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### Viewing cable 08BRASILIA469, SCENESETTER FOR POLICY PLANNING DIRECTOR GORDON

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08BRASILIA469 | 2008-04-04 18:11 | 2011-07-11 00:00 | CONFIDENTIAL | Embassy Brasilia

`

    VZCZCXRO3923
    OO RUEHRG
    DE RUEHBR #0469/01 0951811
    ZNY CCCCC ZZH
    O 041811Z APR 08
    FM AMEMBASSY BRASILIA
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 1362
    INFO RUEHAC/AMEMBASSY ASUNCION 6687
    RUEHBO/AMEMBASSY BOGOTA 4508
    RUEHBU/AMEMBASSY BUENOS AIRES 5414
    RUEHCV/AMEMBASSY CARACAS 4033
    RUEHLP/AMEMBASSY LA PAZ 6087
    RUEHMN/AMEMBASSY MONTEVIDEO 7296
    RUEHSG/AMEMBASSY SANTIAGO 0241
    RUEHRG/AMCONSUL RECIFE 7876
    RUEHRI/AMCONSUL RIO DE JANEIRO 5985
    RUEHSO/AMCONSUL SAO PAULO 1852
    RUEKJCS/SECDEF WASHDC
    RHEHNSC/NSC WASHDC
    RUEAIIA/CIA WASHDC

` `

    C O N F I D E N T I A L SECTION 01 OF 09 BRASILIA 000469

    SIPDIS

    SIPDIS

    STATE FOR WHA AND WHA/BSC

    E.O. 12958: DECL: 04/04/2018
    TAGS: PREL PGOV ECON BR
    SUBJECT: SCENESETTER FOR POLICY PLANNING DIRECTOR GORDON

    REF: BRASILIA 00369

    Classified By: Ambassador Clifford M. Sobel. Reasons: 1.4 (B) & (D)

    ¶1. (C) Summary:  The relationship between the United States
    and Brazil is as productive and broad-based as it as ever
    been, the result of the excellent relationship between
    President Bush and President Luiz Inacio Lula da Silva, new
    cooperation mechanisms on biofuels, business issues, and
    economic matters, and our shared goals of fostering
    hemispheric stability, promoting democracy, developing a
    consensus on next steps regarding climate change, and
    achieving a mutually satisfactory conclusion to the Doha
    round of WTO negotiations.  At the same time, U.S.-Brazil
    cooperation is often limited by the GoB's unwillingness to
    speak out against anti-democratic actions in the hemisphere
    (Venezuela and Cuba), take proactive steps to address key
    issues such as nuclear proliferation and counterterrorist
    concerns, and expand its international leadership in
    meaningful ways.  End Summary.

    ----------------------------------
    Lula Popular, But What Comes Next?
    ----------------------------------

    ¶2. (C) With a 67 percent approval rating, President Lula is
    more popular than at any other point since he took office in
    ¶2003.  Continuity and legacy are the guiding lights of Lula's
    second term.  Lula continues to shape his legacy as a friend
    of the poor and builder of a foundation for prosperity for
    the lower and middle classes through broad social welfare
    programs and a vast, new economic growth program of public
    works and growth incentives.  At the same time, Lula has
    failed to promote needed reforms to abolish a political
    culture of corruption, clientelism, and spoils.  Although a
    seemingly endless series of corruption scandals has not
    dented his personal popularity or that of his government,
    these scandals have felled political allies, including
    cabinet ministers, in recent years.

    ¶3. (U) President Lula and his economic team,s prudent fiscal
    and monetary policies and reform efforts are a major reason
    for his popularity, and have resulted in Brazil,s position
    as the tenth largest economy in the world, with a trade
    surplus and BB-plus credit rating.  Annual GDP growth was
    approximately 4.5 for 2007, as was inflation.  Buoyed by
    exports and investment inflows, Brazil's currency, the Real,
    has remained strong, and the government has succeeded in
    paying down its external debt.  However, there are major
    structural challenges to long term growth.  Real interest
    rates are among the highest in the world.  The informal
    sector constitutes an estimated 40 percent of the economy, in
    part due to the tax burden (34.2 percent of GDP in 2006), one
    of the highest among large developing economies.  Brazil,s
    opaque and onerous regulatory and legal system, as well as
    poor transport and other infrastructure, continue to
    constrain growth.

