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Cablegate: Lula Backs Trade Minister Furlan Against Bndes's

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

UNCLAS BRASILIA 000892

SIPDIS

NSC FOR DEMPSEY, CRUZ
TREASURY FOR OASIA/SEGAL
EXIMBANK FOR DIRECTOR FOLEY
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: LULA BACKS TRADE MINISTER FURLAN AGAINST BNDES'S
LESSA

Ref: (A) 03 Brasilia 3813, (B) 03 Brasilia 3701

1. President Lula has arbitrated a very public victory for
Development, Industry and Trade Minister Luiz Furlan in
Furlan's latest policy bout with the old-school-leftist-
ideologue president of Brazil's National Bank for Economic
and Social Development (BNDES), Carlos Lessa. The fight was
over BNDES's introduction on March 1 of new guidelines that
would have compelled "foreign" companies to pay up to 1.5%
more than "national" ones on certain categories of loans
from BNDES, which for practical purposes is Brazil's sole
domestic source of major long-term financing for commercial
as well as development projects.

2. Lessa's excuse for his new, discriminatory guidelines
was that "Brazilian" companies are supposedly disadvantaged
by their inability to access loans on the international
market. Furlan on April 1 sent Lessa a written directive to
revoke the measure, on the grounds that (i) it conflicts
with GoB policy and Brazil's self-interest in attracting
foreign investment; (ii) differentiation between domestic
and foreign capital is problematical in a transnational
business age; and (iii) BNDES now has abundant funds to
lend, the GoB having authorized its budget to be increased
43% this year, to Reals 47 billion (about US$15.6 billion).

3. Despite the fact that BNDES bureaucratically exists as
part of the Furlan's ministry, Lessa made known that he
viewed Furlan's written instruction as a request rather than
an order, and BNDES as being "supervised by," not
subordinate to, the Minister. On April 13, Lula's Chief of
Staff Dirceu transmitted to Lessa the President's direct
order to repeal his March 1 measure. A hastily-convened
session of the BNDES board did so that evening, but stressed
that it was doing so only in obedience to President Lula,
with no mention of Furlan.

4. COMMENT. Lula's appointment of the leftist academic
Lessa to head BNDES in early 2003 was a consolation prize to
the Workers' Party's (PT) traditionalist economic dogmatists
who had been conspicuously shut out of the major economic-
policy positions in the new GoB. Furlan resisted it vainly
then, and has had recurrent run-ins with Lessa since,
including over a major BNDES investment decision last
November when Lula slapped Lessa down (Reftels.) Although
Lessa remains in place, Lula's backing of Furlan's pro-
foreign-investment approach in this latest skirmish shows
once again his unambiguous, pragmatic rejection of the old-
style PT mindset.

HRINAK

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