,250,331
    -
    -
    -
    -
63,985,099
66,681,819
- Bonds
    -
    -
    -
    -
    -
    -
    -
344,815
- Brazilian Foreign Debt
8,415,611
1,669,986
4,867
    -
    -
    -
10,090,464
13,696,286
- Under Foreign Management
4,593,731
    -
    -
    -
    -
    -
4,593,731
5,198,018
- Repurchase Operations
6,082,869
    -
    -
    -
    -
    -
6,082,869
    -
Agreements in Foreign Currencies
201,496
    -
    -
    -
    -
    -
201,496
239,789
Forward Operations
2,948,906
2,730,166
6,857,583
    -
    -
1,875,741
14,412,396
8,998,736
Sale of Foreign Currency Subject to Repurchase
    -
    -
    -
    -
    -
    -
    -
6,980,220
Contracted Operations - to be Settled
2,216,531
1,699,266
    -
    -
    -
    -
3,915,797
4,084,988
Other
12,587
    -
    -
39,573
12,825
28,548
93,533
80,958
 
Total Foreign Assets
102,936,489
49,512,875
12,175,479
46,183
1,300,502
1,916,684
167,888,212
154,178,017
(*) Includes mostly Swiss Francs, Swedish Crowns, Canadian Dollars, Australian Dollars and Sterling Pounds.
 
 
At December 31
Foreign Liabilities
Currency
Total
US Dollar
Euro
Yen
SDR
Gold
Other (*)
2003
2002
International Monetary Fund - IMF
    -
    -
    -
97,265,196
    -
2,320
97,267,516
90,248,724
- Financial Assistance Program
    -
    -
    -
82,657,665
    -
    -
82,657,665
73,960,864
- Deposits
    -
    -
    -
13,060,847
    -
2,320
13,063,167
14,562,113
- SDR Allocations
    -
    -
    -
1,546,684
    -
    -
1,546,684
1,725,747
International Financial Agencies' Deposits
319,818
    -
    -
    -
    -
40
319,858
420,544
Brazilian Financing Plan
1,570,381
5,535
    -
    -
    -
10,522
1,586,438
2,382,856
Agreements in Foreign Currencies
120,338
    -
    -
    -
    -
    -
120,338
216,219
Forward Operations
7,494,665
3,900,496
1,169,121
    -
    -
1,881,487
14,445,769
9,063,808
Excess Long Positions
928,211
    -
    -
    -
    -
    -
928,211
105,917
Repurchase Operations
6,084,150
    -
    -
    -
    -
    -
6,084,150
    -
Contracted Operations - to be Settled
1,271,936
1,710,302
937,282
    -
    -
    -
3,919,520
4,936,751
Other
116,669
    -
23
    -
    -
    -
116,692
169,848
 
Total Foreign Liabilities
17,906,168
5,616,333
2,106,426
97,265,196
    -
1,894,369
124,788,492
107,544,667
(*) Includes mostly Swiss Francs, Swedish Crowns, Canadian Dollars, Australian Dollars and Sterling Pounds.
 
c. Operations broken down by currency and maturity
 
At December 31
Assets
Maturity Term (Days)
Total
0 to 7
8 to 30
31 to 60
61 to 90
91 to 180
> 180
2003
2002
US Dollar
17,272,646
17,812,904
5,795,712
1,565,048
6,156,344
54,333,835
102,936,489
103,325,508
Euro
5,086,786
17,216,151
4,292,384
1,025,054
1,972,182
19,920,318
49,512,875
30,350,953
Yen
3,109,973
4,342,577
2,896,231
1,417,564
404,267
4,867
12,175,479
18,219,037
SDR
6,610
    -
    -
    -
    -
39,573
46,183
922,780
Gold
579,887
    -
266,690
453,925
    -
    -
1,300,502
1,315,357
Other (*)
40,943
1,346,714
499,615
29,412
    -
    -
1,916,684
44,382
 
Total Foreign Assets
26,096,845
40,718,346
13,750,632
4,491,003
8,532,793
74,298,593
167,888,212
154,178,017
(*) Includes mostly Swiss Francs, Swedish Crowns, Canadian Dollars, Australian Dollars and Sterling Pounds.
 
At December 31
Liabilities
Maturity Term (Days)
Total
0 to 7
8 to 30
31 to 60
61 to 90
91 to 180
> 180
2003
2002
US Dollar
8,477,368
4,193,256
2,153,056
1,203,166
    -
1,879,322
17,906,168
13,328,246
Euro
1,895,422
2,511,436
809,269
394,678
    -
5,528
5,616,333
2,795,219
Yen
937,305
487,542
617,077
64,502
    -
    -
2,106,426
90,246,866
SDR
    -
    -
683,291
3,946,141
3,946,140
88,689,624
97,265,196
1,161,976
Other (*)
    -
1,351,753
500,322
29,414
    -
12,880
1,894,369
12,360
 
Total Foreign Liabilities
11,310,095
8,543,987
4,763,015
5,637,901
3,946,140
90,587,354
124,788,492
107,544,667
(*) Includes mostly Swiss Francs, Swedish Crowns, Canadian Dollars, Australian Dollars and Sterling Pounds.
 
d. Operations broken down by risk rate
 
At December 31
Foreign Assets
Risk Rate
Total
Aaa
Aa1
Aa2
Aa3
A1
A2
Other (*)
2003
2002
Cash
52,993
    -
6,160
134,958
    -
458
1,640,685
1,835,254
2,209,185
Monetary Gold
400,964
    -
    -
8,957
    -
    -
121,359
531,280
533,069
Deposits
7,674,533
7,565,049
7,673,272
10,224,481
10,651,174
17,698,613
659,171
62,146,293
45,130,134
- Very Short Term
1,738,817
1,091,238
288,840
720,541
    -
577,680
144,420
4,561,536
6,693,206
- Fixed Term
5,935,716
5,896,537
7,384,432
9,324,817
10,651,174
17,120,933
514,751
56,828,360
37,667,747
- Gold
    -
577,274
    -
179,123
    -
    -
    -
756,397
769,181
Securities
58,465,323
1,527,486
7,547,156
3,670,214
2,287,029
1,164,491
10,090,464
84,752,163
85,920,938
- Notes
57,698,509
    -
6,008,180
    -
278,410
    -
    -
63,985,099
66,681,819
- Bonds
    -
    -
    -
    -
    -
    -
    -
    -
344,815
- Brazilian Foreign Debt
    -
    -
    -
    -
    -
    -
10,090,464
10,090,464
13,696,286
- Under Foreign Management
766,784
1,527,486
1,538,976
760,485
    -
    -
    -
4,593,731
5,198,018
- Repurchase Operations
30
    -
    -
2,909,729
2,008,619
1,164,491
    -
6,082,869
    -
Agreements in Foreign Currencies
    -
    -
    -
    -
    -
    -
201,496
201,496
239,789
Forward Operations
765,270
257,322
6,205,350
4,845,819
780,782
1,557,853
    -
14,412,396
8,998,736
Sale of Foreign Currency Subject to Repurchase
    -
    -
    -
    -
    -
    -
    -
    -
6,980,220
Contracted Operations - to be Settled
805,103
576,121
586,270
476,663
885,111
586,529
    -
3,915,797
4,084,988
Other
5,253
    -
    -
    -
    -
    -
88,280
93,533
80,958
 
