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### Viewing cable 05BRASILIA3141, BRAZIL SCENESETTER FOR VISIT OF 3+1 DELEGATION

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05BRASILIA3141 | 2005-11-30 19:12 | 2011-07-11 00:00 | CONFIDENTIAL | Embassy Brasilia

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 003141

    SIPDIS

    E.O. 12958: DECL: 11/30/2015
    TAGS: PTER PREL PGOV ECON BR US
    SUBJECT: BRAZIL SCENESETTER FOR VISIT OF 3+1 DELEGATION

    Classified By: PolCouns Dennis Hearne, Reasons 1.4 (b) and (d).

    ¶1. (C) The Plenary Meeting of the 3 1 will provide an
    important benchmark for Brazil's willingness to increase
    cooperation with the United States on Counterterrorism,
    something the GOB has been reluctant to do.  We do not expect
    a significant change in the GOB's position, which places
    great importance on not inflaming public opinion, especially
    among its large and influential Arab population, or damaging
    its relations with the nations of the Middle East, including
    those most responsible for terrorist actions worldwide.  The
    GOB places rather less importance on implementing policies
    that will significantly reduce the amount of terrorist
    financing and other support that comes from the Tri-Border
    area, although it has implemented programs to comply with the
    requirements of UNSCR 1267.  Indeed, the Brazilian's top
    political priority appears to remain preventing any public
    statements that might imply that any such activities take
    place there.  The following paragraphs provide a backdrop
    against which to view our Counterterrism efforts with Brazil.

    --------------------------
    The Bilateral Relationship
    --------------------------

    ¶2. (C)  While relations between the U.S. and Brazil are
    friendly, often the USG encounters major difficulties in
    gaining the cooperation of senior policymakers on issues of
    significant interest to the United States.  Eager to assert
    its own influence, the Brazilian government shies away from
    cooperation with the USG - unless it can clearly be
    characterized as a reciprocal exchange among equals.
    Indeed, hyper-sensitivity on issues viewed as infringing on
    Brazil's sovereignty can get out of hand and may be seen as
    signs of political immaturity.  Many Brazilians believe the
    U.S. has designs on the Amazon.  Our fingerprinting of
    visitors to the U.S. drew reciprocal treatment for Americans
    here; visa and  immigration issues remain sensitive points.

    ¶3.  (C) During recent months, our ongoing dialogue with the
    Brazilians has focused on a variety of potentially useful
    projects for both sides.  We sought to interest the GOB in a
    Defense Cooperation Accord, but the Foreign Ministry rejected
    the proposal even though the Defense Ministry was supportive.
     Gaining agreement on privileges and immunities to be granted
    U.S. servicemen engaging in military exercises has been just
    as tough sledding.  While we seek to get the GOB to move
    forward with an agreement governing space launches at the
    country's equatorial base at Alcantara, our pleas are met
    with silence even as Brazil has executed space-related
    agreements with Ukraine and others.  On trade issues, when
    unscripted, President Lula has characterized the FTAA as "off
    his agenda."  IPR is another sore point, as it has become
    clear that the USG and the Brazilian government have
    differing views on the protection to be afforded to
    intellectual property.

    ¶4.  (C)  However, not all our conversations are difficult.
    On issues involving matters perceived as technical in nature
    - i.e., law enforcement and science (but not the environment
    or counter-terrorism) - the GOB is eager to engage.  For
    example, from 2003 to 2004, the GOB worked quietly with us on
    the timing and details of its shoot-down program to
    accommodate our statutory requirements (although now a new
    crop of GOB bureaucrats appears to be unaware of the
    government's past promises).  Foreign Minister Amorim's
    statements to the press in the wake of his September 26
    meeting with Secretary Rice, i.e., to the effect that Brazil
    would seek intensified bilateral dialogue on scientific,
    education, and environmental issues, reflect this desire to
    cooperate only on matters of marginal interest to the U.S.

    --------------
    Foreign Policy
    --------------

    ¶5. (C)  In large part due to Brazil's ambivalence towards the
    United States,  President Lula has run an activist foreign
    policy with a focus on South America and the Third World,
    seeking to forge alliances with other mid-sized powers (South
    Africa, India, etc).  He has traveled extensively in pursuit
    of a higher international profile for Brazil.  Despite
    prodding from the USG and others, Lula has refused to condemn
    Cuba for human rights violations and, in fact, has pushed for
    Cuban membership in the Rio Group.  Brazil has also advocated
    a Cuba-Mercosul trade pact.

    ¶6.  (C) In addition, the GOB has worked to increase both its
    economic and political ties with Venezuela.  Enhanced
    integration of the two  countries' energy sectors is high on
    its agenda.  Lula has been especially  solicitous of Chavez.
    During the September 29-30 South American Community of
    Nations Summit in Brasilia, Lula praised the Venezuelan
    President's democratic credentials ("if anything, Venezuela
    has an excess of democracy") and declared that the Chavez
    government had been demonized by its foes.

    ¶7.  (C) In the face of declining inter-bloc trade, Brazil has
    sought to revitalize Mercosul.  It has pursued Mercosul-USG
    trade talks, an effort seen by many as a way to delay/derail
    the FTAA process.  Indeed, given its size and  natural
    resources, Brazil has long seen itself as the natural leader
    of the region (even though that perception is not shared by
    many of its neighbors).

