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Cablegate: Global Economy

VZCZCXYZ0015
OO RUEHWEB

DE RUEHSO #0520 2741121
ZNR UUUUU ZZH
O 301121Z SEP 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8555
INFO RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC IMMEDIATE
RUEHBR/AMEMBASSY BRASILIA PRIORITY 9687
RUEHRI/AMCONSUL RIO DE JANEIRO PRIORITY 8867
RUCPDOC/USDOC WASHDC 3178

UNCLAS SAO PAULO 000520

SIPDIS

STATE INR/R/MR; IIP/R/MR; WHA/PD

DEPT PASS USTR

USDOC 4322/MAC/OLAC/JAFEE
E.O. 12958: N/A
TAGS: KMDR OPRC OIIP ETRD XM XR BR
SUBJECT: GLOBAL ECONOMY

Black Monday

Lead editorial in center-right O Estado de S. Paulo (09/30) says:
"...President Bush had defended an "audacious" action in order to
avoid the aggravation of the financial crisis... Congressmen from
his party did not appear so audacious: they preferred to follow the
Republican tradition, avoiding another big intervention in the
market and maintaining the rhetoric of protecting the taxpayer's
pocketbook. But they only vetoed the package, without eliminating
the crisis or removing the necessity of new actions on the part of
the government. They prepared a bad beginning for the next
president. ... Without the US$700 billion package and without an
action plan of similar magnitude, the U.S. government can only act
in the style of the Europeans, trying to take care of the problems
on a case by case basis. If this is the path, the insecurity in the
markets will tend to continue... The reaction of the stock markets
might not be the worst consequence of the rejection of the package.
If a good alternative is not found, the tightening of credit could
intensify disastrously in most of the markets, increasing the risk
of a large-scale recession. In light of this, President Luiz Inacio
Lula da Silva should pay more attention to Central Bank president
Henrique Meirelles and start taking more seriously the danger of
contamination of the Brazilian economy."

Convulsion in the finances

Editorial in liberal Folha de S. Paulo comments (09/30): "An
unpopular government at the end of a mandate; an overpowering
crisis; a plan to save banks with a lot of public money; congressmen
in electoral ebullition. This mixture of ingredients knocked down
the White House and the Democratic and Republican legislative
leaderships; it brought to the ground the US$700 billion bailout
plan and provoked a world financial convulsion not seen since
1987... By following their electoral instinct - which is part of the
rules of a democratic game - 228 U.S. congressmen increased the
destructive power of this crisis for the U.S. society. They also
probably increased the final cost of the financial help package
which will fall back on the Treasury Department of the country, and
therefore, on the taxpayers. The amazement with which the U.S.
economic authorities reacted to the news of the legislative defeat
indicates that the Bush Administration had no alternative plan. It
will have to work fast now and in addition to this find means of
by-passing the opposition in Congress. Meanwhile, the uncertainty
future of the global economy tends to become more radical."
White

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