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### Viewing cable 07SAOPAULO639, FIESP AND CIESP HEAL RIFT, UNANIMOUSLY ELECT PAULO SKAF

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07SAOPAULO639 | 2007-07-30 17:31 | 2011-07-11 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Sao Paulo

`

    VZCZCXRO6189
    RR RUEHRG
    DE RUEHSO #0639/01 2111731
    ZNR UUUUU ZZH
    R 301731Z JUL 07
    FM AMCONSUL SAO PAULO
    TO RUEHC/SECSTATE WASHDC 7284
    INFO RUEHBR/AMEMBASSY BRASILIA 8389
    RUEHRG/AMCONSUL RECIFE 3692
    RUEHRI/AMCONSUL RIO DE JANEIRO 8222
    RUEHBU/AMEMBASSY BUENOS AIRES 2809
    RUEHAC/AMEMBASSY ASUNCION 3061
    RUEHMN/AMEMBASSY MONTEVIDEO 2390
    RUEHSG/AMEMBASSY SANTIAGO 2096
    RUEHLP/AMEMBASSY LA PAZ 3419
    RUCPDOC/USDOC WASHDC 2857
    RUEATRS/DEPT OF TREASURY WASHDC
    RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC
    RUEHC/DEPT OF LABOR WASHDC

` `

    UNCLAS SECTION 01 OF 04 SAO PAULO 000639

    SIPDIS

    SENSITIVE
    SIPDIS

    NSC FOR TOMASULO
    STATE PASS USTR FOR KDUCKWORTH
    DEPT OF TREASURY FOR JHOEK
    USDOC FOR 4332/ITA/MAC/WH/OLAC
    USDOC ALSO FOR 3134/USFCS/OIO
    STATE PASS EXIMBANK
    STATE PASS OPIC FOR DMORONSE, NRIVERA, CMERVENNE

    E.O. 12958: N/A
    TAGS: ECON ELAB ETRD EFIN EIND BR
    SUBJECT: FIESP AND CIESP HEAL RIFT, UNANIMOUSLY ELECT PAULO SKAF
    PRESIDENT OF BOTH SAO PAULO INDUSTRIAL ASSOCIATIONS

    SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY

    ¶1.  (U) SUMMARY:  The Sao Paulo State Federation of Industries
    (FIESP) almost unanimously reelected Paulo Skaf to a four-year term
    as President.  The Sao Paulo State Industry Center (CIESP) also
    overwhelmingly chose Skaf to lead it, ending a three-year breach
    between the two organizations.  Skaf's election had the support of
    122 out of 124 FIESP sectoral employer associations and 97 percent
    votes of CIESP-affiliated small and medium-sized industrial
    companies.  Skaf is convinced that a minimum agenda for Brazil's
    development should include structural adjustments that cannot be
    postponed any longer.  The agenda specifies fiscal and tax reform
    that will lower public debt and reduce the tax burden on the
    productive sector, reduce interest rates drastically, increase
    infrastructure investments, and expand exports in a sustained
    manner.  Skaf expressed concern about the risk of repeat blackout in
    the absence of adequate investment for electric generation.  FIESP
    is preparing a plan to produce energy from an alternative source
    within two to three years.  This energy is expected to come from
    abundant sugar cane bagasse available at the sugar and alcohol
    mills.  Pressure from FIESP will continue on the Lula administration
    for the implementation of a developmental policy not only of
    interest to the productive sector but also to the society as a
    whole.  End Summary.

    BACKGROUND
    ----------

    ¶2.  (U) Sao Paulo's powerful industrial associations, which account
    for more than 40 percent of Brazil's industrial production and
    nearly 34 percent of the country's GDP, are represented by two
    bodies, FIESP and CIESP.  The organizations have a symbolic
    relationship, sharing the same board of directors, support staff,
    and building.  FIESP, a federation of 124 sectoral employer
    associations founded in 1942, is the most influential industrial
    organization in the country and is active in lobbying the GoB and
    the Brazilian Congress to advance members' interests.  FIESP also
    acts as the bargaining agent for management in virtually all
    sectoral labor negotiations.  FIESP's budget for 2007 is estimated
    at USD 500 million, contributed by the sectoral employer
    associations.  These funds also maintain and run two
    industry-sponsored organizations: the National Industrial
    Apprenticeship Service (SENAI), an educational organization for the
    training, development and specialization of both semi-skilled and
    skilled workers; and the Social Welfare Services (SESI) for industry
    workers and supplementary health and education services for workers
    and their families.

