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### Viewing cable 05BRASILIA2628, SCENESETTER CABLE FOR VISIT OF THE DEPUTY SECRETARY

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05BRASILIA2628 | 2005-09-30 20:18 | 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 04 BRASILIA 002628

    SIPDIS

    FOR THE DEPUTY SECRETARY

    E.O. 12958: DECL: 09/30/2015
    TAGS: OVIP PREL ECON PGOV ETRD BR US
    SUBJECT: SCENESETTER CABLE FOR VISIT OF THE DEPUTY SECRETARY

    Classified By: CDA PHILLIP CHICOLA, REASONS 1.4 (b) AND (d)

     ¶1. (SBU) The United States Mission in Brazil warmly welcomes
    your planned October 5 to 7 visit to Brasilia.  Ambassador
    Danilovich will meet you upon arrival the evening of October
    ¶5.  The next day, we have scheduled meetings for you with
    Foreign Minister Amorim, Finance Minister Palocci,
    Presidential International Affairs Advisor Marco Aurelio
    Garcia, and Senate leaders.  We have also scheduled you to
    announce the 2006 selections for the Mission's Youth
    Ambassador's program, to meet with the press and to
    informally meet and greet Embassy direct-hire personnel.  The
    meeting request with President Lula is still pending.

    ¶2. (SBU) Your visit comes in the wake of a series of meetings
    in Washington between Brazilian cabinet ministers and their
    USG counterparts the week of September 25.  Foreign Minister
    Amorim met with Secretary Rice, USTR Portman, and yourself.
    Trade Minister Furlan, in town for the annual Brazil-U.S.
    Business Council meeting, met with Secretary Gutierrez, USTR
    Portman, and Secretary Bodman. Finance Minister Palocci, in
    Washington to attend the Bank/Fund meetings, met with
    Secretary Snow.  And Environment Minister Silva attended a

    SIPDIS
    bilateral meeting on environmental issues.

    THE BILATERAL RELATIONSHIP
    --------------------------

    ¶3. (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.

    ¶4.  (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, as the Foreign Ministry saw it as "a foot
    in the door" and linked it with Brazil's strong opposition to
    Article 98 agreements.  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.  Only after gargantuan efforts have we
    gotten the GOB to turn the corner on copyright piracy and
    (apparently) persuaded policymakers to seek negotiated
    solutions on compulsory licensing of AIDs anti-retrovirals.

    ¶5.  (C)  However, all our conversations are not difficult.
    At the personal level, Lula has met President Bush several
    times and the two have a good rapport. 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 you, i.e., to the effect that Brazil would seek
    as a deliverable during the upcoming POTUS visit intensified
    bilateral dialogue on scientific, education, and
    environmental issues, reflect this desire to cooperate only
    on matters of marginal interest to the U.S.

    ¶6.  (C)  On development assistance issues, our dialogue is
    positive - but still constrained.  Despite lackluster
    results, the Brazilian government's multi-billion dollar
    poverty alleviation program - Zero Hunger - receives
    substantial funding from the World Bank and the IDB.  Given
    USG budget constraints and the fact that Zero Hunger is, in
    essence, a cash transfer program, USAID support has been
    limited.  Instead of focusing on cash transfers to the poor,
    USAID has sought to target its efforts towards promoting
    sustainable livelihoods - inter alia, through working with
    small and medium-sized enterprises.  PA's Youth Ambassador
    program takes a similar targeted approach.  This difference
    in focus, broad cash transfers versus targeted assistance,
    ends up putting the USG at the margins of Brazil's overall
    anti-poverty efforts.

    FOREIGN POLICY
    --------------

    ¶7. (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.  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.  We understand that the Lula administration even paid
    for the transportation costs of Brazil's youth contingent
    attending the recent Bolivaran Youth Festival in Venezuela.
    Given all this, it would be unrealistic to expect Brazilian
    activism in support of Venezuelan democracy.

    ¶8.  (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).

    ¶9.  (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."

    ¶10. (C)  Brazil has long seen international fora as a way to
    enhance its international stature.  Reflecting this, in 2005
    it launched failed national candidates for the top jobs at
    both the WTO and the IDB.   The failure of both, together
    with the unlikely prospects for a permanent seat in the UNSC,
    has widely been seen in Brazil as a "political" disaster
    created by a badly designed foreign policy.

    PRESIDENT LULA
    --------------

    ¶11. (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

    ¶12.  (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.
    However, influential Finance Minister Palocci appears
    entrenched, despite recent corruption allegations against him
    -- which he has forcefully denied.  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) President Lula and his economic team have implemented
    prudent fiscal and monetary policies and pursued necessary
    microeconomic reforms.  As a result, Brazil's economy, aided
    by a benign international environment, is having another
    solid year.  GDP growth of 4.9% in 2004 has coupled with
    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 new 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.

    ¶16. (C) Public-Private-Partnerships, a key effort to attract
    private investment to infrastructure, also passed in 2004,
    although implementation of this initiative still awaits
    promulgation of the necessary regulations.  Labor reform and
    autonomy for the Central Bank are on the agenda for 2005 but
    look increasingly unlikely to be addressed this year.
    Despite this well-considered reform agenda, much remains to
    be done to improve the regulatory climate for investment,
    particularly in the energy sector; to simplify tortuous tax
    systems at the state and federal levels; and to further
    reform the pension system.  Given the current focus of
    Congress on the political scandal, prospects for much of this
    reform agenda are dim for the remainder of Lula's term.

    TRADE POLICY
    ------------

    ¶17. (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.  This year Mercosul is pursuing free trade
    negotiations with Mexico and Canada and hopes to be able to
    resume trade negotiations with the EU.  The trade bloc also
    plans to launch trilateral free trade negotiations with India
    and South Africa, building on partial trade liberalization
    agreements concluded with these countries in 2004.  China has
    increased its importance as an export market for Brazilian
    soy, iron ore and steel, becoming Brazil's fourth largest
    trading partner and a potential source of investment.  As
    many Brazilian observers have indicated, all this effort is
    aimed at countries which together represent less than a third
    of Brazil's foreign trade.

    DOHA AGENDA - WTO
    -----------------

    ¶18. (C) Brazil leads the G-20 group of developing countries
    that is pressing for agricultural trade reform in the WTO
    Doha Development Agenda negotiations.  Brazil's assertive
    leadership of the G-20 was blamed in some quarters for
    causing the failure of the WTO Cancun Ministerial in
    September 2003.  Since then, Brazil has been more
    constructively engaged in the Doha Round as a member of the
    "Five Interested Parties" informal group, although many of
    its positions are still at odds with U.S. interests.  Brazil
    can be expected to maintain its assertive stance in the Doha
    Round on agricultural trade reform while taking more
    defensive postures in the discussions covering industrial
    products and services.

    FREE TRADE OF THE AMERICAS - FTAA
    ---------------------------------

    ¶19.  (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.

    CHICOLA

`