Notes to the financial statements

Banco Central do Brasil
 
Notes to the financial statements
 
June 30, 2004 and 2003
(In thousands of Reais)
 
Note 1 - Banco Central do Brasil (BCB)and its duties
 
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
 
The financial statements are prepared in accordance with the legislation applicable to Banco Central do Brasil (BCB), especially Law 4,595/64, which grants the National Monetary Council (CMN) powers to take decisions on the balance sheets, interim balance sheets and internal accounting system of BCB, without prejudice to the competence of the Federal Audit Court, Provisional Measure 2,179-36 (August 24, 2001) and Supplementary Law 101/2000 (Law of Fiscal Responsibility), which define the form of distribution of the financial results of BCB. Such rules require that BCB presents half-yearly financial statements on July 30 and December 31.
 
In order to reconcile the accounting procedures of BCB with best international practices, the National Monetary Council determined a thorough review of the accounting policy of BCB, 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 - Significant 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:
 
                    
As of June 30
 
2004
2003
Buy
Sell
Buy
Sell
United States Dollar
3.1067
3.1075
2.8712
2.8720
Euro
3.7874
3.7952
3.3040
3.3111
Yen
0.0285
0.0286
0.0239
0.0240
SDR
4.5460
4.5654
4.0141
4.0313
Gold (gram)
38.5437
38.7184
31.6518
31.7963
                       
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 pound sterling (GBP), and the United States dollar (USD).
 
c.       Valuation 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.    Valuation 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 B, D and F) - NTN-B, NTN-D and NTN-F and Treasury Financial Bills - LFT: valued considering secondary market prices and prices published by the National Open Market Institutions - ANDIMA;
 
·   Securitized Credits - CVS: valued by the average of CVSA traded in the period from December 1, 2003 to May 31, 2004;
 
·   Central Bank Notes - NBC are recorded at their inflation-adjusted cost.
 
e.     Valuation 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.      Valuation 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.    Provision for doubtful accounts:
 
The criteria for recording and adjusting the provision are as follows:
 
·   When a credit is considered difficult to receive, the provision 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 provision is recorded at the amount corresponding to the difference between the carrying amount and the market value.
 
Therefore, provisions 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 the position of BCB.
 
h.    Depreciation
 
Real estate is recorded at the value of the respective revaluation conducted in 2003 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 14). Fixtures and fittings are recorded at their cost of acquisition. 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.;
·   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: 55% in US dollars, 35% in euros, and 10% 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 BCB as a way of building hedge and to operate the active strategy of reserves, complying with the conditions established by the Board of Governors of BCB.
 
Repurchase operations - Sale of securities with a commitment to repurchase (repo) and purchase of securities with a commitment to resell (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 backtesting is 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 BCB follow a clear, objective policy of ceilings for the risk rating of institutions and for maximum concentration per counterpart. The minimum currently authorized rating is “A” in accordance with the rating by Moody’s, and the maximum limit per 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 follow-up of all steps of each operation, from contracting to 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 operations of the foreign sector are also recorded in the accounting of BCB:
 
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 made available to the member countries by the IMF; and deposits that the Fund holds in the country, which represent the quota for Brazilian participation;
 
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 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.
 
In the semester, the result of foreign operations was positive by R$2,648,056, mostly due to foreign exchange fluctuations (in the first half of 2003 it was negative by R$5,183,447).
 
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
 
As of June 30
Foreign Assets
Maturity Term (Days)
Total
0 a 7
8 a 30
31 a 60
61 a 90
91 a 180
> 180
2004
2003
Cash
4,024,894
    -
    -
    -
    -
    -
4,024,894
3,148,683
Monetary Gold
534,288
    -
    -
    -
    -
    -
534,288
437,003
Deposits
31,403,762
22,218,550
12,676,211
10,937,836
6,402,737
    -
83,639,096
62,507,872
- Very Short Term
14,000,457
    -
    -
    -
    -
    -
14,000,457
5,349,524
- Fixed Term
17,367,334
22,218,550
12,407,951
10,481,216
6,402,737
    -
68,877,788
56,531,796
- Gold
35,971
    -
268,260
456,620
    -
    -
760,851
626,552
Securities
2,927,901
3,152,045
    -
    -
390,411
73,547,445
80,017,802
77,016,457
- Notes
    -
    -
    -
    -
    -
63,043,206
63,043,206
57,015,615
      Cost
    -
    -
    -
    -
    -
63,207,828
63,207,828
56,473,538
      Adjustment to Market Value
    -
    -
    -
    -
    -
(164,622)
(164,622)
542,077
- Brazilian Foreign Debt
    -
    -
    -
    -
390,411
5,584,980
5,975,391
11,812,790
      Cost
    -
    -
    -
    -
389,865
5,388,919
5,778,784
11,512,925
      Adjustment to Market Value
    -
    -
    -
    -
546
196,061
196,607
299,865
- Under Foreign Management
    -
    -
    -
    -
    -
4,919,259
4,919,259
4,419,593
- Repurchase Operations
2,927,901
3,152,045
    -
    -
    -
    -
6,079,946
3,768,459
Agreements in Foreign Currencies
    -
    -
    -
123,925
10,252
    -
134,177
95,197
Forward Operations
1,659,988
2,119,779
1,970,601
194,638
    -
    -
5,945,006
10,345,247
Contracted Operations - to be Settled
14,210,114
    -
    -
    -
    -
    -
14,210,114
7,837,827
Other
46,089
    -
    -
5,411
2,705
42,011
96,216
53,863
 
 
Total Foreign Assets
54,807,036
27,490,374
14,646,812
11,261,810
6,806,105
73,589,456
188,601,593
161,442,149
 