    ¶4. (C) Lula is concerned with finding an electable successor
    for 2010, and appears to be grooming his top domestic policy
    adviser, Minister Dilma Rousseff, while keeping other options
    open.  Attention in the media and among the political elite
    is already focused on the race; the opposition governor of
    Sao Paulo state and former presidential candidate, Jose
    Serra, currently leads the pack of possible candidates.

    ¶5. (U) Despite a healthy economy and a slight drop in
    homicides registered over the past several years, public
    opinion polls consistently show that the top concerns for
    Brazilians continue to remain public security and lack of
    jobs.  These are normally followed by quality of health care
    and education, corruption, low wages, and lack of
    opportunities for youth.  These will likely remain issues
    heading into the municipal elections later this year, and
    into the 2010 presidential elections.

    --------------------------------------------- --------
    Foreign Policy: Hesitant Globally; Cautious Regionally

    BRASILIA 00000469  002 OF 009

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

    ¶6. (C) Brazil's foreign policy is dominated by symbolic steps
    to burnish its South-South credentials and status as an
    emerging leader, rather than by resolute attention to core
    political and economic interests, including strengthening
    bilateral political and trade relations with the United
    States.  The attainment of a permanent seat on the UN
    Security Council has been a central tenet of Brazil's foreign
    policy under President Lula da Silva's government, and most
    of its actions on the international stage are geared toward
    that goal.  However, Brazil has largely failed to assume the
    international leadership role that would make it a strong
    candidate for such a position.  Brazil's latest two-year
    stint on the UNSC, which ended in January 2006, was
    characterized by caution and equivocation rather than vision
    and leadership.  The GoB has so far not used its significant
    contribution to stability in Haiti as a step along the road
    to becoming a champion of international peace and security.
    For example, the GoB has yet to respond to repeated requests
    for assistance with peacekeeping in Darfur.

    ¶7. (C) Regionally, Lula has maintained Brazil's historic
    focus on stability, seeing dialogue and good relations with
    all parties as the best way to achieve this goal.  As a
    result, Brazil maintains an active dialogue with and refuses
    to criticize human rights violations in Venezuela and Cuba,
    has worked hard to restore relations with Bolivia even at the
    expense of its own economic interests, and stood firmly on
    the principle of respect for sovereignty, with only minimal
    mention of counterterrorism concerns, in responding to the
    dispute between Colombia and Ecuador (ref A).

    --------------------------------------------- -
    Foreign Policy: Leader in Regional Integration
    --------------------------------------------- -

    ¶8. (C) In the end, Brazil,s actions during the recent crisis
    between Ecuador and Colombia showed that it values regional
    integration and sovereignty above all else, where it played
    an active but low-key role.  In keeping with the basic
    precepts on which it bases its foreign policy )
    non-intervention in the internal affairs of other nations,
    working within regional and international organizations to
    resolve problems through consensus, and an almost obsessive
    preoccupation with evenhandedness ) Brazil worked behind the
    scenes at the OAS special session and the subsequent Rio
    Group Summit in Santo Domingo to help diffuse the crisis.
    Brazil refrained from making any strong public statements
    admonishing Venezuela for interfering in what Brazil saw as a
    bilateral issue between Ecuador and Colombia, or condemning
    the FARC for its terrorist activities that precipitated the
    crisis.  Lula made calls to Presidents Correa (who he also
    met with in Brasilia) and Uribe to discuss the situation
    between the two countries and to Argentine President Kirchner
    to coordinate diplomatic strategy.  Overall, GOB actions
    during the crisis provided some insight into how it prefers
    to exercise what it sees as Brazil,s natural role as a
    regional leader.   It does not prefer to lead from the front,
    but rather from within the pack.  Brazil sees regional
    integration as a highly desirable goal to be obtained through
    consensus and suasion rather than direct confrontation with
    potential destabilizing influences such as Chavez and his
    Bolivarian Republic of Venezuela.

