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Cablegate: Brazil: More Buzzing at Bndes

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

UNCLAS SECTION 01 OF 02 BRASILIA 003813

SIPDIS

NSC FOR SHANNON
TREASURY FOR SSEGAL
PLS PASS FED BOARD OF GOVERNORS FOR WILSON, ROBATAILLE
USDA FOR U/S PENN, FAS/FAA/ITP/TERPSTRA
USDOC FOR 4322/ITA/IEP/WH/OLAC-SC

E.O. 12958: N/A
TAGS: EFIN ECON EINV EIND ETRD EAGR PGOV SOCI BR
SUBJECT: BRAZIL: MORE BUZZING AT BNDES

REF: Brasilia 3701

1. Brazil's National Bank for Economic and Social
Development (BNDES) remains in media focus, with totally
divergent forecasts as to the fate of its leftist Lula-
appointee President, Carlos Lessa. Lessa last week flaunted
his lack of remorse over the maverick actions and comments
which had raised a few market jitters about a possible
return to GoB intervention in the economy and reportedly
earned him a Lula reprimand (Reftel). BNDES Vice-President
Darc da Costa subsequently joined his boss in aiming public
verbal darts in particular at Finance Ministry Secretary
Marcos Lisboa and Treasury chief Joachim Levi.

2. In recent front-page articles, financial daily `Valor
Economico' treated Lessa's imminent ouster as a certainty;
`Estado de Sao Paulo' asserted that Lessa's November 28
meeting with Finance Minister Palocci had mended fences and
made his position "far stronger than a day earlier"; and
`Folha de Sao Paulo' split the difference by warning that
the Palocci meeting would help but not permanently shore up
Lessa's position. One guess has Planning Minister Guido
Mantega conveniently shifting to BNDES, making available a
ministerial portfolio for political allocation outside the
PT, perhaps to current Minister of National Integration Ciro
Gomes, as part of Lula's first cabinet overhaul.

3. Some commentators have excitedly depicted Lessa's
personal fate at BNDES as a proxy for putative intra-GoB
policy battles. As this notion would have it, Lessa is
catalyzing the protest of the GoB's so-called
"developmentalists" and traditional PT ideologues against
the fiscal hard-line incarnated by Finance Minister Palocci.
Even those advancing this idea offer no basis for it other
than speculation and Lessa's known attitudes. Nor do they
cite any conspicuous GoB figures as being in Lessa's corner
over the issue, aside from one journalist's mention --
offered with zero evidence -- of Planning Minister Mantega
and Senator Aloizio Mercadante.

4. Separately, there are new reports of progress concerning
GoB steps to give BNDES extra resources. The long-cited
goal has been to increase BNDES's annual lending capacity
from the current 35 billion Reals (USD 1 = 2.95 Reals) to 47
billion in 2004. The net new capitalization being spoken of
hovers between five and ten billion Reals. Various
specialists claim that BNDES, under Basle capital-ratio
rules, would be unable to continue major new lending in 2004
absent a capital influx. The decision in principle to
provide such an influx seems unopposed in the GoB. From
details of financial-media accounts, however, it is plain
that the Central Bank is intent on keeping the strictest
control over the source and mechanism for providing it, as
well as over guidelines for its future use.

5. COMMENT. We judge the hubbub over recent BNDES events
to be much overblown. Brazil's "developmentalist"/fiscal
hard-liner split itself is just a predictable and natural re-
run of an old film. An identical fault-line marked the
early years of Cardoso's first administration. The
developmentalists then also included the BNDES head, Luiz
Carlos Mendonca de Barros, and were spearheaded by Planning
Minister Jose Serra -- who was utterly eclipsed by Finance
Minister Malan. Former-academic Lessa is an order-of-
magnitude less formidable political actor than was Serra
then, and, ironically, there seem fewer ministers in Lula's
PT government inclined to identify with Lessa's dogmatic
line than there were in FHC's neo-liberal Cabinet ready to
oppose Malan. Brazil's latest disappointing GDP growth
statistics, as well as the GoB's rising rhetoric about
launching an industrial policy in 2004, may yet give Lessa
an extra lease of GoB life as a Lula gesture to the social
importance of growth and to the PT's old-school wing which
has no other high-profile representation in the GoB. Either
way, we see him as zero threat to Palocci's position or
policies.

6. This cable cleared with CGs Rio and Sao Paulo.

HRINAK

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