As of June 30
Foreign Liabilities
Maturity Term (Days)
Total
0 a 7
8 a 30
31 a 60
61 a 90
91 a 180
> 180
2004
2003
International Monetary Fund - IMF
    -
    -
763,355
2,056,943
3,407,848
88,521,797
94,749,943
99,864,344
- Financial Assistance Program
    -
    -
757,267
2,056,943
3,401,760
73,028,386
79,244,356
86,173,773
- Deposits
    -
    -
    -
    -
    -
13,863,472
13,863,472
12,241,887
- SDR Allocations
    -
    -
6,088
    -
6,088
1,629,939
1,642,115
1,448,684
International Financial Agency Deposits
    -
    -
    -
    -
    -
426,174
426,174
271,616
Brazilian Financing Plan
    -
    -
    -
219,390
    -
1,275,078
1,494,468
1,758,333
Agreements in Foreign Currencies
3,643
    -
    -
21,435
8,875
87,577
121,530
150,063
Forward Operations
1,665,131
2,064,518
1,949,603
194,674
    -
    -
5,873,926
10,469,468
Excess Long Positions
4,346,771
    -
    -
    -
    -
    -
4,346,771
1,456,976
Repurchase Operations
6,006,907
3,152,857
    -
    -
    -
    -
9,159,764
3,769,392
Contracted Operations - to be Settled
14,222,761
    -
    -
    -
    -
    -
14,222,761
7,841,923
Other
37,577
    -
    -
3,413
    -
102,891
143,881
125,152
 
Total Foreign Liabilities
26,282,790
5,217,375
2,712,958
2,495,855
3,416,723
90,413,517
130,539,218
125,707,267
 
b.      Operations broken down by currency
 
As of June 30
Foreign Assets
Currency
Total
US Dollar
Euro
Yen
SDR
Gold
Other (*)
2004
2003
Cash
199,441
401
3,802,217
19,723
    -
3,112
4,024,894
3,148,683
Monetary Gold
    -
    -
    -
    -
534,288
    -
534,288
437,003
Deposits
47,660,799
31,394,670
3,822,776
    -
760,851
    -
83,639,096
62,507,872
- Very Short Term
10,550,560
3,449,897
    -
    -
    -
    -
14,000,457
5,349,524
- Fixed Term
37,110,239
27,944,773
3,822,776
    -
    -
    -
68,877,788
56,531,796
- Gold
    -
    -
    -
    -
760,851
    -
760,851
626,552
Securities
58,749,827
21,262,232
5,743
    -
    -
    -
80,017,802
77,016,457
- Notes
43,628,270
19,414,936
    -
    -
    -
    -
63,043,206
57,015,615
- Brazilian Foreign Debt
4,122,352
1,847,296
5,743
    -
    -
    -
5,975,391
11,812,790
- Under Foreign Management
4,919,259
    -
    -
    -
    -
    -
4,919,259
4,419,593
- Repurchase Operations
6,079,946
    -
    -
    -
    -
    -
6,079,946
3,768,459
Agreements in Foreign Currencies
134,177
    -
    -
    -
    -
    -
134,177
95,197
Forward Operations
298,030
212,817
5,272,637
    -
    -
161,522
5,945,006
10,345,247
Contracted Operations - to be Settled
9,232,030
4,942,113
    -
    -
35,971
    -
14,210,114
7,837,827
Other
8,309
5
    -
41,998
12,895
33,009
96,216
53,863
 
Total Foreign Assets
116,282,613
57,812,238
12,903,373
61,721
1,344,005
197,643
188,601,593
161,442,149
(*) Includes mostly Swiss Francs, Norwegian Kroners, Canadian Dollars, Australian Dollars and Sterling Pounds.
 
As of June 30
Foreign Liabilities
Currency
Total
US Dollar
Euro
Yen
SDR
Gold
Other (*)
2004
2003
International Monetary Fund - IMF
    -
    -
    -
94,749,943
    -
    -
94,749,943
99,864,344
- Financial Assistance Program
    -
    -
    -
79,244,356
    -
    -
79,244,356
86,173,773
- Deposits
    -
    -
    -
13,863,472
    -
    -
13,863,472
12,241,887
- SDR Allocations
    -
    -
    -
1,642,115
    -
    -
1,642,115
1,448,684
International Financial Agency Deposits
426,127
    -
    -
    -
    -
47
426,174
271,616
Brazilian Financing Plan
1,483,349
40
    -
    -
    -
11,079
1,494,468
1,758,333
Agreements in Foreign Currencies
121,530
    -
    -
    -
    -
    -
121,530
150,063
Forward Operations
4,253,914
1,173,114
257,824
    -
    -
189,074
5,873,926
10,469,468
Excess Long Positions
4,346,771
    -
    -
    -
    -
    -
4,346,771
1,456,976
Repurchase Operations
9,159,764
    -
    -
    -
    -
    -
9,159,764
3,769,392
Contracted Operations - to be Settled
9,234,407
4,952,383
    -
    -
35,971
    -
14,222,761
7,841,923
Other
143,877
    -
    -
    -
    -
4
143,881
125,152
 
 
Total Foreign Liabilities
29,169,739
6,125,537
257,824
94,749,943
35,971
200,204
130,539,218
125,707,267
(*) Includes mostly Swiss Francs, Norwegian Kroners, Canadian Dollars, Australian Dollars and Sterling Pounds.
 
 
c.      Operations broken down by currency and maturity
 
As of June 30
Assets
Maturity Term (Days)
Total
0 to 7
8 to 30
31 to 60
61 to 90
91 to 180
> 180
2004
2003
US Dollar
35,426,096
15,448,058
6,322,863
3,977,138
2,438,565
52,669,893
116,282,613
105,677,237
Euro
13,009,965
8,770,769
5,722,505
6,125,259
3,311,918
20,871,822
57,812,238
36,720,244
Yen
5,631,567
3,271,547
2,282,702
656,192
1,055,622
5,743
12,903,373
14,788,391
SDR
19,723
    -
    -
    -
    -
41,998
61,721
1,070,638
Gold
619,125
    -
268,260
456,620
    -
    -
1,344,005
1,074,442
Other (*)
100,560
    -
50,482
46,601
    -
    -
197,643
2,111,197
 
Total Foreign Assets
54,807,036
27,490,374
14,646,812
11,261,810
6,806,105
73,589,456
188,601,593
161,442,149
(*) Includes mostly Swiss Francs, Norwegian Kroners, Canadian Dollars, Australian Dollars and Sterling Pounds.
 