    ¶9. (C) During the two Bush/Lula meetings in March 2007,
    President Lula stated that the U.S. and Brazil should work
    together to promote regional integration in South America.
    Since then, however, certain elements within the GOB,
    Itamaraty in particular, appear to be trying to walk back
    initiatives aimed at increasing U.S./Brazil cooperation on
    bilateral and regional issues.  This opposition to an
    increased U.S. role in the region is on the one hand based on
    a traditional mistrust of the U.S. especially among the
    Brazilian elite, of which Itamaraty is a part, and on the
    other hand the perception that Brazil,s position as regional
    leader would be diminished by a strong and active U.S.
    presence in the region.  Those who adhere to the latter

    BRASILIA 00000469  003 OF 009

    position see increased cooperation with the U.S. as a zero
    sum game and may believe that proposed regional organizations
    such as the South American Defense Council, and to a lesser
    extent, the Bank of the South, would serve to exclude the
    U.S. from playing a greater role in regional integration
    initiatives and as a counterbalance to U.S. influence.
    Others in the GOB and Congress believe that Brazilian
    participation in the new regional organizations would provide
    the means by which Brazil can influence and moderate the
    potentially destabilizing behavior and activities of Hugo
    Chavez and his allies such as Evo Morales.

    --------------------------------------------- ----
    Foreign Policy: Cooperative Relations with China
    --------------------------------------------- ----

    ¶10. (C) Sino-Brazilian relations are officially excellent,
    characterized by a booming economic relationship and a
    political relationship that has become increasingly closer,
    especially since the exchange of visits by Presidents Hu and
    Lula in 2004.  The economic relationship is based on
    "complementarity," not competition: Brazil exports to China
    low value added commodities such as iron ore, soy, and
    petroleum, with these three commodities representing about
    70% of the export value, while China exports high value added
    goods such as electronics and industrial equipment.  There is
    some discontentment in the Brazilian private sector over the
    unbalanced trade relationship and low level of Chinese
    investment in Brazil, but both governments are taking a
    long-term view and believe a patiently constructed
    relationship will increasingly yield political fruits.
    Brazil and China have designated each other a Strategic
    Partner. In 2006, they inaugurated the High Level Committee
    on Consultation and Cooperation (COSBAN), which meets
    biennially, and they agree to support each other in
    international organizations, work toward a successful
    conclusion of the Doha Round, and cooperate in many political
    areas to strengthen south-south relations and the voice of
    the developing world globally.  Yet China does not support
    Brazil's top foreign policy goal: a seat on the UN Security
    Council.  The Sino-Brazilian relationship is both competitive
    and cooperative, and they have much to offer each other, but
    it is not clear whether over time the two sides will manage
    the relationship to maximize its potential for each side.

    --------------------------------------------
    Foreign Policy: "Balanced" Mid-East Approach
    --------------------------------------------

    ¶11. (C) As part of its efforts to burnish its global
    leadership credentials, Brazil has a very active Middle East
    agenda.  Already this year Foreign Minister Amorim has
    undertaken a five-country Middle East (ref B), followed by an
    Arab-South American foreign ministers meeting in Buenos Aires
    also in February, and bilateral talks with Iran in March.
    Still on deck for the year: possible state visits by Syrian
    president Asad and the King of Jordan; a probable trip to the
    Middle East by President Lula; opening of new embassies in
    Oman and Qatar; potential trade accords with Egypt, Jordan
    and Morocco and the hope of finishing the long-delayed trade
    accord with the Gulf Cooperation Council; and capping off the
    year, the Arab-South American Summit in Qatar.  Itamaraty
    also intends to follow up on Lula's August 2007 letter to
    Palestinian leader Mahmoud Abbas offering to form a Friends
    of Peace group with other interested countries, such as those
    in IBSA (India and South Africa), to seek further engagement
    in the peace process.

