Search

 

Cablegate: "Paralysis" of Gob's Microeconomic Program

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 000666

SIPDIS

NSC FOR SHANNON, DEMPSEY, CRUZ
TREASURY FOR OASIA/SEGAL
FED BOARD OF GOVERNORS FOR ROBATAILLE
USDA FOR U/S PENN, FAS/FAA/TERPSTRA
USDOC FOR 4322/ITA/IEP/WH/OLAC-SC
SOUTHCOM FOR POLAD

E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD PREL PGOV BR
SUBJECT: "Paralysis" of GoB's Microeconomic Program


1. A column in the March 5-7 issue of top financial daily
`Valor Economico' summarized pessimists' view that the Diniz
scandal and other hurdles have resulted in a semi-breakdown
of the legislative progress of the GoB's so-called
`microeconomic' reform measures, which are generally
acknowledged as vital to sustain Brazil's future growth.
Following is Embassy's unofficial and slightly edited
translation of the column by `Valor' commentator Claudia
Safatle.

3. (Begin Text of Unofficial Embassy Translation)

(HEADLINE) Paralysis is Conquering the Government

The Waldomiro Diniz case is one problem. But the
government's real problem is a different one: economic
growth. This is the grave question to which the government
needs to give quick answers, and for this it needs to break
out of its paralysis. It is not viable to conduct an
economic policy that produces a retraction of 0.2% of the
Gross Domestic Product, loss of real income, fall of per
capita income, and spectacular growth (in the neighborhood
of 140%) in profits of the banking system. Something is
wrong.

From the start of the Diniz episode, from February 13 to the
present, notwithstanding the political tangles which the
government and PT got themselves into trying to manage the
revelation of the corruption of Planalto's ex-advisor, the
Presidency has held endless meetings of the government's
power-nucleus, to try to emerge from paralysis and create a
"growth agenda."

In formulating this initiative, the government has taken
over from the hands of the bureaucracy, and is now parading,
measures to stimulate civil construction, a sector that fell
heavily last year (8.6%). Now, the government is attempting
to announce on an almost weekly basis measures of a more
microeconomic nature to resolve problems that do indeed
restrict investments, without which there will be no growth
at all. And to make these unveilings into events with
maximum impact on public opinion. Among the provisions
already ripe to be announced is a new industrial policy for
four already-defined sectors: software, pharmaceuticals,
capital goods, and semi-conductors.

The resumption of interest rates' downward trajectory is a
central part of the problem and here there is a conundrum to
resolve: the Central Bank sees robust economic growth as
having been underway since last October, with accompanying
inflationary pressures. The CB President, Henrique
Meirelles, has said that the economy finished 2003 growing
at a rate of 1.5% (in the last quarter) which, annualized,
would represent an increase in GDP of 6.14% this year.
Yesterday, in meetings with market representatives in Sao
Paulo, directors of Central Bank reiterated this vision.
"People talk as if Brazil were not growing on a current
basis because of the minus 0.2% from last year, and as if we
will have to strain to grow 3.5% (in 2004). That's not
true. It's nonsense. Brazil is growing at an aggressive
rate and even if we reduce this rate, we will reach 3.5%
growth this year," commented Meirelles to `Valor'.

As the market sees it, in the first two months of 2004 the
level of activity started to go cold and there are no
menacing inflationary pressures on the horizon. The great
majority of banks and consultants are lowering their
estimates of economic growth for this year. Those who
expected 4% are now closer to 3%, and there are those who
project less than 3%...

There has never been, during the existence of the inflation-
target regime established in 1999, as profound a disconnect
as now between the Central Bank and the market in their
respective assessments of the economic situation...

The difficulties in fostering the growth which in the
Central Bank's view is going great guns but as far as the
market is concerned is bogged-down and lacks new investment,
don't stop, however, with the COPOM (Central Bank's Monetary
Committee.) It is just part of the problem and should not
be held responsible for all the nation's ills.

The other part, no less important, has to do with whether or
not the country today has a favorable environment for
investments. The private sector says the environment is
bad, and the government doesn't dispute this view. It even
has a list of things to do to improve things. The challenge
is to turn this generic list into concrete measures in a
quick, effective way.

The new energy model is an example. It took months to
construct a proposal, months to negotiate it, and it was
approved by Congress just yesterday (March 4). The basic
rules for investments in sanitation and water-treatment
circulate from hand to hand along Ministry Row. After the
government announces the preliminary bill for regulation of
this sector, it will be presented for public audience and
only after this process will it go to Congress.

The role of the regulatory agencies was the focus of a
concept document elaborated at the end of last year by the
Civil Household (Casa Civil.). Brought before a public
forum, the document received more than 200 suggested
amendments. The government promised to transform the
document into a bill that would define the exact role of
regulatory agencies, but has not mentioned the subject
since. The sole bill sent to Congress on this subject had
to do with the contracting of employees for Aneel and Anatel
(electricity and telecomm regulatory agencies.)

If it doesn't resume these initiatives, the government will
end up hurting growth in future years, since this year's is
a given...

(End Text of Embassy Translation)

HRINAK

© Scoop Media

 
 
 
World Headlines

 


UN News: Rare Coral Reef Discovered Near Tahiti Is ‘Like A Work Of Art’, Says Diver
One of the largest coral reefs in the world has been discovered by a UN-supported scientific mission off the coast of Tahiti. Announcing the stunning find on Thursday, UNESCO said that divers had explored large rose-shaped corals spanning some three kilometres, at depths of between 30 and 65 metres... More>>


Tonga Eruption: At Least 3 Dead, Amid Severe Destruction
At least three people have died in Tonga following the massive volcanic eruption and subsequent tsunami wave that hit over the weekend. Homes and other buildings across the archipelago have suffered major damage... More>>

Save The Children: Tonga Volcano Ash And Smoke Cause Concern For Air And Water Safety
Families in Tonga are at risk of exposure to unsafe air and water due to ash and smoke from the Hunga Tonga-Hunga Ha’apai volcano that erupted on Saturday, reports Save the Children...
More>>



Ethiopia: UN Chief Lauds ‘Demonstrable Effort To Make Peace’

The UN Secretary-General on Wednesday said he was “delighted” to learn that “a demonstrable effort to make peace” in Ethiopia is finally underway, according to information relayed to him by the African Union High Representative for the Horn of Africa... More>>


Tigray: Agencies Suspend Aid As ‘Scores’ Are Killed Due To Airstrikes
Recent airstrikes on camps for internally displaced persons and refugees in Tigray, northern Ethiopia, have reportedly killed scores of civilians, including children, and left many more injured... More>>


UN News: For 25th Year In A Row, Greenland Ice Sheet Shrinks

2021 marked the 25th year in a row in which the key Greenland ice sheet lost more mass during the melting season, than it gained during the winter, according to a new UN-endorsed report issued on Friday... More>>