As of June 30
Liabilities
Maturity Term (Days)
Total
0 to 7
8 to 30
31 to 60
61 to 90
91 to 180
> 180
2004
2003
US Dollar
20,582,172
4,977,242
1,428,506
292,384
8,875
1,880,560
29,169,739
17,763,313
Euro
5,471,661
240,133
384,390
29,319
    -
34
6,125,537
5,667,073
Yen
128,664
    -
86,272
42,888
    -
    -
257,824
317,732
SDR
    -
    -
763,355
2,056,943
3,407,848
88,521,797
94,749,943
99,861,917
Gold
35,971
    -
    -
    -
    -
    -
35,971
    -
Other (*)
64,322
    -
50,435
74,321
    -
11,126
200,204
2,097,232
 
Total Foreign Liabilities
26,282,790
5,217,375
2,712,958
2,495,855
3,416,723
90,413,517
130,539,218
125,707,267
(*) Includes mostly Swiss Francs, Norwegian Kroners, Canadian Dollars, Australian Dollars and Sterling Pounds.
 
d.    Operations broken down by risk rate
 
As of June 30
Foreign Assets
Risk Rate
Total
Aaa
Aa1
Aa2
Aa3
A1
A2
Other (*)
2004
2003
Cash
37,327
142,779
151,972
214
    -
756
3,691,846
4,024,894
3,148,683
Monetary Gold
9,026
    -
    -
    -
    -
    -
525,262
534,288
437,003
Deposits
8,784,633
23,701,190
8,475,144
9,519,615
7,726,632
24,722,267
709,615
83,639,096
62,507,872
- Very Short Term
2,428,555
5,921,796
1,698,666
1,553,350
621,340
1,621,415
155,335
14,000,457
5,349,524
- Fixed Term
6,356,078
17,635,209
6,776,478
7,966,265
7,105,292
22,484,186
554,280
68,877,788
56,531,796
- Gold
    -
144,185
    -
    -
    -
616,666
    -
760,851
626,552
Securities
57,134,523
811,979
6,676,603
3,683,594
    -
5,735,712
5,975,391
80,017,802
77,016,457
- Notes
56,314,333
    -
4,933,064
1,213,262
    -
582,547
    -
63,043,206
57,015,615
- Brazilian Foreign Debt
    -
    -
    -
    -
    -
    -
5,975,391
5,975,391
11,812,790
- Under Foreign Management
820,190
811,962
816,841
2,470,266
    -
    -
    -
4,919,259
4,419,593
- Repurchase Operations
    -
17
926,698
66
    -
5,153,165
    -
6,079,946
3,768,459
Agreements in Foreign Currencies
    -
    -
    -
    -
    -
    -
134,177
134,177
95,197
Forward Operations
1,103,913
1,441,905
2,125,184
285,300
626,234
362,470
    -
5,945,006
10,345,247
Contracted Operations - to be Settled
9,964,699
621,340
2,276,197
    -
    -
1,171,851
176,027
14,210,114
7,837,827
Other
    -
174
    -
    -
    -
    -
96,042
96,216
53,863
 
Total Foreign Assets
77,034,121
26,719,367
19,705,100
13,488,723
8,352,866
31,993,056
11,308,360
188,601,593
161,442,149
(*) The item “Other” includes, mainly, besides Brazilian Government securities, Cash with Banco do Brasil and Fixed Term Deposits with Bladex.
 
 
e.    Operations broken down by country or geographic area
 
As of June 30
Foreign Assets
Country or Geographic Area
Total
USA and Canada
European Union
United Kingdom
Brazil
Other (*)
2004
2003
Cash
171,438
59
1,897
30,932
3,820,568
4,024,894
3,148,683
Monetary Gold
    -
    -
9,026
525,262
    -
534,288
437,003
Deposits
29,321,488
29,503,201
17,955,480
    -
6,858,927
83,639,096
62,507,872
- Very Short Term
3,443,487
5,117,386
3,690,505
    -
1,749,079
14,000,457
5,349,524
- Fixed Term
25,117,150
24,385,815
14,264,975
    -
5,109,848
68,877,788
56,531,796
- Gold
760,851
    -
    -
    -
    -
760,851
626,552
Securities
49,582,170
21,896,907
1,743,144
5,975,391
820,190
80,017,802
77,016,457
- Notes
42,683,501
20,244,635
115,070
    -
    -
63,043,206
57,015,615
- Brazilian Foreign Debt
    -
    -
    -
5,975,391
    -
5,975,391
11,812,790
- Under Foreign Management
818,723
1,652,272
1,628,074
    -
820,190
4,919,259
4,419,593
- Repurchase Operations
6,079,946
    -
    -
    -
    -
6,079,946
3,768,459
Agreements in Foreign Currencies
    -
    -
    -
    -
134,177
134,177
95,197
Forward Operations
3,377,294
459,453
1,523,394
    -
584,865
5,945,006
10,345,247
Contracted Operations - to be Settled
7,124,110
4,101,807
549,166
2,435,031
    -
14,210,114
7,837,827
Other
42,172
6
5
45,904
8,129
96,216
53,863
 
Total Foreign Assets
89,618,672
55,961,433
21,782,112
9,012,520
12,226,856
188,601,593
161,442,149
(*) The item “Other” includes, mainly: Cash in Japan; Fixed Term Deposits in Denmark, Sweden, Switzerland, Cayman and Norway;
Very Short Term deposits in Sweden and Switzerland; and, Securities under Foreign Management and Forward Operations in Switzerland.
 