    ¶12. (C) The GoB is cautious about taking an active role in
    non-proliferation efforts, and has consistently refused to
    take a strong position against Iran's nuclear efforts.
    Brazilian officials consider their seat at the table in
    Annapolis as a foreign policy success and see themselves as
    balanced in their dealings with Israel and the Palestinians,
    but they have yet to define a substantive role for Brazil. FM
    Amorim's suggestion that Iran, Syria, Hamas, and Hizbollah
    should be included in the negotiations suggest continuing
    naivete regarding the peace process and Middle East

    BRASILIA 00000469  004 OF 009

    relations, as does his recent remark to a U.S. official that
    Brazil's growing "friendship" with Iran will prove useful
    should the United States, in the future, decide to engage
    Iran.

    ¶13. (C) Brazil likes to characterize its relationship with
    Iran as correct and balanced, one cognizant of Iran's
    troubled status within the international community, but one
    that does not repudiate Tehran either.  Iran, for its part,
    is looking to drum up increased Brazilian investment in Iran,
    develop closer bilateral ties, and secure a long-delayed
    meeting between Iranian President Ahmadi-Nejad and President
    Lula.  Iran is also seeking for increased opportunities to
    balance its trade, which currently overwhelmingly favors
    Brazil.  Exports to Iran account for about 30% of total
    Brazilian exports to the Middle East, or about US$1.8
    billion, which accounts for about 99% of trade volume between
    the two countries.   With regard to Iran's nuclear program,
    Tehran seeks out Brazil in order to draw parallels between
    Brazil's peaceful nuclear energy program and Iran's nuclear
    activities. although Brazil voted in favor of referring Iran
    to the UN Security Council in February 2006, from the onset,
    the GOB opposed the effort until the vote in the IAEA had
    become a foregone conclusion, when the PRC and Russia agreed
    to a western compromise proposal.  Brazil did not vote to
    condemn Iran's nuclear activities until Iran missed the
    UN-mandated deadline for allowing international inspectors to
    visit suspicious nuclear facilities. As is often the case
    with its Mideast diplomacy, Brazil's pursuit of a "correct"
    relationship likely will continue to produce decidedly mixed
    results which at times will be at odds with the policy
    objectives of most Western countries.

    ---------------------------------------------
    Friendly Cooperation, Not Strong Friendship
    ---------------------------------------------

    ¶14. (C) Bilaterally, the GoB has pursued generally friendly
    relations with the United States, but continues to favor
    building ties with developing nations over closer relations
    with the United States and other developed nations.  While
    seeking to expand our bilateral dialogue, the GoB has
    studiously avoided working closely with us on broad strategic
    issues important to us.  Those issues on which it has been
    willing to work with us--biofuels, investment, and climate
    change, for example--are areas where the GoB considers itself
    a visibly equal partner.  The exception may be
    security-related issues, where the appointment of Nelson
    Jobim as Defense Minister has brought new interest in
    cooperation.  But it appears that in this area, as with our
    efforts on counternarcotics, environmental protection,
    counterterrorism, and other issues, the Foreign Ministry is
    seeking to maintain its historic dominance and distance from
    the United States, which it does by controlling the agenda
    and throwing up barriers that delay and sometimes scuttle
    bilateral efforts that other ministries support.