Total Foreign Assets
68,169,439
9,925,978
22,018,208
19,361,092
14,604,096
21,007,944
12,801,455
167,888,212
154,178,017
(*) The item “Others” includes, besides Brazilian Government securities, Available Cash with Banco do Brasil
and Fixed Term Deposits with Bladex and Banco do Brasil.
 
e. Operations broken down by country or geographic area
 
At December 31
Foreign Assets
Country or Geographic Area
Total
USA and Canada
European Union
United Kingdom
Brazil
Other (*)
2003
2002
Cash
9,934
57
7,897
29,954
1,787,412
1,835,254
2,209,185
Monetary Gold
    -
    -
8,957
522,323
    -
531,280
533,069
Deposits
21,564,904
21,206,642
14,277,772
    -
5,096,975
62,146,293
45,130,134
- Very Short Term
2,245,039
1,733,040
583,457
    -
    -
4,561,536
6,693,206
- Fixed Term
18,563,468
19,473,602
13,694,315
    -
5,096,975
56,828,360
37,667,747
- Gold
756,397
    -
    -
    -
    -
756,397
769,181
Securities
49,568,495
21,742,446
1,638,025
10,090,464
1,712,733
84,752,163
85,920,938
- Notes
42,723,508
20,203,470
112,173
    -
945,948
63,985,099
66,681,819
- Bonds
    -
    -
    -
    -
    -
    -
344,815
- Brazilian Foreign Debt
    -
    -
    -
10,090,464
    -
10,090,464
13,696,286
- Under Foreign Management
762,118
1,538,976
1,525,852
    -
766,785
4,593,731
5,198,018
- Repurchase Operations
6,082,869
    -
    -
    -
    -
6,082,869
    -
Agreements in Foreign Currencies
    -
    -
    -
    -
201,496
201,496
239,789
Forward Operations
8,198,983
1,434,173
4,149,247
    -
629,993
14,412,396
8,998,736
Sale of Foreign Currency Subject to Repurchase
    -
    -
    -
    -
    -
    -
6,980,220
Contracted Operations - to be Settled
2,336,753
990,473
406,418
    -
182,153
3,915,797
4,084,988
Other
39,573
    -
    -
41,373
12,587
93,533
80,958
 
Total Foreign Assets
81,718,642
45,373,791
20,488,316
10,684,114
9,623,349
167,888,212
154,178,017
(*) The item “Others” includes Available Cash in Japan; Fixed Term Deposits in Denmark, Sweden and
Switzerland; and Contracted Operations to be Settled in Denmark.
 
At December 31
Foreign Liabilities
Country or Geographic Area
Total
USA and Canada
European Union
United Kingdom
Brazil
Other (*)
2003
2002
International Monetary Fund - IMF
97,267,516
    -
    -
    -
    -
97,267,516
90,248,724
- Financial Assistance Program
82,657,665
    -
    -
    -
    -
82,657,665
73,960,864
- Deposits
13,063,167
    -
    -
    -
    -
13,063,167
14,562,113
- SDR Allocations
1,546,684
    -
    -
    -
    -
1,546,684
1,725,747
International Financial Agencies' Deposits
319,858
    -
    -
    -
    -
319,858
420,544
Brazilian Financing Plan
1,580,901
5,535
2
    -
    -
1,586,438
2,382,856
Agreements in Foreign Currencies
    -
    -
    -
    -
120,338
120,338
216,219
Forward Operations
8,232,970
1,442,114
4,143,917
    -
626,768
14,445,769
9,063,808
Excess Long Positions
    -
    -
    -
928,211
    -
928,211
105,917
Repurchase Operations
6,084,150
    -
    -
    -
    -
6,084,150
    -
Contracted Operations - to be Settled
2,338,152
992,119
406,720
    -
182,529
3,919,520
4,936,751
Other
102,088
262
377
1,161
12,804
116,692
169,848
 
Total Foreign Liabilities
115,925,635
2,440,030
4,551,016
929,372
942,439
124,788,492
107,544,667
(*) The item “Others” includes Forward Operations in Switzerland and Contracted Operations to be Settled in Denmark.
 
f. Operations broken down by counterpart
 
At December 31
Foreign Assets
Counterparts
Total
Financial Institutions
Countries
Supranational Institutions
Other
2003
2002
Treasury
Agencies
Cash
1,782,262
    -
    -
22,851
30,141
1,835,254
2,209,185
Monetary Gold
130,316
    -
    -
    -
400,964
531,280
533,069
Deposits
61,192,922
    -
    -
664,531
288,840
62,146,293
45,130,134
- Very Short Term
4,272,696
    -
    -
    -
288,840
4,561,536
6,693,206
- Fixed Term
56,163,829
    -
    -
664,531
    -
56,828,360
37,667,747
- Gold
756,397
    -
    -
    -
    -
756,397
769,181
Securities
9,909,816
67,663,968
1,962,722
5,215,657
    -
84,752,163
85,920,938
- Notes
    -
57,573,504
1,962,722
4,448,873
    -
63,985,099
66,681,819
- Bonds
    -
    -
    -
    -
    -
    -
344,815
- Brazilian Foreign Debt
    -
10,090,464
    -
    -
    -
10,090,464
13,696,286
- Under Foreign Management
3,826,947
    -
    -
766,784
    -
4,593,731
5,198,018
- Repurchase Operations
6,082,869
    -
    -
    -
    -
6,082,869
    -
Agreements in Foreign Currencies
    -
    -
    -
    -
201,496
201,496
239,789
Forward Operations
14,183,973
    -
    -
228,423
    -
14,412,396
8,998,736
Sale of Foreign Currency Subject to Repurchase
    -
    -
    -
    -
    -
    -
6,980,220
Contracted Operations - to be Settled
3,337,428
578,369
    -
    -
    -
3,915,797
4,084,988
Other
12,575
    -
    -
39,573
41,385
93,533
80,958
 