 
As of June 30
Foreign Liabilities
Country or Geographic Area
Total
USA and Canada
European Union
United Kingdom
Brazil
Other (*)
2004
2003
International Monetary Fund - IMF
94,749,943
    -
    -
    -
    -
94,749,943
99,864,344
- Financial Assistance Program
79,244,356
    -
    -
    -
    -
79,244,356
86,173,773
- Deposits
13,863,472
    -
    -
    -
    -
13,863,472
12,241,887
- SDR Allocations
1,642,115
    -
    -
    -
    -
1,642,115
1,448,684
International Financial Agency Deposits
426,174
    -
    -
    -
    -
426,174
271,616
Brazilian Financing Plan
1,483,349
40
2
    -
11,077
1,494,468
1,758,333
Agreements in Foreign Currencies
    -
    -
    -
    -
121,530
121,530
150,063
Forward Operations
3,342,048
455,595
1,505,259
    -
571,024
5,873,926
10,469,468
Excess Long Positions
    -
    -
    -
4,346,771
    -
4,346,771
1,456,976
Repurchase Operations
9,159,764
    -
    -
    -
    -
9,159,764
3,769,392
Contracted Operations - to be Settled
9,386,617
4,109,765
550,307
176,072
    -
14,222,761
7,841,923
Other
133,548
296
755
937
8,345
143,881
125,152
 
Total Foreign Liabilities
118,681,443
4,565,696
2,056,323
4,523,780
711,976
130,539,218
125,707,267
(*) The item “Other” includes, mainly, Forward Operations in Switzerland.
 
 
f.    Operations broken down by counterpart
 
 
As of June 30
Foreign Assets
Counterparts
Total
Financial Institutions
Countries
Supranational Institutions
Other (*)
2004
2003
Treasury
Agencies
Cash
3,956,673
    -
    -
37,088
31,133
4,024,894
3,148,683
Monetary Gold
131,067
    -
    -
    -
403,221
534,288
437,003
Deposits
82,897,585
    -
    -
404,123
337,388
83,639,096
62,507,872
- Very Short Term
13,663,069
    -
    -
    -
337,388
14,000,457
5,349,524
- Fixed Term
68,473,665
    -
    -
404,123
    -
68,877,788
56,531,796
- Gold
760,851
    -
    -
    -
    -
760,851
626,552
Securities
10,179,015
67,995,489
78,340
1,764,958
    -
80,017,802
77,016,457
- Notes
    -
62,020,098
78,340
944,768
    -
63,043,206
57,015,615
- Brazilian Foreign Debt
    -
5,975,391
    -
    -
    -
5,975,391
11,812,790
- Under Foreign Management
4,099,069
    -
    -
820,190
    -
4,919,259
4,419,593
- Repurchase Operations
6,079,946
    -
    -
    -
    -
6,079,946
3,768,459
Agreements in Foreign Currencies
    -
    -
    -
    -
134,177
134,177
95,197
Forward Operations
5,830,886
    -
    -
114,120
    -
5,945,006
10,345,247
Contracted Operations - to be Settled
5,754,759
8,455,355
    -
    -
    -
14,210,114
7,837,827
Other
8,295
    -
6
41,998
45,917
96,216
53,863
 
Total Foreign Assets
108,758,280
76,450,844
78,346
2,362,287
951,836
188,601,593
161,442,149
(*) The category "Other" includes mainly Money Gold in BCB and Very Short Term Deposits with the Federal Reserve - FED.
 
 
As of June 30
Foreign Liabilities
Counterparts
Total
Financial Institutions
Countries
Supranational Institutions
Other
2004
2003
Treasury
Agencies
International Monetary Fund - IMF
    -
    -
    -
94,749,943
    -
94,749,943
99,864,344
- Financial Assistance Program
    -
    -
    -
79,244,356
    -
79,244,356
86,173,773
- Deposits
    -
    -
    -
13,863,472
    -
13,863,472
12,241,887
- SDR Allocations
    -
    -
    -
1,642,115
    -
1,642,115
1,448,684
International Financial Agency Deposits
    -
    -
    -
426,174
    -
426,174
271,616
Brazilian Financing Plan
1,483,391
    -
11,077
    -
    -
1,494,468
1,758,333
Agreements in Foreign Currencies
    -
    -
    -
    -
121,530
121,530
150,063
Forward Operations
5,762,760
    -
    -
111,166
    -
5,873,926
10,469,468
Excess Long Positions
4,346,771
    -
    -
    -
    -
4,346,771
1,456,976
Repurchase Operations
9,159,764
    -
    -
    -
    -
9,159,764
3,769,392
Contracted Operations - to be Settled
5,765,229
8,457,532
    -
    -
    -
14,222,761
7,841,923
Other
9,714
    -
    -
65,260
68,907
143,881
125,152
 
Total Foreign Liabilities
26,527,629
8,457,532
11,077
95,352,543
190,437
130,539,218
125,707,267
 
 
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 Law of Fiscal Responsibility, 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 for Settlement and Custody - SELIC (SELIC rate);
 
c.National Treasury Notes Series B - NTN-B: post-fixed yield defined by the National Consumer Price Index Broad - IPCA, and interest paid half-yearly;
 
d.National Treasury Notes Series F - NTN-F: discount-defined yield, with interests payable 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, on June 30 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 monthly from January 01, 2005, and repayment of principal, also in monthly installments, from January 1, 2009 to January 1, 2027.
 