    ¶15. (SBU) We continue to seek opportunities for positive
    bilateral cooperation through the mechanisms including the
    Economic Policy Dialogue (EPD), the second session of which
    was held March 6 in Washington.  The EPD provides an
    important opportunity to reinforce our view of Brazil as
    partner in areas of mutual interest.  Cooperation to foster
    innovation and agricultural coordination, to possibly include
    assistance to African countries, are new topics of
    conversation bilaterally.  Additionally, we have been working
    to develop a regional infrastructure initiative.  We have
    been exploring one another,s regulatory frameworks in hopes
    of addressing barriers and achieving a Bilateral Tax Treaty
    and a Bilateral Investment Treaty.  Civil aviation is an area
    of renewed focus with the next round of talks expected in
    ¶2008.  There are also continuing efforts under the auspices
    of the bilateral CEO Forum to address issues of common
    interest.

    ¶16. (U) The growing bilateral relationship is reflected in
    the number of high-level officials who have visited Brazil.
    Most recently, Secretary Rice A/S Shannon (who has visited

    BRASILIA 00000469  005 OF 009

    twice in the past 4 months), and A/S Lowery had productive
    meetings with Foreign Minister Amorim and other high-level
    Brazilian officials.  During the last several months others
    have made stops in Brazil, including Commerce A/S David
    Bohigian, Treasury DAS Brian O'Neill, Deputy Assistant USTR
    Chris Wilson, A/S Sullivan, U.S. Army Chief of Staff General
    George Casey, FTC Chairman Deborah Platt Majoras, Commerce
    Secretary Gutierrez, National Economic Council Director, Al

    SIPDIS
    Hubbard, Treasury Secretary Paulson, U/S for Democracy and
    Global Affairs Dobriansky.  At least six CODELs have visited
    Brazil in the past six months.

    ¶17. (C) USAID has sought to target its efforts in Brazil
    towards promoting sustainable livelihoods through working on
    issues such as health, the environment, and small and
    medium-sized enterprises.  Our bilateral dialogue with the
    GoB on development assistance to Brazil and in third
    countries contains positive elements, including promising
    potential in biofuels, but is constrained by differences in
    approach to anti-poverty efforts, with the GoB focusing on
    cash transfers, while the USG prefers more finely targeted
    assistance.  The Brazilian Government's multi-billion dollar
    poverty alleviation program -- Bolsa Familia -- receives
    technical assistance from the World Bank and IDB, but USG
    budget constraints and the fact that it is a cash transfer
    program (albeit with conditions) keep us from actively
    cooperating with the initiative.  The GoB also rejected our
    flagship regional environmental program, the Amazon Basin
    Cooperation Initiative, which will now be pursued on a
    bilateral basis.  Cuts in USAID's budget may severely impact
    our ability to continue these programs.

    ¶18. (SBU) The Brazilian public has a mixed view of the United
    States.  Seventy-five percent say relations between Brazil
    and the U.S. are very good or fairly good, and Brazilians by
    a wide margin consider the U.S. the most important country in
    the region for Brazil.  Those who follow the news know that
    U.S.-Brazil cooperation on trade issues has global importance
    and new areas of cooperation such as biofuels are potentially
    significant.  There has been a much more positive view of
    U.S.-Brazil cooperation since the signing of the biofuels MOU
    last year.  On the other hand, there is a good deal of
    skepticism about U.S. foreign policy, particularly on issues
    such as Iraq and Cuba.  There is resentment over the long
    wait times for U.S. visa applications, a product of a spike
    in demand without commensurate increases in staffing.  There
    is also an unfounded fear that the U.S. or other foreigners
    want to take over or internationalize the Amazon.

    --------------------------------------------- --------
    Areas of Cooperation: Mixed Bag on Mil-Mil Relations
    --------------------------------------------- --------

