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Cablegate: Ambassador and Planning Minister Mantega

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 002680

SIPDIS

NSC FOR MIKE DEMPSEY
STATE PLEASE PASS TO USTR FOR SCRONIN
DEPT OF TREASURY FOR FPARODI
USDOC FOR 4332/ITA/MAC/WH/OLAC/SHIELDS
USDOC ALSO FOR 3134/ITA/USCS/OIO/WH/RD/CREATORE
USDA FOR FAS/ITP AND FAS/FAA/WH
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE
STATE PASS EXIM FOR NATALIE WEISS, COCONNER
STATE PASS USTDA FOR AMCKINNEY

E.O. 12958: N/A
TAGS: ECON EINV ETRD EIND BR
SUBJECT: AMBASSADOR AND PLANNING MINISTER MANTEGA
DISCUSS INVESTMENT IN BRAZIL

REF: A) BRASILIA 2605, B) BRASILIA 2447, C) RIO

DE JANEIRO 1291

1. (SBU) SUMMARY AND INTRODUCTION. IN THE
AMBASSADOR'S OCTOBER 20 COURTESY CALL UPON GOB
PLANNING MINISTER GUIDO MANTEGA, THE LATTER EMPHASIZED
BRAZIL'S NEED FOR INCREASED PUBLIC AND PRIVATE
INVESTMENT. MANTEGA FELT THAT BRAZIL WAS ON THE RIGHT
TRACK AND THAT THE SUCCESS, TO DATE, OF THE GOB'S
MACROECONOMIC PROGRAM WOULD HELP PULL IN GREATER
LEVELS OF FOREIGN DIRECT INVESTMENT (FDI). MANTEGA
PREDICTED THAT BY THE END OF THE YEAR THE BRAZILIAN
CONGRESS WOULD PASS THE PUBLIC-PRIVATE PARTNERSHIP
LEGISLATION (CURRENTLY AWAITING A SENATE VOTE).
MANTEGA'S REMARKS COINCIDE WITH WHAT WE HAVE HEARD
PUBLICLY AND PRIVATELY FROM OTHER GOB ECONOMIC
POLICYMAKERS, WHO EMPHASIZE THE IMPORTANCE OF ECONOMIC
GROWTH IN ATTRACTING FDI - AS OPPOSED TO NUTS AND
BOLTS ITEMS SUCH AS BOLSTERING THE JUDICIAL SYSTEM,
AND ESTABLISHING A STABLE, TRANSPARENT REGULATORY
REGIME. MANTEGA MAY BE IN WASHINGTON IN DECEMBER 2004
OR JANUARY 2005 TO VISIT THE IDB, AND, IF SO, WOULD
LIKE TO MEET WITH TREASURY SECRETARY SNOW OR U/S
TAYLOR AT THAT TIME. END SUMMARY AND INTRODUCTION.

2. (U) ON OCTOBER 20, AMBASSADOR PAID A COURTESY CALL
UPON MINISTER OF PLANNING GUIDO MANTEGA. PLANNING
MINISTRY INTERNATIONAL AFFAIRS ADVISOR JOSE CARLOS
MIRANDA ACCOMPANIED THE MINISTER; ECONCOUNS AND
SPECASST SAT IN FOR THE U.S. SIDE.

3. (SBU) MANTEGA OPENED THE MEETING NOTING THAT, AFTER
THE ECONOMIC AND FINANCIAL INSTABILITY OF 2002 TO
2003, BRAZIL WAS FINALLY ON THE RIGHT TRACK. GDP
GROWTH WAS EXPANDING, EXPORTS WERE AT RECORD LEVELS,
AND INFLATION WAS IN CHECK. AS A RESULT, THE
FINANCIAL MARKETS IN PLACES LIKE NEW YORK, LONDON, AND
FRANKFURT HELD PRESIDENT LULA IN HIGH REGARD - AS DID
THE GENERAL PUBLIC. MANTEGA FELT THAT ALL THIS GOOD
ECONOMIC NEWS WOULD HELP ASSUAGE THE GOB ECONOMIC
TEAM'S PRINCIPAL WORRY: I.E., FINDING A WAY TO
STIMULATE BOTH PUBLIC AND PRIVATE INVESTMENT. FOR IF
THE GOB PROVED UNABLE TO RAISE THE CURRENT LOW RATE OF
INVESTMENT, IT WOULD BE DIFFICULT FOR THE GOVERNMENT
TO ACHIEVE, ON A SUSTAINED BASIS, THE 5 TO 6 PERCENT
GDP GROWTH IT WAS SEEKING. SPECIFICALLY, THE MINISTER
NOTED, THE DEFICIT IN PUBLIC TRANSPORTATION
INFRASTRUCTURE, PARTICULARLY RAILROADS, HIGHWAYS, AND
PORTS, WAS THREATENING TO BRAKE THE COUNTRY'S RAPIDLY
EXPANDING EXPORTS OF COMMODITY GOODS. HAVING THE RAIL
LINE INTO THE PORT OF SANTOS (BRAZIL'S PRINCIPAL
MARITIME DISPATCH POINT) TERMINATE 6 KMS PRIOR TO THE
ACTUAL PORT TERMINAL WAS SOMETHING THE GOB COULD NO
LONGER AFFORD.