BCB performs repurchase operations as an instrument of monetary policy in which the Bank sells securities from its portfolio with a commitment to resell by the purchaser, coupled with purchase operations of other securities, with a commitment to repurchase by the buyer. Operations contracted with free transaction of securities, the yield of which is previously established by the BCB in mutual agreement with financial institutions, recorded, in operations performed as of June 30, 2004, an average rate of 15.92% p.a.
 
The following is a description of the portfolio broken down by maturity term and form of valuation.
 
a.      Securities broken down by maturity
 
As of June 30
 
Term to Maturity (months)
Total
up to 6
7 to 18
19 to 30
31 to 42
> 42
2004
2003
Free
69,143,043
56,476,263
44,572,218
15,894,705
13,898,075
199,984,304
209,728,092
LTN
54,863,764
23,867,344
12,904,877
    -
    -
91,635,985
40,561,615
LFT
8,897,298
9,356,625
11,006,159
4,988,613
    -
34,248,695
91,251,154
LFT-B
888,302
1,112,027
196,050
9,234
    -
2,205,613
4,707,437
NTN-B
    -
    -
6,958,753
    -
1,291,446
8,250,199
    -
NTN-D
4,493,679
22,140,267
13,506,379
10,896,858
9,811,052
60,848,235
72,318,117
NTN-F
    -
    -
    -
    -
1,659,804
1,659,804
    -
NTN-P
    -
    -
    -
    -
5,736
5,736
5,261
CVS
    -
    -
    -
    -
1,130,037
1,130,037
884,508
 
Subject to Repurchase
17,981,803
45,515,256
27,669,572
    -
    -
91,166,631
60,712,323
LTN
3
32,803,960
    -
    -
    -
32,803,963
27,420,894
LFT
17,981,800
12,711,296
27,669,572
    -
    -
58,362,668
33,291,429
 
Guarantees for Swap Operations
2,644,860
4,093,317
3,405,887
    -
    -
10,144,064
28,717,478
LFT
2,644,860
4,093,317
3,405,887
    -
    -
10,144,064
28,717,478
 
Total Assets
89,769,706
106,084,836
75,647,677
15,894,705
13,898,075
301,294,999
299,157,893
 
NBC-E
8,421,222
6,846,437
9,046,088
    -
    -
24,313,747
36,900,500
 
Total Liabilities
8,421,222
6,846,437
9,046,088
    -
    -
24,313,747
36,900,500
 
 
 
b.      Securities broken down by method of assessment
 
As of June 30
 
2004
2003
Cost
Unrealized Gains and Losses
Accounting
Cost
Unrealized Gains and Losses
Accounting
Securities for trading
255,436,723
2,089,473
257,526,196
255,249,333
3,098,131
258,347,464
LTN
124,669,697
(229,749)
124,439,948
67,942,498
40,011
67,982,509
LFT
101,246,001
1,509,426
102,755,427
151,021,161
2,238,900
153,260,061
LFT-B
2,175,452
30,161
2,205,613
4,621,849
85,588
4,707,437
NTN-B
7,938,819
311,380
8,250,199
    -
    -
    -
NTN-D
15,692,770
1,392,398
17,085,168
29,894,345
1,618,604
31,512,949
NTN-F
1,790,031
(130,227)
1,659,804
    -
    -
    -
CVS
1,923,953
(793,916)
1,130,037
1,769,480
(884,972)
884,508
 
Securities held to maturity
43,768,803
4,483,318
43,768,803
40,810,429
2,111,056
40,810,429
NTN-D
43,763,067
4,483,318
43,763,067
40,805,168
2,111,056
40,805,168
NTN-P
5,736
    -
5,736
5,261
    -
5,261
 
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 first half of the year, considering mark-to-market adjustments, was positive by R$12,758,117 (in the first half of 2003 it was positive by R$23,236,393).
 
Note 6 -  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 Interbank 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 Unit Price of US$1 thousand
·   SC3, with daily financial adjustments and Unit Price of US$1 thousand
 
The following tables show the notional values of such operations, broken down by type of contract and maturity term:
                           
As of June 30
Term to Maturity (days)
Purchased
Total
SCC
SC2
SC3
2004
2003
a) 0 - 180
Notional Value
12,450,640
2,900,544
983,516
16,334,700
40,167,380
Adjustment to Market Value
    -
154,068
    -
154,068
(152,009)
b) 181 - 360
Notional Value
15,107,634
245,240
154,663
15,507,537
31,302,918
Adjustment to Market Value
    -
44,380
    -
44,380
44,129
c) 361 - 720
Notional Value
9,758,848
1,156,707
386,737
11,302,292
21,756,896
Adjustment to Market Value
    -
152,491
    -
152,491
244,010
d) More than 720
Notional Value
12,116,072
683,515
638,971
13,438,558
14,965,055
Adjustment to Market Value
    -
212,367
    -
212,367
243,275
 
Total
49,433,194
5,549,312
2,163,887
57,146,393
108,571,654
 
                        
As of June 30
Term to Maturity (days)
Sold
Total
SCC
2004
2003
a) 0 - 180
Notional Value
4,823,950
4,823,950
238,220
b) 361 - 720
Notional Value
    -
    -
4,129,474
 
Total
4,823,950
4,823,950
4,367,694
 
In the first half of the year the result of swap operations was negative by R$287,062 (in the first half of 2003 it was positive by R$15,550,311).
 