    ¶19. (C) While mil-mil cooperation on the forces level
    continues to grow, the policy level of the Brazilian
    government, particularly the MRE, continues to hold back the
    relationship.  As long as the current government remains in
    power, this situation is unlikely to change.  We can,
    however, pursue initiatives with Brazil that Brazil perceives
    to be in its interest-- a General Security of Information
    Agreement, for example -- while we enhance existing ties
    between militaries.  As a stable multi-ethnic democracy,
    Brazil is a key partner for the U.S. in helping maintain
    stability in Latin America, as evidenced by its role in
    managing the Columbia-Ecuador confrontation.  Brazil has
    recently made much of its proposal for a South American
    Defense Council (SADC), although the idea appears to have
    little traction among Brazil's neighbors (excepting
    Venezuela).  The SADC could be useful in coordinating
    peacekeeping, along the lines of the African Union, but the
    Brazilians see its value more in terms of reinforcing
    Brazilian leadership, moderating Venezuela President Chavez
    and facilitating common military production (primarily in
    Brazil).  Should the Brazilian proposal lead to formation of
    such a Council, the U.S. should encourage a focus on
    practical matters such as maximizing the effectiveness of
    peacekeeping, and avoiding duplication of activities
    currently carried out by the OAS or Inter-American Defense

    BRASILIA 00000469  006 OF 009

    Board.

    ¶20. (C) Brazil's apparent determination to look at real
    restructuring of its military offers important opportunities
    for U.S. engagement to build a partnership to export
    stability throughout the hemisphere.  Brazil would like
    access to U.S. technology and expertise, although any
    appearance of dictating Brazil's future military structure
    will have negative results.  An open exchange of ideas and
    willingness to provide advanced U.S. military technology
    (subject to appropriate export control regulations) will have
    far reaching benefits to the bilateral relationship and could
    begin to undermine some of the reflexive anti-Americanism
    among Brazil's policy elite.  As a first step, we should
    indicate we would be willing to discuss sale of non-nuclear
    U.S. technology to Brazil's submarine program, even if Brazil
    plans to build a nuclear powered submarine.  By doing so, we
    will be treating Brazil as an important, responsible partner
    and will be supporting their most prestigious defense program
    without violating nonproliferation standards.

    ---------------------------------------------
    Areas of Cooperation: Science and Environment
    ---------------------------------------------

    ¶21. (C) Brazil has first class scientists and facilities in a
    number of areas.  The U.S. Government (USG) has
    well-developed scientific cooperative arrangements in two
    areas with Brazilian counterparts:  the Agriculture Research
    Service of the U.S. Department of Agriculture (USDA/ARS) with
    EMBRAPA of the Ministry of Agriculture (this includes
    long-term exchanges of researchers); and the National
    Institutes of Health with the Ministry of Health, FIOCRUZ (an
    institution that works with vaccines), and other health
    institutions.  The National Science Foundation (NSF) and a
    variety of other U.S. agencies have modest or limited
    collaborative scientific activities with Brazilian
    counterparts.  Many elements of the U.S. private sector,
    academia and non-governmental organizations (NGOs) have
    established scientific ties with Brazilian counterparts.
    Brazil has demonstrated remarkable scientific and
    technological prowess in a number of areas, most notably with
    deep sea oil and gas exploration by PETROBRAS, aviation
    technology with EMBRAER, and information technology.

    ¶22. (C) Brazil is a key player in the ongoing negotiations
    for a new international climate change agreement to succeed
    the Kyoto Protocol.  It has become an active participant in
    the Major Economies process.  While a fierce defender of the
    principle of "common, but differentiated responsibilities,"
    the GoB sees a need for an appropriate balancing of
    environmental and economic concerns when addressing the
    problem.  Brazil is home to the largest remaining tropical
    forest ) the Amazon ) and any agreement will need to
    address the problem of large-scale deforestation there.  For
    its part, the GoB recognizes the importance of reducing
    deforestation, but is fearful of accepting binding goals
    which might be used to justify trade sanctions or other
    punitive measures.  Despite the increasing interest in
    climate change, the USG has sharply cut-back its support for
    climate change research in the Amazon and winding down its
    environmental cooperation.  The decade long, multi-million
    dollar environmental research project (LBA), which had been
    run by NASA and which had studied the Amazon, is closing
    down.  Further, the LANDSAT satellites that used to assist
    Brazil on monitoring the Amazon are reaching the end of their
    useful lifespans with no substitute in sight, and thus Brazil
    has turned to China for assistance with satellite monitoring.