Total Foreign Assets
90,549,292
68,242,337
1,962,722
6,171,035
962,826
167,888,212
154,178,017
 
At December 31
Foreign Liabilities
Counterparts
Total
Financial Institutions
Countries
Supranational Institutions
Other
2003
2002
Treasury
Agencies
International Monetary Fund - IMF
    -
    -
    -
97,267,516
    -
97,267,516
90,248,724
- Financial Assistance Program
    -
    -
    -
82,657,665
    -
82,657,665
73,960,864
- Deposits
    -
    -
    -
13,063,167
    -
13,063,167
14,562,113
- SDR Allocations
    -
    -
    -
1,546,684
    -
1,546,684
1,725,747
International Financial Agencies' Deposits
    -
    -
    -
319,858
    -
319,858
420,544
Brazilian Financing Plan
1,570,430
    -
16,008
    -
    -
1,586,438
2,382,856
Agreements in Foreign Currencies
    -
    -
    -
    -
120,338
120,338
216,219
Forward Operations
14,266,425
    -
    -
179,344
    -
14,445,769
9,063,808
Excess Long Positions
928,211
    -
    -
    -
    -
928,211
105,917
Repurchase Operations
6,084,150
    -
    -
    -
    -
6,084,150
    -
Contracted Operations - to be Settled
3,340,992
578,528
    -
    -
    -
3,919,520
4,936,751
Other
14,119
    -
    -
63,420
39,153
116,692
169,848
 
Total Foreign Liabilities
26,204,327
578,528
16,008
97,830,138
159,491
124,788,492
107,544,667
 
 

Note 5 - Federal government securities

 
In the execution of its monetary policy, Banco Central do Brasil (BCB) uses federal government securities issued by the National Treasury and by itself. Since May 5, 2002, in compliance with the Fiscal Responsibility Law, BCB ceased to issue securities. The main securities are:
 
a. National Treasury Bills - LTN: prefixed yield defined by a discount on the price of purchase;
 
b. Financial Treasury Bills - LFT: post-fixed yield defined by the average adjusted rate of daily financing determined in the Special System of Clearance and Custody - SELIC (SELIC rate);
 
c. Financial Treasury Bills Series B - LFT-B: SELIC rate;
 
d. National Treasury Notes Series B - NTN-B: post-fixed yield defined by the National Consumer Price Index Broad - IPCA, and interest paid half-yearly;
 
e. National Treasury Notes Series D - NTN-D: Adjusted by the selling rate of the United States Dollar plus interest, which is payable on a half-yearly basis;
 
f. BCB Notes - Special Series - NBC-E: Adjusted by the selling rate of the United States Dollar plus interest, which is payable on a half-yearly basis.
 
In addition to securities used in the execution of its monetary policy, at December 31 the BCB has the following securities:
 
a. National Treasury Notes Series P - NTN-P: nominative and non-negotiable security, updated by the TR plus 6% interest p.a. payable upon redemption and a minimum term of fifteen years;
 
b. Securitized Credits - CVS: divided into CVSA, CVSB, CVSC and CVSD; where CVSA and CVSC are adjusted by TR plus 6.17% p.a., and CVSB and CVSD by TR + 3.12% p.a., capitalized on a monthly basis, with interest paid on a monthly basis as from January 01, 2005 Amortization will start on January 1, 2009, with final maturity on January 1, 2027.
 
The following is a description of the portfolio broken down by maturity term and form of valuation.
 
a. Securities broken down by maturity
 
 
Term to Maturity (months)
Total
up to 6
7 to 18
19 to 30
31 to 42
> 42
2003
2002
Free
44,173,265
90,593,363
18,748,508
23,959,651
16,755,804
194,230,591
162,651,567
LTN
22,970,791
57,248,453
    -
    -
    -
80,219,244
19,994,521
LFT
9,198,775
14,535,983
3,381,254
6,644,404
143,754
33,904,170
63,879,964
LFT-B
1,264,007
1,817,182
147,382
86,920
    -
3,315,491
4,722,054
NTN-B
    -
    -
    -
6,580,448
1,221,402
7,801,850
    -
NTN-D
10,739,692
16,991,745
15,219,872
10,647,879
14,409,699
68,008,887
73,242,111
NTN-P
    -
    -
    -
    -
5,531
5,531
4,985
CVS
    -
    -
    -
    -
975,418
975,418
807,932
 
Subject to Repurchase
12,001,675
20,635,970
10,500,213
9,120,031
2,548,050
54,805,939
80,284,723
LTN
    -
11,008,910
    -
    -
    -
11,008,910
22,568,729
LFT
12,001,675
9,627,060
10,500,213
9,120,031
2,548,050
43,797,029
57,715,994
 
Guarantees for Swap Operations
532,872
14,636,097
4,055,670
    -
    -
19,224,639
27,482,751
LFT
532,872
14,636,097
4,055,670
    -
    -
19,224,639
17,480,276
NTN-D
    -
    -
    -
    -
    -
    -
10,002,475
 
Total Assets
56,707,812
125,865,430
33,304,391
33,079,682
19,303,854
268,261,169
270,419,041
 
NBC-E
7,932,988
7,876,754
6,388,896
8,420,353
    -
30,618,991
67,021,394
 
Total Liabilities
7,932,988
7,876,754
6,388,896
8,420,353
    -
30,618,991
67,021,394
 
b. Securities broken down by method of assessment
 
 
2003
2002
Cost
Unrealized Gains and Losses
Accounting
Cost
Unrealized Gains and Losses
Accounting
Securities for trading
221,745,039
5,611,357
227,356,396
228,640,490
(8,714,329)
219,926,161
LTN
89,103,557
2,124,597
91,228,154
45,739,005
(3,175,755)
42,563,250
LFT
94,728,519
2,197,319
96,925,838
138,423,555
652,679
139,076,234
LFT-B
3,257,454
58,037
3,315,491
4,682,325
39,729
4,722,054
NTN-B
7,556,796
245,054
7,801,850
    -
    -
    -
NTN-D
25,242,063
1,867,582
27,109,645
38,118,082
(5,361,391)
32,756,691
CVS
1,856,650
(881,232)
975,418
1,677,523
(869,591)
807,932
 
Securities held to maturity
40,904,773
5,157,999
40,904,773
50,492,880
(12,711,040)
50,492,880
NTN-D
40,899,242
5,157,999
40,899,242
50,487,895
(12,711,040)
50,487,895
NTN-P
5,531
    -
5,531
4,985
    -
4,985
 
The portfolio of Treasury issued securities is classified as “for trading” (mark-to-market) and as “held to maturity” (carried at amortized cost) (Note 3.d).
 