    ¶3.  (U) The SENAI-SP system's 150 units enroll 700,000 students a
    year.  These students get free training in 45 technical-level
    careers and 31 Industrial Apprenticeship courses.  The system also
    maintains four college-level courses, as well as continuing-studies
    courses in the fields of graphics, mechatronics, fashion, and the
    environment.  The SESI-SP system includes 215 schools that boast an
    enrollment of 190,000 students.  It also promotes the so-called
    "Global Action" initiative in partnership with Globo TV Network and
    the Roberto Marinho Foundation.  SESI-SP health services include
    dental clinics, doctors' offices, infirmaries, laboratories and
    mobile units.  SESI manages programs on "School Health" and "Company
    Health."  It also promotes workers safety, health and rehabilitation
    activities.

    ¶4.  (U) CIESP, founded in 1928, has over 9,600 affiliated small and
    medium-sized industrial companies.  With an annual budget of about
    USD 35 million, CIESP operates 42 regional offices that provide
    associates with services in the areas of foreign trade, social
    responsibility, technology, and infrastructure.  CIESP also provides
    regional support, legal advice and technical assistance to its
    member companies.

    HISTORIC VOTING AND REUNIFICATION OF FIESP AND CIESP

    SAO PAULO 00000639  002 OF 004

    --------------------------------------------- --------

    ¶5.  (U) On May 29, Paulo Skaf, 50, was re-elected President of the
    Federation of Industries of the State of Sao Paulo (FIESP) and
    elected for his first term as President of the Sao Paulo Industry
    Center (CIESP) from 2007 to 2011.  His new term will begin on
    September 28.  This time Skaf will serve as President for both of
    Sao Paulo's most important industrial bodies after three years of
    unprecedented internal mistrust and separation.  Skaf's election was
    not challenged by any other candidate for the job.  FIESP'S
    Electoral College, consisting of 124 sectoral employer associations,
    voted almost unanimously for Skaf, giving him 96.7 percent of valid
    votes.  His victory in CIESP was even stronger, with 3,659 company
    votes representing 99 percent of total valid votes.  Although FIESP
    and CIESP conduct separate elections with different sets of
    electors, the two have always elected the same President, the only
    exception being in 2004.

    ¶6.  (U) Traditionally, the voting has been pro-forma, ratifying a
    single, agreed candidate for President of both entities.  However,
    in 2004, the two associations elected potentially antagonistic
    leadership.  Paulo Skaf, who at that time was friendly to the Lula
    administration, was elected to head FIESP, while Claudio Vaz,
    favored and supported by the most of the business elite, was elected
    president of CIESP, thus dividing the leadership and weakening the
    voice of Sao Paulo industry.  Friction between the two entities was
    such that for a time, post was unable to organize meetings involving
    both groups and had to engage with each separately.  However, in the
    course of the past three years, the business community as a whole
    concluded that Skaf had been working assiduously in defense of the
    industrial sector by leading a movement to meet the expectations of
    the productive sector.  Skaf expressed concern about the heavy tax
    burden, high interest rates on borrowed money, an unfavorable
    exchange rate, and an unresponsive bureaucracy.  The current
    president of CIESP, Claudio Vaz, congratulated Skaf on his
    impressive electoral victory and emphasized "the level of maturity
    that both associations had gained" in the course of past three
    years, and that the convergence around the name of Skaf for his next
    term is vital for industry.  "There isn't room for controversy or
    division.  Skaf conquered the trust of the business community,"
    observed Vaz.

    ¶7.  (U) FIESP is the more significant of the two associations.  Like
    the industrial federations of other Brazilian states, FIESP, in
    theory, is part of, and subordinated to, the Brazilian National
    Confederation of Industries (CNI).  In practice, however, FIESP,
    which includes companies representing forty percent of half of
    Brazil's Industrial production and thirty-six percent of the
    country's GDP, is the most influential industrial representative
    body in Brazil.

    THE SHAPE OF THINGS TO COME
    ---------------------------

    ¶8.  (U) Paulo Skaf, 50, the self-made son of a Lebanese immigrant
    was former President of the Brazilian Textile Industry and Garments
    Association (ABIT).  He said that his reelection with unanimous
    support from both FIESP and CIESP members strengthens his hand to
    pressure the GOB to adopt a tax policy that encourages instead of
    hindering economic growth and productive activities.  He said that
    the true and effective solution to taxation problem is a
    wide-ranging reform of the tx system, one that includes key fiscal
    issues.  Government expenditures are growing faster than government
    revenue.  It is up to the population to define what they expect the
    state to do, how large it will be, how much it will cost, and how it
    will be financed.