 
Note 7 - Credits and securities receivable
 
a.      Credits receivable
 
As of June 30
 
2004
2003
 
Balance
Provision
Balance
Provision
1) Institutions under Liquidation
23,003,042
(5,238,853)
25,668,316
(7,534,780)
Banco Nacional - Extrajudicial Liquidation
13,183,562
(3,641,719)
14,155,800
(5,282,391)
Banco Econômico - Extrajudicial Liquidation
5,774,926
    -
6,997,636
    -
Banco Bamerindus - Extrajudicial Liquidation
2,617,261
(703,633)
2,546,183
(967,956)
Banco Pontual - Extrajudicial Liquidation
607,089
(607,089)
752,005
(752,005)
Banco Mercantil - Extrajudicial Liquidation
203,645
    -
405,046
    -
Banco Banorte - Extrajudicial Liquidation
597,910
(267,763)
581,672
(302,454)
Banco Crefisul - Bankruptcy
    -
    -
90,012
(90,012)
Banco Banfort - Bankruptcy
    -
    -
117,832
(117,832)
Other
18,649
(18,649)
22,130
(22,130)
 
2) Other Credits
1,070,125
(7,491)
842,775
(7,607)
FCVS
1,057,062
    -
827,364
    -
- Cost
1,806,826
    -
1,662,476
    -
- Adjustment to market value
(749,764)
    -
(835,112)
    -
Other Operations
13,063
(7,491)
15,411
(7,607)
 
TOTAL ( 1 + 2 )
24,073,167
(5,246,344)
26,511,091
(7,542,387)
 
 
 
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.
 
With respect to the balances shown in the table, the following revenues occurred in the second half of 2003:
 
- Banco Econômico - Under Extrajudicial Liquidation - R$1,400,000;
- Banco Nacional - Under Extrajudicial Liquidation - R$1,350,000;
- Banco Mercantil - Under Extrajudicial Liquidation - R$210,000;
- Banco Pontual - Under Extrajudicial Liquidation - R$164,025.
 
Credits with the banks Crefisul (R$91,816) and Banfort (R$120,193), under bankruptcy procedures, were written off in the first half of 2004 and entered as Recorded Credit.
 
Changes in the provision account result from valuation of assets maintained by such institutions, whose remuneration indexes are above those of BCB credits (TR).
 
During July 2004, the following debt amortizations were received from institutions under extrajudicial liquidation, where payments by Banco Econômico and Banco Mercantil were made with funds resulting from redemption of federal government securities deposited with BCB (Note 11).
 
 
       
Date
Institutions under Liquidation
Amount
July 6
Banco Econômico - Extrajudicial Liquidation
500,000
July 13
Banco Nacional - Extrajudicial Liquidation
164,955
July 14
Banco Mercantil - Extrajudicial Liquidation
7,000
 
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, carried at present value.
 
As of June 30
 
2004
2003
Balance
Provision
Balance
Provision
Promissory Notes
237,485
    -
743,167
    -
- Cost
240,134
    -
794,380
    -
- Adjustment to present value
(2,649)
    -
(51,213)
    -
Other
187,647
(178,254)
170,194
(160,745)
 
Total
425,132
(178,254)
913,361
(160,745)
 
 

c.       Result
 
The result of operations with credits and promissory notes receivable was positive by R$346,815 (in the first half of 2003 it was positive by R$797,806), an amount which, added to the net revenue from reversal of provisions, gave a total positive result of R$1,687,260 (positive result of R$2,222,251 in the first half of 2003).
 
 
Note 8 - Operations with CENTRUS
 
As the result of the final court decision on the Direct Action of Unconstitutionality (ADIN) 449  (Note 9.d) the employees of BCB were included in 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.The 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 rate of yield of the assets of CENTRUS (12.95% in the first half of 2004 and 8.70% in the first half of 2003) and are recognized in the assets of BCB as “Funds Managed by CENTRUS”. In the first half of 2004, Centrus transferred to BCB part of its assets related to the reversal of a provision of R$217,073 made in 1996 in the context of a fiscal contingency.
 
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”.  On June 30, 2004 this provision showed a balance of R$171,798. According to Centrus information, released after the closing of its balance sheet, such provision shall decrease to about R$94,000, given the decline of the contribution rate, from 15% to 7.5%. The following assumptions were used in the calculation:
 
 
Interest rate
6% p.a.
Rate of contribution for retired employees
7.5% p.a.
Rate of contribution for the sponsor
7.5% p.a.
Actuarial tables
AT-2000, IAPC and Álvaro Vindas
Number of retired employees
1,090
 
 

Note 9 - 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 2,179-36 (see Note 3), 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 was 9.45% (3.95% in the first half of 2003).
 
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 June 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 Law of Fiscal Responsibility and Provisional Measure 2,179-36, any positive result determined by BCB after formation or reversal of reserves, constitutes an obligation of 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”, up to the date of the effective transfer or coverage.
 
On June 30, 2004, the balance to be transferred to the National Treasury, amounting to R$2,456,104 originated in the positive results of BCB for the first half of the year, including realization and constitution of reserves.
 
With respect to balances recorded in 2003, the following remarks apply:
Credit to be covered by the National Treasury (R$6,533,445) ‑ refers to a negative result in the second half of 2002, covered by the National Treasury on January 16, 2004 by issuing R$7,176,681 worth of federal government securities;
Result to be transferred to the National Treasury (R$24,185,980) – refers to a positive result of R$25,288,602 recorded in the first half of 2003 and transferred to the National Treasury on September 4, 2003.
 
d.      Settlement of Contributions - Law 9,650
By virtue of the judgment of the Direct Action of Unconstitutionality ‑ ADIN 449 and subsequent transfer of BCB employees to the Single Juridical Regime - RJU (Note 8), 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 9,650, of May 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 Government Severance Indemnity Fund for Employees - FGTS in the period from 1991 to 1996 should be refunded to BCB.
 
In June 2002, Provisional Measure 45 was issued, regulating such settlement of accounts and including the prospect of payment to employees of deposits made to FGTS in the period from 1991 to 1996. The measure also enabled the use of monetary restatement related to economic plans on FGTS balances in order to write values down due by employees as a result of rescissory action 8/94 - Regional Labor Court 10th Region (TRT) (Bresser Plan).
 