The result of operations with securities in the second half of the year, considering mark-to-market adjustments, was positive by R$22,902,554 (in the second half of 2002 it was R$7,827,627).
 
c. Swap operations
 
BCB performs swap operations indexed to interest rates and foreign exchange variations as an additional instrument of its monetary and foreign exchange policies.
 
The operations are recorded with the Futures and Commodities Exchange - BM&F, where, in long positions, BCB is on the asset side with respect to interest rates, represented by Interfinancial Deposits - DI, and on the liability side with respect to exchange rate variation plus interest rate, representing a foreign exchange coupon. Conversely, in positions where BCB is short, it is on the asset side in foreign exchange variations plus foreign exchange coupon, and on the liability side in interest rates (DI).
 
BCB trades three kinds of contracts:
 
- SCC, with daily financial adjustments bearing a Unit Price (PU) of US$50 thousand
- SC2, with financial adjustments performed on the settlement date, and PU of US$1 thousand
- SC3, with daily financial adjustments and PU of US$1 thousand
 
The following tables show the notional values of such operations, broken down by type of contract and maturity term:
 
 
Term to Maturity
Purchased
Total
(days)
SCC
SC2
SC3
2003
2002
a) 0 - 180
 
 
 
 
 
Notional Value
30,872,066
2,409,956
2,051,167
35,333,189
54,583,917
Adjustment to Market Value
    -
(64,184)
    -
(64,184)
2,195,414
b) 181 - 360
 
 
 
 
 
Notional Value
11,589,255
2,705,085
915,825
15,210,165
12,698,195
Adjustment to Market Value
    -
138,542
    -
138,542
690,673
c) 361 - 720
 
 
 
 
 
Notional Value
19,751,364
1,272,439
466,800
21,490,603
15,618,550
Adjustment to Market Value
    -
165,166
    -
165,166
627,317
d) More than 720
 
 
 
 
 
Notional Value
13,421,907
672,495
624,547
14,718,949
16,983,063
Adjustment to Market Value
    -
197,493
    -
197,493
258,958
 
Total
75,634,592
7,496,992
4,058,339
87,189,923
103,656,087
 
Term to Maturity
Sold
Total
(days)
SCC
2003
2002
a) 0 - 180
 
 
 
Notional Value
    -
    -
3,935,730
b) 181 - 360
 
 
 
Notional Value
4,474,642
4,474,642
4,728,799
c) 361 - 720
 
 
 
Notional Value
    -
    -
3,894,045
 
Total
4,474,642
4,474,642
12,558,574
 
In the second half of the year the result of swap operations was positive by R$3,028,809 (in the second half of 2002 it was negative by R$14,189,554).
 
d. Freely Transacted Repurchase Operations
 
The Banco Central do Brasil performs, as an instrument of monetary policy, freely transacted repurchase operations in which the BCB sells securities of its portfolio, with the commitment of resale assumed by the purchaser, coupled with purchase operations of other securities, with repurchase commitments assumed by the seller. Such operations allow the free transaction of securities and their yield is previously established by the BCB in mutual agreement with the relevant financial institutions. Operations recorded on 12.31.2003 featured an average rate of 17.14% p.a.
 
 
Note 6 - Credits and securities receivable
 
a. Credits receivable
 
 
2003
2002
Balance
Provision
Balance
Provision
1) Institutions under Liquidation
23,042,817
(6,586,727)
27,880,894
(8,969,738)
Banco Nacional - Extrajudicial Liquidation
13,082,519
(4,606,763)
14,294,669
(5,031,884)
Banco Econômico - Extrajudicial Liquidation
5,730,666
    -
9,010,594
(1,594,526)
Banco Bamerindus - Extrajudicial Liquidation
2,597,202
(849,512)
2,481,619
(1,044,505)
Banco Pontual - Extrajudicial Liquidation
602,436
(602,436)
732,936
(732,936)
Banco Mercantil - Extrajudicial Liquidation
202,084
    -
494,383
    -
Banco Banorte - Extrajudicial Liquidation
593,327
(293,433)
566,922
(304,970)
Banco Crefisul - Bankruptcy
91,816
(91,816)
87,729
(87,729)
Banco Banfort - Bankruptcy
120,193
(120,193)
114,844
(83,284)
Other
22,574
(22,574)
97,198
(89,904)
 
2) Other Credits
928,364
(7,965)
769,974
(6,850)
FCVS
912,442
    -
755,720
    -
    - Cost
1,744,095
    -
1,576,344
    -
    - Adjustment to market value
(831,653)
    -
(820,624)
    -
Other Operations
15,922
(7,965)
14,254
(6,850)
 
TOTAL ( 1 + 2 )
23,971,181
(6,594,692)
28,650,868
(8,976,588)
 
With respect specifically to the institutions under extrajudicial liquidation, in compliance with the provisioning criteria described in Note 3.g above, BCB monitors on a permanent basis the quality of the assets held by such institutions, as well as the negotiations to enable the completion of the extrajudicial liquidation procedures. Thus, the balances of receivables and other credits, net of provisions made, represent the best estimate for the realization of such assets.
 
