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Cablegate: Banco Del Sur Becomes a Brazilian "Peeve"

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DE RUEHBR #0751/01 1171716
ZNY CCCCC ZZH (CCY ADB15182 MSI5530 611)
P 271716Z APR 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 8783
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHDC
RUEHC/USDOC WASHDC
RHEBAAA/DOE WASHDC

C O N F I D E N T I A L BRASILIA 000751

SIPDIS

SIPDIS

TREASURY FOR OASIA
USDOC FOR 4322/ITA/MAC/WH/OLCA/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA

C O R R E C T E D COPY - ADDED CLASSIFIED BY and REASONS
statement.

E.O. 12958: DECL:04/25/2017
TAGS: ENRG EFIN PGOV PREL BR XM
SUBJECT: BANCO DEL SUR BECOMES A BRAZILIAN "PEEVE"

REF: A) BRASILIA 708 B) BUENOS AIRES 808

Classified by Charge d'affaires Philip T. Chicola, reasons
1.4 (b) and (d).

1. (C) Summary: The abrasive and high-handed manner in which
Venezuelan President Chavez has sought to advance his "Banco del
Sur" project has pushed Brazil to the point of seriously
considering not joining the Venezuelan's latest flight of fancy.
The Brazilians, according to both the IMF resrep and public
accounts, were absolute livid at Chavez and Kirchner's surprise
announcement that they would be creating the bank -- and others
were welcome to join if they wanted. Initially willing to
overlook the slight, the Lula Administration then had all but
decided not to join after having been effectively excluded from
initial planning sessions, Finance Ministry International
Secretary Luiz Eduardo Melin told Emboff April 24. Ecuadoran

SIPDIS
President Correa apparently convinced Lula to postpone a final
decision and obtained a commitment of Brazilian attendance at a
planning ministerial to be held in Quito (date unknown).
Finance Minister Mantega, however, used the Mercosul Energy
Summit in Isla Margarita to lay down some clear public markers
for Brazilian participation, including full Brazilian
involvement in planning and guarantees that there will be
appropriate governance and a practical agenda. Melin told
Emboff that absent these, Brazil probably would not join. End
Summary.

Banco del Sur: "My Pet Peeve"
-----------------------------

2. (C) In an April 24 meeting, Finance Ministry International
Secretary Luis Eduardo Melin told Emboff and visiting Treasury

SIPDIS
OCC reps that Banco del Sur had become his "pet peeve." Brazil,
he said, wants to be at the forefront of the creation of
regional financial mechanisms that will foster regional
integration. During President Lula's first term, he championed
the creation of the South American Community (CASA), one of the
working groups in which was considering financial integration.
According to Melin, Brazil had put several practical, low-cost
ideas on the table for consideration. Some of these involved
greater access to Brazilian financial markets or possible
lending via Brazil's National Social and Economic Development
Bank (BNDES). Melin stated that during Lula's first term,
Brazil had not been in a position to back up its ideas with new
money, and this had led to some dissatisfaction.

3. (C) Melin stated that the Venezuelan President (he never used
Chavez's name) had become impatient with the pace of discussion
in the CASA, and unbeknownst to Brazil had begun bilateral
discussions with Argentina on creating a Banco del Sur.
Venezuela's approach, Melin stated, had replaced a useful
multilateral process with a broad focus with a narrowly focused
bilateral scheme. Venezuela and Argentina then presented the
outlines of the Banco del Sur as a done deal. Melin said that
initially, despite having been omitted from the planning
process, Brazil had been willing to consider joining the
Venezuelan-Argentine project. Melin affirmed that he had
convinced Minister Mantega to travel to Buenos Aires and
participate in the Bank's roll-out. Despite this gesture,
Argentina and Venezuela failed to invite Brazil to the first
working group meeting that was held two weeks later. When
finally informed of the meeting the day before it was to take
place, Brazil's only option was to have an officer from its
Embassy in Buenos Aires represent it.

4. (C) Given this treatment, Brazil had decided to announce that
it would not participate in Banco del Sur, Melin continued.
That changed when visiting Ecuadoran President Correa raised the
issue with Lula. Correa reportedly convinced Lula to have
Brazil participate in a finance ministers meeting in Quito to
consider whether the project could be given practical, useful
focus. Melin stated that Brazil would probably not join a
project that did not have a sound basis for governance and
feasible goals. The bank must start small and build, he said.
Venezuela's all or nothing approach would not work, he argued.
Taking a shot at Argentina, he noted that they chaired the CASA
working group on financial integration, but since the emergence
of Banco del Sur, have refused to call a working group meeting.
Brazil's proposals in that forum are still on the table, Melin
noted. Moreover, Brazil is prepared to back its CASA proposals
with money. The Banco del Sur episode, Melin said, "has not
been our finest hour as a region."

"Absolutely Livid"
------------------

5. (C) The IMF resrep told us recently that the Finance Ministry
was absolutely livid at both the Venezuelans and Argentines for
going behind their backs bilaterally and then publicly
presenting them with a fait accompli. Separately, a senior
advisor to the Central Bank board of directors told Emboff April
17 that the Brazilian Central Bank has opposed the idea of
joining the Banco del Sur in internal GoB councils. According
to this advisor, the Central Bank sees no value to the
Venezuelan-Argentine proposal beyond what the IMF, IDB and World
Bank already provide to the financial system. The Central Bank
does not have a lead role in the decision, the advisor noted,
although it would continue to oppose firmly the idea of using
any Brazilian Central Bank reserves to finance Banco del Sur.
6. (C) Comment: As noted reftel, many in the Brazilian political
and foreign policy establishment have begun to feel their
leadership role in the region is being challenged by Chavez.
The surprise unveiling of the Chavez-Kirchner Banco del Sur
project and the highhanded manner in which Brazil was treated,
therefore, hit a nerve in a way such an action might not have in
the past. Despite this, were Chavez and Kirchner to modify
their proposal to include safeguards for institutional
governance, a regional infrastructure-focused lending plan and
some more practical ideas for financing the bank, the Lula
administration would have a hard time not joining.
Nevertheless, Chavez and Kirchner have done themselves no favors
with the Brazilians on this issue.

CHICOLA

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