4. (SBU) THE MINISTER SAW THE DRAFT PUBLIC-PRIVATE
PARTNERSHIP LAW (PPP) AS ESSENTIAL TO ATTRACTING THE
NEEDED INFRASTRUCTURE INVESTMENT. THE GOB ASSISTANCE
CONTEMPLATED UNDER THE PPP REGIME WILL STIMULATE
DEVELOPMENT OF THOSE PROJECTS WHICH THE PRIVATE SECTOR
OTHERWISE WOULD HAVE PURSUED, MANTEGA OBSERVED. HE
PREDICTED THAT CONGRESS WOULD ENACT THE BILL PRIOR TO
THE END OF THE YEAR. EMBASSY COMMENT: THIS TIMETABLE
COULD WELL SLIP. END COMMENT. THE DELAY IN MOVING ON
THE LEGISLATION TO DATE, MANTEGA SAID, WAS DUE TO THE
FLOOD OF MEDIDAS PROVISORIAS WHICH WERE CURRENTLY ON
CONGRESS' PLATE (BY LAW, THESE ITEMS MOVE TO THE TOP
OF THE AGENDA) AND THE ABSENCE OF SOME CONGRESSMEN WHO
WERE OUT CAMPAIGNING FOR THE UPCOMING MUNICIPAL
ELECTIONS.

5. (SBU) THE AMBASSADOR QUERIED MANTEGA ABOUT A RECENT
A.T. KEARNEY REPORT WHICH INDICATED THAT IN 2004
BRAZIL DECLINED FROM NINTH TO SEVENTEENTH PLACE IN
THAT FIRM'S FOREIGN DIRECT INVESTMENT (FDI) CONFIDENCE
INDEX. THE MINISTER REPLIED THAT THIS REPORT WAS
EXAGGERATED, AS THE COUNTRY HAD DONE MUCH TO GET ITS
INTERNAL HOUSE IN ORDER. THE LULA ADMINISTRATION HAS
REIGNITED ECONOMIC GROWTH, REFORMED THE TAX REGIME,
IMPROVED PUBLIC FINANCES, AND WORKED TO REDUCE
CORRUPTION. IN ADDITION, THE GOB HOPED TO OBTAIN
PASSAGE OF A BILL REFORMING THE COUNTRY'S BANKRUPTCY
CODE. THESE EFFORTS HAD PRODUCED RESULTS, MANTEGA
DECLARED. THE DEVELOPMENT BY FORD OF A SUCCESSFUL
BRAZILIAN DESIGNED AND MANUFACTURED SUV (THE ECOSPORT)
SHOWED WHAT BRAZILIAN BUSINESS WAS CAPABLE OF. WHAT
WAS ESSENTIAL, MANTEGA CONCLUDED, WAS THAT IN SEEKING
TO STIMULATE INVESTMENT, THE GOB AVOID THE MISTAKES
MADE BY THE PREVIOUS CARDOSO GOVERNMENT WHEN IT
PRIVATIZED ELECTRICITY DISTRIBUTION.

6. (SBU) COMMENT. THOUGH MANTEGA DID NOT SPECIFY,
PRESUMABLY HE, LIKE MANY OTHER PT LEADERS, BELIEVES
THAT THE CARDOSO GOVERNMENT'S MISTAKE WAS ALLOWING
PURCHASERS TOO MUCH LEEWAY IN RAISING ENERGY TARIFFS.
HOWEVER, MANY PRIVATE SECTOR ANALYSTS WOULD ARGUE THAT
THE GOB'S "MISTAKE" WAS NOT PROVIDING CLEAR REGULATORY
RULES OF THE ROAD PRIOR TO SELLING THESE PARASTATALS.
END COMMENT.

7. (U) IN CLOSING, MANTEGA NOTED THAT AS THE GOB'S
REPRESENTATIVE TO THE IDB, HE PLANNED TO BE IN
WASHINGTON FOR MEETINGS IN EITHER DECEMBER 2004 OR
JANUARY 2005. DURING THAT TIME, HE HOPED TO MEET WITH
TREASURY SECRETARY SNOW OR U/S TAYLOR.

DANILOVICH

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