The following relevant events took place during the financial year:
a. Receipts:
 
- Banco Econômico - Under Extrajudicial Liquidation - R$3,600,000;
- Banco Nacional - Under Extrajudicial Liquidation - R$1,850,000;
- Banco Mercantil - Under Extrajudicial Liquidation - R$310,000;
- Banco Pontual - Under Extrajudicial Liquidation - R$164,025;
 
b. Banco Banfort bankruptcy, decreed on 03.05.2003.
Changes in the provision account result from valuation of assets maintained by such institutions, whose remuneration indexes are above those of BCB credits (TR).
 
b. Securities receivables
 
Comprised, mainly, of promissory notes received as collateral for operations with financial institutions, remunerated according to the TR, with monthly amortizations and maturing by the end of 2004, assessed at present value as described in Note 3.f.
 
 
2003
2002
Balance
Provision
Balance
Provision
Promissory Notes
506,305
    -
966,810
    -
    - Cost
524,246
    -
1,047,459
    -
    - Adjustment to present value
(17,941)
    -
(80,649)
    -
Other
179,776
(170,352)
160,443
(150,990)
 
Total
686,081
(170,352)
1,127,253
(150,990)
 
c. Result
 
The result of operations with credits and promissory notes receivables was positive by R$639,772 (in the second half of 2002 it was R$368,059), an amount which, added to the net revenue from reversal of provisions, gave a total positive result of R$1,577,862 (negative result of R$307,121 in the second half of  2002).
 
 
Note 7 - Operations with CENTRUS
 
As the result of the final court decision on the Direct Action of Unconstitutionality (ADIN) 449  (Note 8.d)  BCB’s employees were included under the Single Juridical Regime - RJU, retroactive as from December 11, 1990. Law 9,650, which implemented and regulated the court decision, has determined that:
 
a. Central Bank Private Pension Foundation - CENTRUS shall manage the funds arising from the employer’s contributions to the private pension fund, made by BCB until December 1990, for those employees under RJU. The funds are adjusted by the average yield rate of the assets of CENTRUS (31.94% in 2003 and 17.36% in 2002) and recognized in the assets of BCB as “Funds Managed by CENTRUS”.
 
b. BCB shall contribute to mathematical reserves in order to enable CENTRUS to assume in full the retirement pensions effective before December 1990, under the General Social Security Regime - RGPS. This amount, recognized in the liabilities of BCB as “Amounts Payable - CENTRUS”, is being updated by IGP-M plus 6% p.a. and is being paid in consecutive, annual installments of, at least, one tenth of the updated original balance, authorized in the Yearly Budget.
 
c. BCB shall continue to make the employer’s contributions related to retired employees under the RGPS, recorded as “Provision for Actuarial Liabilities”. At December 31, 2003 this provision showed a balance of R$183,703, calculated under the following premises:
 
Interest rate:
6% a.a.
Rate of contribution for retired employees:
15% a.a.
Rate of contribution for the sponsor:
15% a.a.
Actuarial tables:
GAM - 71, IAPC and Álvaro Vindas
Number of retired employees:
1,100
 
 
Note 8 - Operations with the National Treasury
a. Compulsory federal government deposits
Pursuant to Article 164, Paragraph 3, of the Federal Constitution, the Federal Government’s cash supplies must be deposited with Banco Central do Brasil (BCB) and remunerated, in accordance with Article 1 of Provisional Measure 2,179, by the weighted arithmetic average rate of the intrinsic yield of federal domestic public debt securities issued by the National Treasury held by BCB. This remuneration is calculated on a daily basis and capitalized on the last day of the subsequent ten-day period. The half-yearly remuneration aggregated 10.13% (18.51% in the second half of 2002).
b. Remuneration of federal government deposits to be transferred:
The balance in this account refers to that part of the remuneration, accounted for in the last ten-day period of December to be transferred to “Compulsory Federal Government Deposits” on the last day of the subsequent ten-day period.
c. Credit to be Covered by the National Treasury/Result Transferable to the National Treasury:
Under the Fiscal Responsibility Law and Provisional Measure 2,179, any positive result determined by BCB after formation or reversal of reserves, constitutes an obligation of the BCB before the Government, and should be transferred no later than the tenth working day after the financial statements have been approved by the National Monetary Council - CMN. Conversely, a negative result constitutes a credit of BCB before the Government and should be paid up no later than the tenth working day of the year subsequent to the year in which the statements are approved. In either case, the amounts shall be restated by the same indexes as applied to “Compulsory Federal Government Deposits”.
At December 31, 2003, the balance to be transferred to the National Treasury which amounted for R$5,356,483 originated in BCB’s positive results for the second half of the year, including realization and constitution of reserves. Balances of Credit to be Covered by the National Treasury (R$7,172,543 in 2003 and R$19,161,634 in 2002) relate to negative BCB results recorded in 2002. The values, duly adjusted for inflation, were transferred by the National Treasury on January 17, 2003 and on January 14, 2004, respectively, through the issuing of public securities.
d. Settlement of Contributions - Law 9,650
By virtue of the judgment of the Direct Unconstitutionality Action ‑ ADIN 449 and subsequent transfer of BCB employees to the Single Juridical Regime - RJU (Note 7), all payments and withholdings owed by BCB to the National Institute of Social Security (INSS) and to the Department of Federal Revenue (SRF) had to be revised. In this sense, Law no. 9,650, of 5.27.1998, among other things, determined that a settlement of accounts should be made between BCB, INSS and SRF, related to individual and  corporate contributions to the Civil Servant Social Security Plan and INSS and between the Central Bank of Brazil and its employees regarding individual contributions. The law, in addition, determined that the deposits made towards the Severance Fund Contribution - FGTS in the period from 1991 to 1996 should be refunded to the BCB.
In June 2002, Provisional Measure 45 was issued, regulating such settlement of accounts and including the payment to employees of deposits made to FGTS in the period from 1991 to 1996, monetary adjustment on the FTGS balances related to  economic plans and amounts due by employees as a result of the rescissory action 8/94 - Regional Labor Court 10th Region (TRT) (Bresser Plan).
On November 13, 2002, the 45th Provisional Measure was rejected by the National Congress, however the settlement of accounts involving the Banco Central do Brasil, INSS and SRF and most part of the settlements between the BCB and its employees had been effected during the time in which the Provisional Measure was in force. At December 31, 2002, the BCB was awaiting publication of the legislative decree regulating the situation resulting from rejection of the Provisional Measure or expiry of the constitutional term that would validate the acts taken during the term in which the Provisional Measure was in force. With the expiry of such term (March 17, 2003), the values, indices and form of payment used in the settlements were ratified, which permitted the BCB to complete such arrangements and to regularize its accounting balances.
The table below shows the results of the account settlements at December 31:
 