On November 13, 2002, the  Provisional Measure 45 was rejected by the National Congress, however the settlement of accounts involving Banco Central do Brasil, INSS and SRF and most part of the settlements between BCB and its employees had been effected during the time in which the Provisional Measure was in force. With the expiration of the constitutional term (March 17, 2003) for the publication of the legislative decree regulating the situation resulting from rejection of the Provisional Measure, the values, indices and form of payment used in the settlements were ratified, which permitted BCB to complete such arrangements and to regularize its accounting balances during the second half of 2003.
 
The table below shows the results of the account settlements:
 
 
 
As of June 30
ASSETS
2004
2003
LIABILITIES
2004
2003
Settlement of Contributions, Law 9,650
    -
598,050
Settlement of Contributions, Law 9,650
    -
243,307
Credits with PSS
297,845
    -
 
 
 
Credits with CEF (*)
35,784
    -
 
 
 
Credits with employees (*)
59,056
    -
 
 
 
(*) Values recorded under "Sundry Credits" in the group "Other Accounts" of Current and Long Term Assets - Domestic.
 
With respect to the 2004 balances, the following explanations apply:
 
a.The credit balance towards PSS has been offset, since January 2004, by the corporate contributions due by the Bank to the social security program;
 
b.From the credit balance towards 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 stopped, awaiting a court decision in an action brought by the employees’ trade union.
 
c.Credits towards employees are being collected 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. 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
 
As of June 30
 
Notes
2004
2003
Debit Balances
301,458,809
304,815,200
National Treasury Notes - NTN
69,190,423
70,704,774
National Treasury Financing Bills - LFT
103,421,453
155,643,010
National Treasury Bills - LTN
124,669,697
67,942,498
Securitized Credits - CVS
1,923,953
1,769,480
Wage Variation Compensation Fund - FCVS
1,806,826
1,662,476
Credit to be Covered by the National Treasury
    -
6,533,445
Judicial Deposits in the name of the National Treasury
    -
3,701
Remuneration of Federal Government Deposits, to be Transferred
116,512
    -
Settlement of Contributions - Law 9,650
    -
523,482
Credits with PSS
297,845
    -
PND - State Banks
5,549
7,727
Credits Subject to Refunds
26,551
24,575
Taxes and Contributions to be Recovered
    -
32
 
Credit Balances
141,908,446
154,893,036
Compulsory Federal Government Deposits
138,874,187
129,975,699
Result to be Transferred to the National Treasury
2,456,104
24,185,980
Settlement of Contributions - Law 9,650
    -
230,731
Remuneration of Federal Government Deposits, to be Transferred
512,476
452,107
Deposits in Foreign Currencies - Paris Club
 
11,077
9,861
Funds Linked to Administration of Foreign Debt Guarantees
 
15,538
14,360
Deposits Resulting from Court Decisions
 
9,930
9,661
Monetary Reserve Available
 
    -
1
Taxes and Contributions to be Collected
 
29,134
14,636
Note: the above values do not consider adjustment to market and/or present values and provisions.
 
f.        Financial Flow with the National Treasury
 
 
1st Half of 2004
1st Half of 2003
Federal Government Securities
8,471,578
(4,858,941)
Acquisition
(65,767,430)
(62,164,631)
Redemption
70,096,922
52,698,722
Interests
4,142,086
4,606,968
 
Other Amounts Collected
(16,624,216)
(4,744,203)
Cash Remuneration
(11,122,605)
(4,744,203)
Transference of the Result - 2nd Half of 2003
(5,501,611)
    -
 
Transference under Budget Law
279,558
262,758
 
Net Financial Flow
(7,873,080)
(9,340,386)
Note: Includes solely transactions in the account Compulsory Federal Government Deposits resulting from asset and liability operations of BCB.
 
The result of operations with the National Treasury (cash and results) was negative by R$11,619,980 (in the first half of 2003 it was negative by R$4,557,524).
 
 
Note 10 - Deposits of financial institutions
 
Deposits of financial institutions with Banco Central do Brasil (BCB) comprise mainly mandatory reserve deposits, the main purpose of which is 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 based on the balances of:
 
a.Demand deposits - deposited in cash and without remuneration. The rate was changed from 60% to 45% in August 2003;
 
b.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.Judicial deposits - deposited in government securities registered at SELIC, extinguished since May 2004, by gradual reduction of liabilities (25% of the positions in January, 50% in February and 75% in March 2004).
 
d.Term deposits - deposited in government 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$3,108,892 (in the first half-year of 2003 it was R$4,459,023).
 
 
Note 11 - 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 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 7.a).
 
 
Note 12 - Provisions for lawsuits in course and court order debts to be paid
 
a.      Provision for Legal Actions
 
During 2003, Banco Central do Brasil 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.
 
The current BCB legal actions control system is under implementation, while the BCB accounting procedures are undergoing an adjustment to international standards. Such actions are expected to be completed by the end of the current year. As a result, in the first half of 2004, the number of lawsuits in course was not updated and only the value of provisions was restated, considering the inflation measured by IPCA-E in the period.
 
The table below shows the distribution of lawsuits in which the Bank is a party, according to the nature of the cause:
 
 
 
 

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
Government 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 as 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 proceedings;
- due: amount ratified by the court or accepted by 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 provision at June 30, 2004 (2,505,928) refers to 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 206048, published in the Court Journal of October 19, 2001, and STF Digest 725) and the Higher Court of Justice - STJ (Special Appeal (REsp) 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 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 BCB is being considered as an illegitimate party 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.
 
With respect to Deposits Linked to Interposition of Appeals, the balance on June 30, 2004 (R$406,063) refers to deposits made by BCB to the order of the appropriate Court with a view to interposition of appeal or general rescissory action.
 
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.
 
Under Article 28 of Law 10,524/2002 (Budget Guidelines – LDO 2003) and Article 24 of Law 10,707/2003 (LDO 2004), budget provisions passed by the current budget law to cover payments of debts resulting from court decisions beyond appeal would be totally decentralized to courts, which would apply for the funds and make the corresponding payments directly to the prevailing party.
 
