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Cablegate: Lula's International Hunger Initiative Banks On

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

UNCLAS SECTION 01 OF 03 BRASILIA 001756

SIPDIS

SENSITIVE

TREASURY FOR OASIA - DAS LEE AND SSEGAL
NSC FOR DEMPSEY AND DICARLO
ROME FOR FODAG
STATE FOR E - TOM SMITHAM
STATE FOR EB/IFD/OMA - O'REILLY
STATE FOR WHA/EPSC - URS

E.O. 12958: N/A
TAGS: EFIN EAID SOCI PREL BR UN
SUBJECT: LULA'S INTERNATIONAL HUNGER INITIATIVE BANKS ON
TAXATION OF INTERNATIONAL FLOWS

REF: USUN 1593

This cable is Sensitive But Unclassified, please protect
accordingly.

1. (U) Summary: Brazil, in coordination with France, Chile
and Spain, is preparing for circulation this month a set of
proposals for new mechanisms to finance international
development, health and anti-hunger efforts, primarily
through the UN agencies. These proposals would be presented
for discussion by heads of state at a meeting President Lula
is calling on September 20, on the margins of the UN General
Assembly. The financing mechanisms under discussion focus
largely, but not exclusively, on taxation by national
authorities of international financial flows and arms sales.
Proceeds would be forwarded to the UN development agencies.
Other financing mechanisms floated include a carbon emission
tax, the promotion of socially-responsible investment funds
and reducing taxation of remittances.

2. (SBU) The Brazilian effort flows in large part from
Lula's personal experience of hunger and poverty as a child,
according to Maria Nazareth, the GoB point-person on the
initiative. Acknowledging that there are serious obstacles
to implementing this sort of taxation, Nazareth claimed the
GoB approach, and that of their partners, is pragmatic, more
focused on increasing resources available for development
efforts than on specific financing mechanisms. The
financing effort, according to Nazareth constitutes the
third broad thrust of GoB international development efforts,
along with efforts to reduce agricultural subsidies through
the G-20 and Lula's effort to amend how the IMF accounts for
certain investment expenditures. End Summary.

3. (SBU) Emboff met July 13 with Maria Nazareth, of Foreign
Minister Amorim's staff, who is spearheading President
Lula's international anti-hunger initiative. Nazareth
explained that Lula's initiative, like his trademark
domestic "Zero Hunger" program, grew out of his personal
experience of hunger and poverty as a child in Brazil. Lula
recognizes, she said, that getting at the root causes of
hunger implies a broad development agenda. Shortly after
his inauguration in January 2003, Lula attempted to launch
at the Davos conference that year the idea of an
international foundation to fight hunger and finance
development. But, after an extensive conversation with
French President Chirac at the G-8 Evian conference in the
summer of 2003, Lula realized that the problem was less an
issue of an appropriate foundation but rather the lack of
resources, particularly long-term financing, for the use of
the various United Nations development, health and related
agencies. From this encounter, according to Nazareth, was
born a joint Brazilian-French effort, which the governments
of Chile and Spain later joined, to identify or create
financing sources.

4. (SBU) Lula and Chirac, Nazareth said, discussed during
their Evian conversation a modified Tobin tax on
international financial flows as one possible financing
source. The idea, Nazareth stressed, is not to replace
Official Development Assistance (ODA), but rather to create
mechanisms that help make up for the developed world's
failure to meet the 0.7% of GDP ODA target. Chirac
reportedly created a study group, known as the "Landau
group" to begin studying various forms of international
taxation, she said. In addition to a Tobin-style tax on
international financial flows, a proposal for a tax on major
weapon systems was also being advanced. Some have discussed
an international carbon emission tax, although Nazareth said
the latter proposal had stirred up considerable doubts,
since it would make development itself more expensive.

5. (SBU) The Brazilian group that Nazareth heads is
focusing in particular on a tax on international financial
transactions and a separate one on arms sales. Nazareth
stressed that everyone involved in the discussions is
cognizant that universal participation would be necessary
for such taxes to work. All it would take is one country
outside the system for evasion to occur. She acknowledged
that this need for universality required pragmatism. They
had canvassed existing studies, she said, to find approaches
that might be modified and made widely palatable. The Tobin-
style tax, for example, would be set at 0.01% of financial
flows and not structured, as a true Tobin tax would be, to
try to reduce financial market volatility. The studies in
question have suggested that a 0.01% tax on financial
transactions would yield from $17 - $20 billion per year. A
tax on large weapons systems sales, notionally at a 5% rate,
might yield a further $10 billion, although work on this
proposal was less advanced than that on financial flows.
Nazareth argued that the latter tax, to the extent it
reduces weapons sales, might have positive externalities by
reducing the threat that terrorists might gain access to
advanced weaponry.

6. (SBU) Elucidating on the legal basis for these taxation
schemes, Nazareth said that the ideas floated to date do not
call for international taxation administered by the UN.
Rather, national authorities would collect these taxes and
forward them for use by UN development and health agencies.
Discussion of how this could be accomplished was ongoing,
but the most logical approach seemed to be for an
international convention that countries would sign and
ratify.

7. (SBU) Along with obligatory taxation, several
"innovative" financing mechanisms are also under discussion,
according to Nazareth. These include the promotion of
socially-responsible investment funds and making widespread
the use of "incentive" credit cards, that donate a
percentage of the transaction to a cause, in this case the
UN development agencies. These might be accompanied, she
said, by two voluntary efforts to build political consensus
to reduce taxation of immigrant labor remittances (after
receipt in the worker's home country) and to reduce tax
evasion by reducing the role of tax havens. More
controversially, a carbon tax had also been considered. At
a rate of $0.48/liter of gas, such a tax would raise $130
billion world wide, Nazareth said. She acknowledged that,
by making energy more expensive, such a tax might make
development itself more costly.

8. (SBU) Looking ahead at next steps in the process,
Nazareth said that representatives of the governments of
Brazil, Chile, France and Spain would meet again July 28 in
Paris. They would then circulate for initial comment a set
of papers that they hope would form the basis for discussion
at the heads of state level in a meeting Lula has called for
September 20, on the margins of the General Assembly.
Nazareth emphasized that, from the GoB's point of view, the
effort is designed to stimulate broad discussion and
ultimately increase resources available for UN sponsored
development efforts. Nazareth said that the financing
effort is the third broad thrust of GoB international
development efforts, along with efforts to reduce
agricultural subsidies through the G-20 and Lula's effort to
amend how the IMF accounts for certain investment
expenditures.

9. (SBU) Comment: The GoB's interest in this subject
appears to be serious, not just rhetorical, hence Nazareth's
repeated acknowledgement of the need to take a pragmatic
approach. The example of Lula's call for the IMF to change
how it accounts for investment expenditures may be both
instructive and predictive. After initial public fanfare,
in which Lula scored some PR points on the IMF issue, the
technicians at the Finance Ministry sat down to try to map
out an approach that would not spook the markets. Their
effort started from the clear recognition that accounting
shifts won't solve Brazil's debt problem or fool the
markets. A senior finance ministry official assured Emboff
recently that what Brazil is now aiming at is achieving
political consensus, within the IMF and without, for greater
investment in the expenditure mix while maintaining the same
level of fiscal restraint. This represents a substantial
change from initial characterizations of the effort. The
key point, however, is that the GoB's intent has been in
stimulating change, even if they do not get all their
initial public rhetoric indicated they are seeking.

DUDDY

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