    ¶23. (C) There are a variety of small environmental
    cooperative efforts.  The U.S. Forest Service is helping the
    newly created Brazilian Forest Service.  The U.S. Geological
    Survey, the Smithsonian Institution, the National Oceanic and
    Atmospheric Administration, the U.S. Army Corps of Engineers,
    and the Department of Energy have in recent years had limited
    environmental activities in Brazil.  Interestingly, U.S. NGOs
    and academia have become quite active in Brazil and frankly

    BRASILIA 00000469  007 OF 009

    bring far more resources to the table.  NGOs such as the
    Moore Foundation, the Packard Foundation, the World Wildlife
    Fund, The Nature Conservancy and others provide many times
    more the assistance that the USG provides.

    ------------------------------
    Areas of Cooperation: Biofuels
    ------------------------------

    ¶24. (C) Your visit comes just after the one year anniversary
    of your signing the Biofuels MOU and the March 3 meeting of
    the Biofuels Steering Group.  This initiative has provided
    the groundwork for increasingly positive bilateral relations
    and has produced some notable results, including a model for
    biofuels standard regimes internationally, cooperative
    efforts to aid Haiti, El Salvador, St. Kitts and Nevis, and
    the Dominican Republic in developing their own ethanol
    capacity.  The GoB and USG are pursuing cooperative
    scientific activities to develop the next generation of
    biofuels.  The more numerous and often better-funded U.S.
    scientists and laboratories can benefit greatly from this
    cooperation with Brazil,s world-class cadre of scientists
    and laboratories, which have established an impressive record
    over the last 30 years.  We anticipate a visit by Energy
    Secretary Bodman in the coming months and hope to use the

    SIPDIS
    opportunity to broaden our energy cooperation beyond biofuels
    to other areas for expanded collaboration.  In spite of
    President Lula's enthusiasm for closer biofuels cooperation
    and apparent GoB readiness to cooperate, the Foreign
    Ministry, though, appears to be trying to delay
    implementation of some of the provisions in the MOU.

    ------------------------------------
    Proud to be Energy Self-Sufficient
    ------------------------------------

    ¶25. (C) Brazil is very proud of the fact that it recently
    became, at least on the books, self sufficient in petroleum.
    They export some of their production but due to the level of
    their crude, they are still obliged to import other grades of
    fuel.  Brazil hopes to become a leading oil exporter with the
    development of the recently discovered deep water reserves in
    the Santos basin, near Sao Paolo.  Petrobras, which has been
    working in the Gulf of Mexico as the world,s leader in deep
    water technology, hopes to capitalize on this find; an
    interest that has led to worries on the part of U.S. and
    international oil companies that the government may be trying
    to set up the parastatal Petrobras to have, if not exclusive,
    at least primary rights to these new finds.  This concern was
    amplified by the withdrawal of the auction blocks for
    exploration rights related to this area just before the
    auction was to take place.  Brazil, which has one of the
    world,s greatest reserves of uranium but has only a small
    civilian nuclear operation, also has ambitions of becoming a
    world yellow cake exporter.  Brazil has been a gas importer
    from Bolivia, a relationship was has been complicated by
    Morales, unilateral renegotiating of contracts with
    Petrobras.  Brazil also has an unfulfilled contract for gas
    imports from Argentina, shares its largest hydroelectric dam
    with Paraguay, and has ongoing conversations with
    Venezuela,s Chavez over a possible gas pipeline and a
    cooperative oil refinery near Recife, for which despite
    rhetoric, Petrobras continues to bear the financial costs.
    Judging by recent talks with GoB officials, more energy
    cooperation with the U.S. is welcome.  We anticipate a visit
    by Secretary Bodman in mid-May to broaden our energy
    cooperation beyond biofuels to other areas for expanded
    collaboration.