Given that budget and financial resources do not flow through BCB any longer and that the responsibility to pay belongs to the applicant courts, liabilities related to Court Order Debts payable in 2004 were written off in the first half of 2004. The balance on June 30, 2004 (R$440,274) refers to Court Order Debts provisioned up to the fiscal year 2004, to be paid from 2005 onwards.
 
 
Note 13 - Money supply
 
The money supply represents the balance of paper money and coins in circulation, held by public and financial institutions, recorded at face value.
 
The breakdown of bank bills and coins by denomination in circulation is shown below:
 
As of June 30
 
2004
2003
Quantity (Units)
In R$(000)
Quantity (Units)
In R$(000)
Bank Notes
2,570,507,022
45,440,779
2,297,879,928
37,670,084
R$1.00
676,671,891
676,672
714,172,727
714,173
R$2.00
237,857,710
475,715
158,471,568
316,943
R$5.00
216,477,096
1,082,386
194,670,339
973,352
R$10.00
640,047,677
6,400,477
612,782,868
6,127,829
R$20.00
135,144,690
2,702,894
72,998,679
1,459,973
R$50.00
646,563,205
32,328,160
528,011,210
26,400,560
R$100.00
17,744,753
1,774,475
16,772,537
1,677,254
 
Coins
9,202,242,589
1,204,149
8,322,866,816
1,127,915
R$0.01
3,019,206,602
30,192
2,833,729,485
28,337
R$0.05
2,081,546,490
104,077
1,853,135,213
92,657
R$0.10
2,205,648,361
220,565
1,933,950,110
193,395
R$0.25
877,929,675
219,483
739,632,802
184,908
R$0.50
776,158,152
388,079
667,603,166
333,802
R$1.00
241,753,309
241,753
294,816,040
294,816
 
Commemorative Coins
691
 
576
 
TOTAL
 
46,645,619
 
38,798,575
 
The money supply on June 2004 showed nominal growth of 20.2% in comparison with the same date of the previous year. Discounting the inflation of 6.1% measured by IPCA, there was real growth of 13.4% over the period. The figures reflect the process of economic upturn started in the second half of 2003, triggered by the reduction in the interest rate over the past twelve months. The impact of this expansion in money supply tends to consolidate to the extent that recoveries in employment and wages increase consumption.
 
 
 
Note 14 - 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  fiscal year 1987, corrected up to December 1995 by inflation indexes;
 
b.Contingency Reserves, constituted under Article 2, Paragraph 3, of Provisional Measure 2,179-36, totaled R$4,327,548, for the purpose of reducing redemption of securities in the portfolio of BCB and, consequently, maintaining an adequate situation for executing the monetary policy;
 
c.Revaluation Reserve, resulting from reassessment of fixed assets (Note 3.h) and their realization.
 
Note 15 - 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 working day subsequent to approval of the half-year balance sheets.
 
Paragraph 1. The negative results will constitute a Treasury liability to 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 2,179-36, this negative result shall be paid not later than the tenth working 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.
 
BCB recorded a surplus of R$2,108,762 in the first quarter, and R$686,938 in the second quarter, totaling a positive result of R$2,795,700 in the half year, which, after constitution and realization of reserves, will be transferred to the National Treasury not later than the tenth working 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$4,760,784 in the first quarter of 2004, and R$6,718,206 in the second quarter (R$11,478,990 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 the liabilities of BCB.
 
 
International Reserves
Average Cost of Liabilities
Cost of Maintenance of International Reserves
Average Balance
Yield
(R$ 000)
(%)
(%)
(%)
(R$ 000)
1st Quarter
152,148,937
0.9
2.3
(1.4)
(2,164,166)
2nd Quarter
160,284,623
5.4
3.8
1.6
2,596,130
1st Half Year
156,216,780
6.5
6.2
0.3
431,964
 
In the second quarter, with an average daily balance of R$160,284,623, the international reserves recorded a positive yield of 5.4%. Excluding the average cost of liabilities of 3.8%, the net result of reserves was positive by 1.6% (R$2,596,130).
 
d.      Yield of the  securities portfolio of BCB, with an emphasis on Government issued securities - Supplementary Law 101, Article 7, Paragraph 3:
 
 
 
 
Revenues
Expenses
Result
First Quarter
13,040,068
(3,968,765)
9,071,303
Government Securities
12,661,906
(2,557,843)
10,104,063
Banco Central Securities
378,162
(1,410,922)
(1,032,760)
 
Second Quarter
17,310,023
(7,569,489)
9,740,534
Government Securities
17,111,011
(4,897,593)
12,213,418
Banco Central Securities
199,012
(2,671,896)
(2,472,884)
 
Total of the Semester
30,350,091
(11,538,254)
18,811,837
Note: From June 2004 onwards, in view of a change in criteria for classification of operations, "Government Securities"
include revenues and expenditures with Repurchase Operations - Freely Transacted.
 
In the second quarter, the positive result was due, largely, to the following factors:
 
I - Government Securities - the result of operations with government securities was positive by R$12,213,418 due mainly to monetary and foreign exchange revaluation;
 
II - BCB Securities - the net result from its own securities was negative by R$2,472,884 and resulted from foreign exchange revaluation and expenses with NBC interest.
 
 
Note 16 - 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. 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 Board of Governors of Banco Central do Brasil authorized the hiring of an actuarial firm, according to invitation to bid Demap 001/2004, published in Section 3, Federal Official Gazette - DOU, of July 15, 2004, to calculate the real value of liabilities. The corresponding provision is to be made as soon as the amount of the obligation becomes known.
 
b.      Approval and Disclosure
 
The financial statements of Banco Central do Brasil were approved by the National Monetary Council - CMN on August 26, 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