    ¶8.  (C)  Emblematic of Brazil's efforts to gain greater
    standing on the world stage is its tenacious pursuit of a
    permanent UN Security council (UNSC) seat.  Brazil and other
    G4 states (India, Germany, Japan) are, despite recent
    setbacks, continuing to press their campaign  for a vote on a
    resolution on UNSC reform.   This stance is at odds with the
    position of many Latin American countries, including those
    which Brazil believes should follow its "natural leadership."

    --------------
    President Lula
    --------------

    ¶9. (C) President Luiz Inacio Lula da Silva was inaugurated in
    January 2003 after a career as a Sao Paulo metalworker and
    labor leader.  He founded the left-of-center Workers' Party
    (PT) in 1980 and lost three presidential campaigns before
    winning in the October 2002 elections.  Lula is eligible to
    run for reelection in October 2006.  Elected in large part on
    promises of promoting an ambitious social agenda, including a
    "Zero Hunger" program, Lula's government has failed to
    deliver much in this area, as managerial shortcomings and the
    need for fiscal restraint have limited progress.  The
    public's top concern -- crime and public security -- have not
    improved under this administration.

    ¶10.  (C) In recent months the Lula Administration has been
    beset by a grave political crisis as interlocking influencing
    peddling/vote-buying scandals  linked to important elements
    of Lula's PT party continue to unfold.  The crisis has placed
    Lula on the defensive and caused near paralysis in the
    congress and the executive branch.  Politics have become
    dominated by investigations, accusations and revelations. The
    President's Chief of Staff  resigned his post, and he and
    several other congressmen are the subjects of investigations
    and expulsion proceedings owing to bribery allegations.

    ¶11.  (C) Thus far Brazilian society -- including the
    opposition -- seems disinclined to hold Lula personally
    responsible for the scandals or press for impeachment
    proceedings.  However, the  breadth of the crisis and the
    continuing revelations have created a domestic political
    environment that is fluid and unpredictable.  Indeed, some
    rumors link the President directly to the scandal.  Lula's
    popularity has been badly   damaged, with recent polls
    suggesting he could lose his re-election bid should he pursue
    it in 2006.

    ---------------------------
    Macro-Economic Developments
    ---------------------------

    ¶13. (C) Due to a cycle of monetary tightening that lasted
    much of the year, combined with the effects of the ongoing
    political crisis on investment and consumption decisions,
    Brazil's economy will be hard pressed to attain growth of 3%
    in 2005, after posting healthy GDP Growth of 4.9% in 2004.
    The modest growth in 2005 masks some economic strengths:
    Brazil has booming exports, healthy external accounts,
    inflation under control, decreasing unemployment and
    reductions in the debt-to-GDP ratio.  In recent months, the
    real has risen sharply against the dollar and the Sao Paulo
    Stock Exchange (BOVESPA) has hit record levels.  In March
    2005, the Brazilian government declined to renew its
    Stand-by Agreement with the IMF and in mid-July it announced
    that it would pay early US$5.12 billion in Standard Reserve
    Facility payments due by March 2006.

    ¶14. (C) Overall, while Brazil has made considerable progress,
    problems remain.  Despite registering its first year-on-year
    decline in 2004, Brazil's (largely domestic) government debt
    remains high, at 52% of GDP.  Real interest rates (at more
    than 13 percent) are among the highest in the world.  Income
    and land distribution remain skewed.  Investment (including
    FDI) is low.  The country's sovereign risk ratings are, in
    general, three to four levels below investment grade.  And
    the informal sector constitutes between 35 to 40 percent of
    the economy, in part because the tax burden (nearly 38
    percent of GDP) is so high.   The good news is that, so far,
    the uncertainty surrounding the political scandal has neither
    retarded economic growth or frightened away foreign investors.

    ¶15. (C) Sustaining high growth rates in the longer term
    depends on the impact of President Lula's structural reform
    program and efforts to build a more welcoming climate for
    investment, both domestic and foreign.  In its first year,
    the Lula administration passed key tax and pension reforms to
    improve the government fiscal accounts.  Judicial reform and
    an overhaul of the bankruptcy law, which should improve the
    functioning of credit markets, were passed in late 2004,
    along with tax measures to create incentives for long-term
    savings and investments.

    ------------
    Trade Policy
    ------------

    ¶16. (C) To increase its international profile (both
    economically and  politically), the Foreign Ministry
    (Itamaraty) is seeking expanded trade ties with developing
    countries, as well as a strengthening the Mercosul customs
    union with Uruguay, Paraguay and Argentina.  In 2004,
    Mercosul concluded free trade agreements with Colombia,
    Ecuador, Venezuela and Peru, adding to its existing
    agreements with Chile and Bolivia to establish a commercial
    base for the  newly-launched South American Community of
    Nations.

    -------------------------------------
    Free Trade Area of the Americas- FTAA
    -------------------------------------

    ¶17.  (C)  As indicated above, the Lula Administration shows
    no serious interest in pursuing the FTAA.  Despite serving as
    co-chair and having secured in the November 2003 Miami
    meeting a new framework for negotiation, Brazil has shown no
    inclination to move the process along and has failed to
    convoke the next FTAA Ministerial - which is now overdue.

    LINEHAN

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