Assets
2003
2002
 
Liabilities
2003
2002
Settlement of Contributions, Law 9,650
    -
605,613
 
Settlement of Contributions, Law 9,650
    -
243,307
Credits with PSS
305,162
    -
 
 
 
 
Credits with CEF
34,053
    -
 
 
 
 
Credits with employees
58,862
    -
 
 
 
 
 
Regarding the 2003 balances, the following explanations apply:
 
a. The credit balance towards PSS came to be offset, as from January 2004, by the corporate contributions due by the Bank to the social security program (R$3,573);
 
b. Out of the credit balance towards the Federal Savings Bank - CEF, the part related to values paid by employees will be transferred by CEF under the schedule established by Complementary Law 110, while the transfer of the part of deposits made in the period from 1991 to 1996, related to employees that had not signed the settlement agreement while Provisional Measure 45 was in force, is currently stalled, awaiting a court decision in an action brought by the employees’ trade union.
 
c. Credits towards employees are being collected in administratively (according to the settlement of accounts made while Provisional Measure 45 or a subsequent agreement was in force) and payments are being made either on demand or in installments. The BCB has sent notice demanding payment to those employees who have failed to enter into any agreement, and the corresponding procedures are under administrative appeal.
 
e. Financial Relationship with the National Treasury
 
 
2003
2002
Debit Balances
271,905,610
300,436,089
National Treasury Notes - NTN
73,703,632
88,610,962
National Treasury Financing Bills - LFT
97,985,973
143,105,880
National Treasury Bills - LTN
89,103,557
45,739,005
Securitized Credits - CVS
1,856,650
1,677,523
Wage Variation Compensation Fund - FCVS
1,744,095
1,576,344
Credit to be Covered by The National Treasury
7,172,543
19,161,634
Judicial Deposits in the name of The National Treasury
    -
3,701
Remuneration of Federal Government Deposits, to be Transferred
1,355
    -
Settlement of Contributions - Law 9,650
    -
523,478
Credits with PSS
305,162
    -
PND - State Banks
7,957
7,328
Credits Subject to Refunds
24,686
30,234
 
Credit Balances
125,640,467
89,401,664
Compulsory Federal Government Deposits
120,189,562
88,526,786
Result to be Transferred to the National Treasury
5,356,483
    -
Settlement of Contributions - Law 9,650
    -
230,731
Remuneration of Federal Government Deposits, to be Transferred
40,934
588,421
Deposits in Foreign Currencies - Paris Club
10,517
10,210
Funds Linked to Administration of Foreign Debt Guarantees
14,446
17,667
Deposits Resulting from Court Decisions
9,854
9,413
Monetary Reserve Available
2
45
Taxes and Contributions to be Collected
18,669
18,391
 
Note: the above values do not consider adjustment to market and/or present values and provisions.
 
f. Financial Flow with the National Treasury
 
Federal Government Securities
2nd half of 2003
2nd half of 2002
2003 Financial Year
2002 Financial Year
50,333,627
5,262,180
45,474,686
10,737,106
Acquisition
(65,751,878)
(60,746,049)
(127,916,509)
(84,336,866)
Redemption
111,935,934
60,978,960
164,634,656
85,811,648
Interests
4,149,571
5,029,269
8,756,539
9,262,324
 
Other Values Collected
(39,678,456)
(19,495,780)
(44,422,659)
(39,750,277)
Cash Remuneration
(14,389,854)
(19,495,780)
(19,134,057)
(34,244,552)
Transference of the Result - 1st Half of 2003
(25,288,602)
    -
(25,288,602)
(5,505,725)
 
Transference under Budget Law
262,205
    -
524,963
    -
 
 
 
Net Financial Flow
10,917,376
(14,233,600)
1,576,990
(29,013,171)
 
The remuneration of National Treasury accounts (BCB cash and results) was negative by R$14,440,850 (in the second half of  2002 it was R$16,717,294).
 
 

Note 9 - Deposits of financial institutions

 
Deposits of financial institutions with Banco Central do Brasil (BCB) comprise mainly mandatory reserve deposits used to limit the lending capacity of these institutions.
 
Those institutions may be required to make such deposits in cash or in federal public securities. In the case of federal public securities, the deposit is registered in a contra account, since such securities remain registered in the Special System of Clearance and Custody - SELIC in the name of the depositing institution, but subject to compliance with the deposit requirements. The main deposits currently required are:
 
a. On demand deposits - deposited in cash and without remuneration. The rate was changed from 60% to 45% in August 2003;
 
b. On savings deposits - deposited in cash, at the rate of 20% remunerated by TR + 6.17% p.a. for free, specific and rural savings categories, and TR + 3% p.a. for earmarked savings;
 
c. On judicial deposits - deposited in public securities registered at SELIC, valued at the lower of 60% of the current balance or 100% of the additions to the balance of judicial deposits at June 30, 1994, duly corrected for inflation;
 
d. On term deposits - deposited in public securities registered at SELIC, at a rate of 15%;
 
e. Additional requirements - Additional reserve requirements on the total demand deposits (rate of 8%), term deposits (rate of 8%) and savings deposits (rate of 10%) in excess of R$100,000, to be deposited in cash and remunerated at the SELIC rate.
 
Expenses with remuneration of deposits of financial institutions totaled R$3,890,252 (in the second half-year of  2002 it was R$2,548,710).
 
 

Note 10 - Deposits earmarked to guarantee operations

 
The account refers to funds of financial institutions under extrajudicial liquidation, resulting from guarantees received from operations prior to the decreeing of the liquidation. The funds remain deposited with the Banco Central do Brasil and are invested in public securities to safeguard the value of the guarantee, which leads to their recording in a contra account. The variation over the period was the result of the use, by the institutions, of part of such funds in amortization of debts with BCB (Note 6.a).
 
 
Note 11 - Provisions for lawsuits in progress and court order debts to be paid
 
a. Provision for Legal Actions
 
During 2003, the Central Bank of Brazil reviewed all legal actions in which it was a part, to enable the making of provisions for legal losses. Such provisions are based on the expected loss and, in each case, a risk analysis of the legal action in course was conducted, including actions pending judgment.
 