    ¶9.  (U) Skaf is convinced that a minimum agenda for development
    should include four structural adjustments that may not be postponed
    any longer: (1) fiscal and tax reform that will lower public debt
    and reduce the tax burden on the productive sector; (2) A credit

    SAO PAULO 00000639  003 OF 004

    policy that includes lowering interest rates drastically; (3)
    infrastructure improvement; and (4) A trade policy that may increase
    exports in a sustained manner.  Skaf also referred to a study by
    FIESP that increased his concern about the public debt, fiscal and
    tax issues.  He noted that the GOB collects almost 40 percent of
    everything the Brazilians are able to produce.  The usual
    explanation the government authorities is that "we're preserving the
    primary surplus."  He said that since 1995 the public debt jumped
    from 30 percent to more than 50 percent of GDP.  More serious still,
    expenses continued expanding at a 5.5 percent yearly rate.

    ¶10.  (U) According to Skaf, infrastructure is one of Brazil's
    bottlenecks and the freight transportation system, such as it stands
    today, generates significant economic and competitiveness losses and
    increases the so called "Brazil Cost."  He said it was imperative
    that the country must urgently invest in ports, railroads, and
    terminals.  These investments would reduce operating costs and boost
    efficiency, making Brazilian exports more competitive and cheaper in
    foreign markets.  He warned about the risk of a repeat "blackout" in
    the absence of investment for electricity generation, transmission
    and distribution.  According to FIESP estimates, Brazil needs to add
    between 6 percent and 7 percent to its energy matrix every year in
    order to be able to adequately promote growth.

    ¶11.  (U) In a visit to Washington earlier this year, Skaf said that
    the protection of IPR is in Brazil's interest.  According to him,
    the Brazilian economy is a "victim" of thousands of illegal and
    counterfeit products.  Imports of Chinese products, besides their
    artificially lower prices, often disrespect internationally
    established brands and patents.

    CHALLENGES
    ----------

    ¶12.  (U) Addressing the FIESP audience after the reelection victory,
    Skaf said that it will be up to the Brazilians to decide what kind
    of a future awaits not only them but their children.  It goes
    without saying that to consistently achieve public account
    surpluses, control inflation, honor both domestic and external debt
    payment schedules, and keep commitments made to multilateral credit
    organizations are all essential.  However, a country that boasts the
    fifth largest population in the world cannot afford to assess
    economic performance only on the basis of tables and numbers that
    relate to some index oscillation or the other.  "We need to reach
    for more, much more, and correct past mistakes as well as economic
    policy concepts that both the past and the current Brazilian
    administrations have stubbornly held," concluded Skaf.

    ¶13.  (U) Skaf said he will provide the federal and state governments
    with a proposal to intensify investments in alternative sources of
    energy to avoid a crisis in 2010.  The plan consists of increasing
    investments in the production of energy from sugarcane bagasse
    collected from sugar and alcohol mills.  Skaf believes that in two
    or three years, this source could produce double the amount of
    energy then that expected to be produced by the two hydro energy
    plants projected to be built on Madeira river.  These hydro plants
    are expected to become operational only in 2012.  FIESP President's
    plan would cost around USD 5 to 6 billion and he believes he can
    mobilize the business community to make these investments provided
    the GOB would provide tax incentives.

    COMMENT
    -------

    ¶14.  (SBU) Skaf earned a second four-year term after uniting FIESP
    and CIESP into a single body as was the case before 2004.  He
    received unprecedented support from the business community as a
    whole and also from the outgoing President of CIESP, who
    acknowledged Skaf's resourcefulness and ability to defend the
    country's productive sector.  He's been given a mandate to continue
    pressuring the federal government to announce a development agenda

    SAO PAULO 00000639  004 OF 004

    to establish an efficient credit policy to finance both businesses
    and the consumer, as the economy's major source of fuel.  His
    critical posture in FIESP is expected to be more politically
    oriented in defense of not only the industry but also of the society
    in general.

    ¶15.  (U) This cable was coordinated with Embassy Brasilia.

    HELLING

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