    --------------------------
    Areas of Cooperation: Fighting Discrimination
    --------------------------

    ¶26. (SBU) Comprising close to half of Brazil,s population,
    over 90 million people, Afro-Brazilians are widely
    discriminated against not only by the broader society, but
    also by &lighter-skinned8 people of African descent who
    often do not identify themselves as black.  Brazilians often

    BRASILIA 00000469  008 OF 009

    reject the notion that discrimination is widespread, both as
    a result of differing conceptions of race from that generally
    accepted in the U.S.--officially, only seven percent of
    Brazilians are considered Afro-Brazilian--and because of the
    overlap of racial discrimination with poverty.  Nonetheless,
    there is increasing recognition that discrimination is
    tarnishing Brazil,s image as a modern, multi-racial,
    multi-ethnic democracy.  President Lula is personally
    committed to tackling Brazil,s racism issue.  He has
    appointed more Afro-Brazilian members to his cabinet than any
    previous president, named the first black justice to the
    Supreme Federal Tribunal, and created the Cabinet-level
    position of Special Secretariat for Policies to Promote
    Racial Equality (SEPPIR).  His Worker,s Party (PT) is
    pressing the Chamber of Deputies to pass a bill that would
    create Brazil,s first Racial Equality Statute (which the
    Senate approved in November 2007).  The statute would mandate
    racial/ethnic quotas at federal universities, although the
    private sector and some state and federal universities
    already implement them.  The effort is nonetheless
    controversial, with critics claiming that quotas only create
    a conscious divide between races.

    --------------------------------------------
    Engaging with Brazilians: Public Diplomacy
    --------------------------------------------

    ¶27. (U) The total public diplomacy budget for Brazil is
    roughly four million dollars, excluding salaries.  Major
    programs include our highly successful Youth Ambassador
    program, English Immersion USA, an active speakers program,
    and about 50 International Visitors per year.  Other
    exchanges include community college students and
    administrators, high school administrators, and university
    student leaders.  We are increasing support for English
    language programs with more money for English Access Micro
    Scholarships and for student advising through Opportunity
    Initiative Grants.  Both programs are funded by ECA.  We work
    closely with Binational Centers whenever we can to leverage
    our resources.

    ¶28. (U) Brazil,s growing economic development and
    increasingly affluent population will increase demand for
    English and overseas study in the U.S.  While we are
    increasing resources in both those areas, we lack the staff
    to handle the growing demand.

    --------------------------------------------- --------
    Engaging with Brazilians: Expanding Academic Outreach
    --------------------------------------------- --------

    ¶29. (U) Although there is no degree-granting American Studies
    program in Brazil, several academic centers that focus on US
    topics are starting to emerge.  The eight ECA sponsored Study
    of the U.S. Summer Institutes for university professors
    receive many Brazilian applicants, although only three were
    chosen this year.  ECA,s excellent initiative to create a
    university student leaders seminar on U.S. studies received
    over a thousand applicants from Brazil for 18 slots.  The
    program was a great success, with many of the participants
    changing the focus of their academic research to the U.S. as
    a direct result of the experience.

    ¶30. (U) The post has a large and active Fulbright program
    which currently has 183 Brazilians in the U.S. and 57 U.S.
    students and scholars in Brazil.  The program receives
    approximately $5.1 million form the U.S. side, a figure that
    includes tuition waivers from U.S. universities.  The USG
    directly supports the program with about $1.5 million.  The
    Brazilian contribution, through CAPES, is approximately $6.3
    million in support of Brazilians in U.S. universities and a
    more limited number of U.S. citizens in Brazil.  A separate
    program, the CAPES-FIPSE annual grant competition, funds ten
    new academic partnership projects each year.  These programs
    are co-funded by the U.S. and Brazilian governments at the
    rate of USD 50,000 per year per side for a period of four
    years.  To date over 50 partnerships involving over 200
    universities have been established.

    BRASILIA 00000469  009 OF 009

    SOBEL

    HENSHAW

`