The Brazilian government's actions to maintain economic stability and public speculation about possible future actions may contribute significantly to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.

Brazil has historically experienced extremely high rates of inflation. Inflation, along with governmental measures to combat inflation, have had significant negative effects on the Brazilian economy in general. Beginning in December 1993, the Brazilian government introduced an economic stabilization plan called the Real Plan. The primary objectives of the Real Plan were to reduce inflation and build a foundation for sustained economic growth.

On July 1, 1994, the Brazilian government introduced the new currency, the real. Since the introduction of the real, Brazil's inflation rate has been substantially lower than in previous periods. The annual rates of inflation, as measured by the National Consumer Price Index, Índice Nacional de Preços ao Consumidor, were:

Year		Rate of Inflation
1993		2,489.1%
1994		929.3%
1995		22.0%
1996		9.1%
1997		4.3%
1998		2.5%
1999		8.4%
2000		5.3%

Brazil may experience high levels of inflation in the future. We cannot assure you that recent lower levels of inflation will continue. Future governmental actions, including actions to adjust the value of the real, may trigger increases in inflation. Accordingly, periods of substantial inflation may in the future have material adverse effects on the Brazilian economy, the Brazilian financial markets and on our business, financial condition and results of operations.


Electric power shortages currently faced by Brazil could adversely affect us.

Brazil is currently faced with demands for electricity that may exceed capacity. Installation of new power plants in recent years has not been sufficient to meet growing demand. Compounding this problem, summer rainfall was below normal and left many reservoirs below normal levels, diminishing sources of hydroelectric power. The Brazilian government is considering various alternatives for rationing energy consumption that may include periodic interruption of electrical supply. The government commission established to handle the energy crisis, the Câmara de Gestão da Crise de Energia Elétrica, is still revisiting some of the measures established in the Interim Resolution No. 2.148-1, dated May 22, 2001, which replaced Interim Resolution No. 2.147 of May 15, 2001, and sets the conditions under which the Câmara de Gestão da Crise de Energia Elétrica shall handle rationing of energy. This commission has the power to rule and manage the crisis by issuing resolutions.

Embratel is subject to the energy rationing resolutions set forth by the Câmara de Gestão da Crise de Energia Elétrica. According to the currently passed resolutions, the energy consumption should individually be limited to 80% of the average amount of energy consumed during the months of May, June and July of 2000, by each consumer. It is important to observe that the resolutions passed by the Câmara de Gestão da Crise de Energia Elétrica are under constant review, and such percentage of maximum consumption per consumer may be changed at any time. In addition, we and certain other the telecommunications services companies operating in Brasil requested the Brazilian Telecommunications Ministry and the Câmara de Gestão da Crise de Energia Elétrica to classify our activities as "essential services" under such energy rationing resolutions. In case we are granted such special classification, and according to the current rules on this issue, we will be subject to energy rationing based on 90% of the average amount of energy we consumed during the months of May, June and July of 2000. There is no assurance that we or any of the other telecommunications services companies operating in Brazil requesting such special treatment with respect to the energy rationing rules will obtain the relief sought.

We are also taking measures to ensure that telecommunications services we provide will not be disrupted owing to any prolonged disruption in power. Most of our network locations are equipped with emergency power generation equipment that is designed to ensure continuity of service. Such systems are supported by fuel storage tanks and can run for extended periods of time. Our network facilities operate using direct current with uninterrupted power supplies. These systems allow for smooth transitions between power from electrical utilities to the power backup systems. Additionally, we have portable power generators distributed strategically throughout the country that can be deployed to areas of need. We conduct routine tests of these power backup systems to ensure readiness for incidents of power disruption.


Fluctuations in the value of Brazil's currency against the value of the U.S. dollar may result in uncertainty in the Brazilian economy and the Brazilian securities market, which may adversely affect our financial condition and results of operations and, consequently, the market value of the preferred shares and ADSs.

As a result of inflationary pressures, the Brazilian currency has been devalued periodically during the last four decades. Throughout this period, the Brazilian government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Although over long periods, devaluations of the Brazilian currency generally have correlated with the rate of inflation in Brazil, devaluations over shorter periods have resulted in significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies.

Devaluations of the real and continued currency instability could affect our ability to meet our foreign currency obligations in the future and result in a monetary loss relating to this indebtedness. See "Item 11. Quantitative and Qualitative Disclosures About Market Risk" for information about our hedging policy.

In addition, fluctuations in the value of the real relative to the U.S. dollar can affect the market value of the ADSs. Devaluation may reduce the U.S. dollar value of distributions and dividends on the ADSs and may also reduce the market value of the preferred shares and the ADSs.


Restrictions on the movement of capital out of Brazil may hinder your ability to receive dividends and distributions on, and the proceeds of any sale of, the preferred shares.

The Brazilian government may impose temporary restrictions on the conversion of Brazilian currency into foreign currencies and on the remittance to foreign investors, such as yourself, of proceeds from your investments in Brazil. Brazilian law permits the government to impose these restrictions whenever there is a serious imbalance in Brazil's balance of payments or reasons to foresee a serious imbalance.

Government restrictions on capital outflow may hinder or prevent the Custodian in Brazil, or you if you have exchanged your ADSs for the underlying preferred shares, from converting the proceeds relating to the preferred shares into U.S. dollars and remitting those proceeds abroad. You could be adversely affected by delays in obtaining any required governmental approval for conversion of Brazilian currency payments and remittances abroad in respect of the preferred shares underlying the ADSs. In addition, the Brazilian government may institute a more restrictive exchange control policy in the future. See "Item 10. Additional Information - Taxation - Brazil".


Our creditors may be unable to attach certain of our assets to secure a judgment.

Brazilian courts will not enforce any attachment with respect to property located in Brazil and determined by the court to be dedicated to the provision of essential public services. A substantial portion of our assets may be considered to be dedicated to the provision of an essential public service. If a Brazilian court were to make such a determination with respect to certain of our assets, those assets would not be subject to attachment, execution or other legal process and our creditors may not be able to realize a judgment against our assets.


Developments in other emerging market countries may affect the market price of the preferred shares and the ADSs.

Securities of Brazilian companies have been, to varying degrees, influenced by economic and market conditions in other emerging market countries. Although economic conditions are different in each country, investors' reactions to developments in one country may affect the securities of issuers in other countries, including Brazil. Since the fourth quarter of 1997, the international financial markets have experienced significant volatility, and a large number of market indices, including those in Brazil, have declined significantly. For example, the Asian economic crisis and the 1998 Russian debt moratorium and devaluation of the Russian currency triggered market volatility in Latin America and other emerging market countries' securities markets. The market value of the preferred shares and ADSs may be adversely affected by events elsewhere, especially in emerging markets.


Our financial statements may not give you the same information as financial statements prepared under U.S. accounting rules.

Publicly available information about public companies in Brazil is generally less detailed and not as frequently updated as the information that is regularly published by or about listed companies in the United States and certain other countries. In addition, although we are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the periodic disclosure required of foreign issuers under the Exchange Act is more limited than the periodic disclosure required of domestic U.S. issuers. We prepare our consolidated financial statements in accordance with Brazilian Corporate Law, which differs in significant respects from U.S. GAAP.