Out of the 54,889 legal cases considered at the beginning of such revision, 13,004 records are related to already closed actions and 6,817 to judicial events, stay of execution and legal appeals, the effects of which were already included in their respective main actions, resulting in 35,068 legal actions in course. This assessment led to a classification of all actions according to defined parameters and standards, resulting in a new distribution based on the nature of the cause, as shown in the table below.
 
Nature of Cause
Quantity
Economic Plans
25,337
Civil Servants
1,130
SFH (National Housing System)
1,060
Institutions under special regime
1,003
National Financial Plan
988
Rural Credit
175
Data Files (CCF, Cadin and others)
488
Buyer's Associations
471
Foreign Exchange and International Area
445
Taxes and Contributions
426
Public Securities
364
Agreements
249
Hired Personnel
238
Financial Assets
232
Assets (Fixtures and Fittings and Real Estate)
121
Crimes and Offenses
76
Invitation to Bid
73
Privatization
50
Recorded Credit
15
Public Debt
3
Subtotal
32,944
Tax Foreclosure
2,124
Total
35,068
 
These 35,068 lawsuits were classified into curtailing (27,420), when the suits involve financial effects, and non-curtailing (7,648), without financial effects. The 27,420 curtailing lawsuits were assessed based on “Value” and “Risk” involved, according to the following objective parameters:
 
I) Value:
 
- of interest: value sought at the beginning of the action;
- of execution: value sought in the execution proceeding;
- due: amount ratified by the court or accepted by the Banco Central do Brasil in the execution proceeding;
 
II) Loss Risk Scale (decisions taken in the proceeding, jurisprudence and precedents in similar Banco Central do Brasil lawsuits):
 
- very probable: (100%);
- probable: (75%);
- possible (50%);
- remote: (25%)
- very remote: (0%).
 
The result of this assessment was a provision of R$2,427,490 for 4,281 lawsuits that involved a percentage risk of loss ranging from 25% to 100%, according to the risk level with the following observations:
 
I) Lawsuits resulting from Economic Plans:
 
- Collor Plan - Refunding of Sequestered Cruzados Novos: non-curtailing;
- Collor Plan - Inflation Indices: given the similarity of lawsuits and decisions by the Federal Supreme Court - STF (Extraordinary Appeal no. 206048, published in the Court Journal of October 19, 2001, and STF Digest no. 725) and the Higher Court of Justice - STJ (Special Appeal (REsp) nº 124864, published in the Court Journal of September 28, 1998) favorable to the BCB, the lawsuits were assessed by the historic average of payments made, weighted by the risk attached to the procedural phase and jurisprudence of the Higher Courts. Therefore, lawsuits that are in execution bear “very probable risk” (100% of the amount due/in execution). Those in course with a decision unfavorable to the BCB in the STJ/STF, “probable” risk (75% of the value of interest) and with an unfavorable decision to the Central Bank at the TRF, “remote” risk (25% of the value of interest). For those lawsuits in other procedural phases, the risk of loss is “very remote” (0% provision);
 
- Other Economic Plans: case-by-case assessment of risk and value;
 
II) Civil Servants: case-by-case assessment of risk and value;
 
III) SFH: pose a “very remote” risk, since the BCB is being deemed as an illegitimate part to the lawsuits, according to legal decisions and court jurisprudence;
 
IV) Institutions under Special Regime:
 
- Lawsuits brought by former administrations requesting just dismissal of inalienability of properties were not  deemed as “curtailing”;
- Lawsuits brought by former administrations, investors and customers demanding indemnifications were assessed, for risk and value, on a case-by-case basis.
 
b. Court Order Debts Payable
 
In accordance with Article 100, Paragraph 1 of the Federal Constitution, public law entities shall include in their respective budgets amounts necessary to cover court order debts submitted up to July 1 of each year, for payment not later than the end of the subsequent fiscal year.
 
With the publication of Constitutional Amendment 30, of September 13, 2000, the court order debts resulting from lawsuits filed in courts before December 31,1999 shall be settled at their actual value in cash, plus legal interest, in successive, equal yearly installments over a maximum period of ten years, except for credits related to alimony and credits of small amounts.
 
In January 2003, pursuant to Article 28 of Law 10,524/2002 (Law of Budgetary Guidelines - LDO 2003), the budget available in Banco Central was transferred to the courts to comply with court order debts to be paid in 2003, including portions of suspended court order debts. The BCB is awaiting confirmation that payment was made to write off the corresponding liabilities.
 
Law 10,707/2003 (LDO 2004) determined automatic decentralization of such accounts, therefore budgetary and financial funds no longer will pass through the BCB, since the courts will demand such funds and make the payments directly. The responsibility for court order debts paid in 2003 and to be paid in 2004 remains with the demanding courts and no longer with the BCB, which will lead to the write-off of such liabilities in 2004.
 
 

Note 12 - Money supply

 
The money supply represents the balance of paper money and coins in circulation, held by the public and financial institutions, recorded at face value.
 
The breakdown of bank bills and coins by denomination, in circulation at December 31, 2003 (and 2002) was as follows:
 
 
2003
2002
Quantity (Units)
In R$(000)
Quantity (Units)
In R$(000)
Bank Notes
2,772,748,313
50,144,006
2,858,910,386
48,871,098
R$1.00
708,075,054
708,075
874,582,343
874,582
R$2.00
197,128,414
394,257
140,941,712
281,883
R$5.00
224,286,170
1,121,431
234,829,259
1,174,146
R$10.00
769,676,170
7,696,762
809,990,278
8,099,904
R$20.00
145,593,752
2,911,875
84,133,543
1,682,671
R$50.00
709,745,388
35,487,269
693,708,259
34,685,413
R$100.00
18,243,365
1,824,337
20,724,992
2,072,499
 
Coins
8,946,072,248
1,219,256
8,007,342,037
1,059,432
R$0.01
2,979,169,845
29,792
2,754,920,763
27,549
R$0.05
2,017,878,432
100,894
1,788,454,667
89,423
R$0.10
2,089,613,385
208,961
1,861,761,448
186,176
R$0.25
816,425,206
204,106
714,172,788
178,543
R$0.50
734,964,086
367,482
620,583,913
310,292
R$1.00
308,021,294
308,021
267,448,458
267,449
 
Commemorative Coins
601
 
536
 
TOTAL
 
51,363,863
 
49,931,066
 
 
The money supply in December 2003 showed nominal growth of 2.8% in comparison with the same date of the previous year. Discounting the inflation of 8.69% as measured by the IPCA, there was a negative real variation of 5.3%. These figures reflect the return to standard behavior of the money supply, following the atypical expansion verified in the second half of 2002, caused by a set of factors of a transitory nature such as a disbursement of amounts from FGTS accounts of low value and the payments made to meet election expenses and the uncertainties arising from the elections.
 
