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Cablegate: Scenesetter: The Secretary's Visit to Brazil, 4-6

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 002468

SIPDIS

SENSITIVE

DEPT FOR S/ES, WHA, WHA/BSC

E.O. 12958: N/A
TAGS: PGOV ECON PREL SOCI BR US
SUBJECT: SCENESETTER: THE SECRETARY'S VISIT TO BRAZIL, 4-6
OCTOBER 2004


1. (SBU) The United States Mission in Brazil warmly welcomes
your visit to Sao Paulo and Brasilia. You are the senior USG
official to travel to Brazil during the administration of
President Lula da Silva. Your visit has been much sought
after by the GOB, and the President and Foreign Minister
Amorim will view their meetings with you as invaluable
opportunities to exchange views. In Sao Paulo, you will
address the American Chamber of Commerce of an industrialized
metropolis that is one of the world's most populous cities
and capital of the state that generates a third of Brazil's
GDP. In both cities you will interact with young Brazilians
who have benefited from U.S. Government and private corporate
outreach programs. A brief list of key issues that may be
discussed in the official meetings is at paragraph 2.
General background on Brazil follows in paragraphs 3-9.

KEY ISSUES
----------
2. (SBU) Issues that may be raised in your meetings with the
GOB include:

-- Bilateral Relations: Follow up to the 2003 Presidential
summit, working together on future challenges (e.g.,
successful cooperation at Doha), proposal of a possible
Defense Cooperation Agreement
-- Brazil and the International Hunger Initiative: Follow up
to 20 September meeting
-- UNSC: Council Reform (including Brazil's desire for a
permanent seat), Haiti PKO, Iraq, Darfur, Middle East peace
issues
-- Non-Proliferation: Iran, Brazil-IAEA discussions on
Additional Protocol, 2005 NPT Review Conference
-- Regional: Current situations in Venezuela and Bolivia
-- Trade: Way ahead on FTAA and WTO; piracy issues (GSP and
IPR)

GENERAL
-------
3. (SBU) Brazil is the largest country in Latin America in
area (bigger than the continental U.S.) and population (182
million). It is a strong democracy and an economic
powerhouse, with a thriving industrial base producing and
exporting products ranging from airplanes to shoes. Its
agricultural sector leads the world in production of many
crops (Brazil's agricultural exports to the US are seven
times higher than U.S. agricultural exports to Brazil). In
recent months, the Brazilian economy has shown signs of
growth based on sound government fiscal policy. However,
despite its robust democracy and economic force, Brazil still
has one of the world's most unequal distributions of income
and land, and suffers from severe criminal violence.

POLITICAL AND SOCIAL LANDSCAPE
------------------------------
4. (SBU) Brazil's democracy is less than two decades old,
having succeeded the military regime that ruled from
1964-1985. Lula da Silva, the country's first working-class
president, took office in January 2003. He passed important
tax and pension reforms but has made little progress on his
social agenda, including his flagship Zero Hunger project.
Lula's Workers' Party (PT) leads an eight-party coalition
that holds a majority in both houses of Congress, but the
coalition is undisciplined, and Lula must make compromises to
pass his legislation. On October 3, the first round of
nationwide municipal elections will be held to select the
country's mayors and city councils. Many key races,
including the mayor of Sao Paulo, are likely to go to a
second-round runoff on October 31. National elections will
be held in 2006, and Lula is expected to seek a second term.

5. (SBU) The administration's social agenda has not met
expectations, as resources have been limited by the
government's spending cuts. The Landless Movement (MST), a
traditional ally of the Workers' Party, has continued to
carry out land invasions across the country. Organized crime
and violence linked to narcotrafficking are acute,
particularly in Sao Paulo and Rio de Janeiro, where at times
the authorities exert only tenuous control. The GOB is
fighting back -- in October 2004, the GOB will implement a
program authorizing the Brazilian air force to shoot down
illegal narco-trafficking flights.

6. (SBU) Under President Lula, Brazil has achieved a higher
international profile, reflected in its leading role in South
America, its push for a UNSC permanent seat, its spearheading
of a "G-20" group of developing nations, its revitalization
of Mercosul, and its constructive roles in Haiti and
Venezuela. Brazil is an important player on global issues
such as hunger (witness the September 20 New York
Conference), HIV/AIDS and the environment. U.S./Brazilian
cooperation has been key to progress on the WTO Doha round,
including at July meetings in Geneva. Brazil and the U.S.
are co-chairs of the FTAA negotiations. The GOB has focused
on South America and developing countries, engaging
intensively with Mercosul and forging a regional approach to
trade talks. Brazilians are commited to the UN and other
multilateral institutions. The majority of Brazilians oppose
the war in Iraq. Lula has voiced strong opposition to the
war, but this has not prejudiced his approach to broader
bilateral relations.

ECONOMIC ISSUES
---------------

7. (SBU) Brazil is living one of its best economic moments in
recent history. GDP growth has averaged above six percent
for three quarters and external accounts remain healthy as
exports boom. The economic news has been good enough to
strengthen Lula's hand as he continues with his orthodox
fiscal policies. Brazil should run a 1.5 percent of GDP
account surplus this year. Unemployment, while still high,
is falling and real incomes are starting to climb. Increasing
inflationary pressures are causing the Central Bank to raise
interest rates (to 16.25 percent). Strong revenue growth
places Brazil in a position of strength to deal with its main
vulnerability: debt. GOB measures to increase the primary
fiscal surplus target are helping reduce the debt-to-GDP
ratio; as a result, analysts have upgraded Brazil's credit
rating.

8. (SBU) Lula's economic challenges going forward are to
implement structural reforms, (e.g., public-private
partnership legislation, bankruptcy law and judicial reform)
and to increase savings and investment to sustain the higher
growth rates Brazil needs if the GOB is implement a
significant program to address social inequalities.
Potential investors also want to see lower taxes and and more
rational regulatory environment.

TRADE POLICY
------------

9. (SBU) Exports figure prominently in plans to fuel
economic growth, yet the economic and social benefits of
liberalizing trade are not widely promoted, and the fear of
job losses remains. In addition to seeking to boost exports
through trade negotiations and export financing, the Lula
government is trying to lower the "Brazil cost" of local
production by addressing systemic problems through reforms to
social security and other areas, and is looking to improve
the country's crumbling infrastructure. For economic and
political reasons, the administration is seeking expanded
trade ties, particularly with developing countries. Brazil
helped form the G-20 group at the WTO Cancun Ministerial in
2003 and continues to lead this group. Brazil and its
Mercosul partners are negotiating trade agreements with the
EU, South Africa, Russia, and India and are considering trade
talks with China. Brazilian exports to China have doubled in
the last year. Brazil places particular importance on
expanding trade ties with its South American neighbors. The
US and Brazil have been co-chairs of the FTAA negotiations
since November 2002. It has been a difficult period fraught
with uncertainty over Brazil's commitment to the
negotiations. While Lula has shed the extreme anti-FTAA
rhetoric of the 2002 campaign, his administration has not
embraced the accord as a priority, and Brazilian commercial
interests have yet to overcome ideological hurdles to what is
viewed as a U.S.-led initiative.

DANILOVICH

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