 
Note 13 - Net Equity
 
Net equity is composed of:
 
a. Equity, corresponding to the balance recorded on the act of the establishment of Banco Central do Brasil (BCB) and the Bank’s results up to the 1987 fiscal year, corrected up to December 1995 by inflation indexes;
 
b. Contingency Reserves, constituted under Article 2, Paragraph 3, of Provisional Measure 2,179, totaled R$3,978,086, for the purpose of reducing redemption of securities in the BCB’s portfolio and, consequently, maintaining adequate conditions to execute the monetary policy;
 
c. Revaluation Reserve, resulting from reassessment of fixed assets, performed in 2003 (Note 3.h) with effects on Net Worth amounting  to R$14,166 thousand.
 
 

Note 14 - Law of fiscal responsibility - Information required

 
a. Impact and fiscal cost of the operations - Supplementary Law 101, Article 7, paragraph 2
 
The sole paragraph of Article 8 of Law 4,595/64, as amended by Decree-Law 2,376/87, stipulates that “results obtained by Banco Central do Brasil, considering the revenues and expenses of all its operations, shall be, effective from January 1, 1988, determined on an accrual basis and transferred to the National Treasury, after offsetting any losses from prior fiscal years”.
 
This provision was partially changed by the Law of Fiscal Responsibility:
 
“Article 7. The positive result of Banco Central, assessed after constitution or reversal of reserves, is recorded as revenue of the National Treasury and shall be transferred not later than the tenth business day subsequent to approval of the half-year balance sheets.
 
Paragraph 1. The negative results will constitute a Treasury liability to the Banco Central do Brasil and will be consigned to a specific budget allocation account.”
 
In accordance with item II of Article 2 of Provisional Measure 2,179, this negative result shall be paid not later than the tenth business day of the fiscal year subsequent to the year of approval of the balance sheet by the National Monetary Council.
 
Therefore:
 
I - The result of Banco Central do Brasil (BCB) considers revenues and expenses related to all its operations;
 
II - Positive results are transferred as revenues and negative results are charged as expenses to the National Treasury;
 
III - Such results are included in the Fiscal Budget in the National Treasury account.
 
The BCB recorded a surplus of R$4,901,428 in the third quarter of 2003, and R$2,235,130 in the fourth quarter of 2003, totaling a positive result of R$7,136,558, in the half year, which, after constitution and realization of reserves, will be transferred to the National Treasury not later than the tenth business day after its approval by the National Monetary Council. In conformity with Article 9, Paragraph 5 of Supplementary Law 101, within ninety days after the closing of the half-year, BCB shall submit, at a joint meeting of the pertinent thematic commissions of the National Congress, an evaluation of the fulfillment of objectives and targets of the monetary, credit and foreign exchange policies, clearly showing the impact and fiscal cost of its operations and results shown in the balance sheets.
 
b. Cost of remunerating the cash of the National Treasury- Supplementary Law 101, Article 7, Paragraph 3
 
The cost corresponding to the remuneration of the National Treasury deposits amounted to R$7,402,320 in the third quarter of 2003, and R$6,575,006 in the fourth quarter of 2003 (R$13,977,326 during the half-year).
 
c. Cost of maintaining foreign exchange reserves - Supplementary Law 101, Article 7, Paragraph 3
 
The cost of maintaining foreign exchange reserves is calculated as the difference between the rate of yield of the reserves and the average rate of obtaining such reserves, as calculated in BCB’s liabilities.
 
In the fourth quarter of 2003, with an average daily balance of R$155,987,183, the international reserves recorded a positive yield of 2.4%. Excluding the average cost of liabilities of 3.2%, the net result of reserves was negative by 0.8% (R$1,225,747). Added to the result of the third quarter, the yield of international reserves over the half-year was positive by 5.8%, corresponding to R$2,073,788.
 
d. Yield of BCB’s securities portfolio, with an emphasis on Government issued securities - Supplementary Law 101, Article 7, Paragraph 3:
 
 
Revenues
Expenses
Result
Third Quarter
21,327,070
(4,739,367)
16,587,703
Government Securities
20,791,145
(2,531,561)
18,259,584
Banco Central Securities
535,925
(2,207,806)
(1,671,881)
 
Fourth Quarter
18,892,825
(6,571,647)
12,321,178
Government Securities
17,468,979
(4,598,063)
12,870,916
Banco Central Securities
1,423,846
(1,973,584)
(549,738)
 
Total
40,219,895
(11,311,014)
28,908,881
 
In the fourth quarter, the positive result was due, largely, to the following factors:
 
I - Government Securities - the result of operations was positive by R$12,870,916 due mainly to monetary and foreign exchange reassessment;
 
II - BCB Securities - the net result from its own securities was negative by R$549,738 and arose, basically, from expenses with NBC interest.
 
 

Note 15 - Other Information

 
a. Financial and actuarial situation
 
Law 8,112/90 determines, in Article 185, Paragraph 1, that retirement and pension payments shall be granted and maintained by the agencies or entities where the employee worked. The Banco Central, in the context of the project of adapting its accounting to international accounting practices, is studying more appropriate accounting treatment to be given to this matter. Therefore, the Banco Central do Brasil Board of Governors authorized the hiring of an actuarial firm to calculate the real  value of liabilities. The corresponding provision is to be made as soon as the amount of the obligation is known.
 
b. Approval and Disclosure
 
The financial statements of Banco Central do Brasil were approved by the National Monetary Council - CMN on 2.19.2004 and are available on the Internet at www.bcb.gov.br.
 
President of the Banco Central do Brasil
Henrique de Campos Meirelles
 

Directors

Afonso Sant’Anna Bevilaqua
Alexandre Schwartsman
Antonio Gustavo Matos do Vale
Eduardo Henrique de Mello Motta Loyo
João Antônio Fleury Teixeira
Luiz Augusto de Oliveira Candiota
Paulo Sérgio Cavalheiro
Sérgio Darcy da Silva Alves
 

Head of the Department of Financial Administration

Jefferson Moreira
Accountant, CRC - DF - 7,333