Cablegate: Deputy Secretary's Meeting with Brazilian Finance
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 002684
SIPDIS
DEPT FOR D, E, EB, WHA/BSC
NSC FOR SCRONIN
STATE PLEASE PASS TO USTR FOR MSULLIVAN
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSEN/EOL SON
TREASURY FOR DAS LEE AND F. PARODI
E.O. 12958: DECL: 10/06/2015
TAGS: PREL EFIN ETRD ECON
SUBJECT: DEPUTY SECRETARY'S MEETING WITH BRAZILIAN FINANCE
MINISTER PALOCCI
Classified By: Janice Fair, Economic Officer; Reasons 1.4 (b),
(d)
1. October 6, 2005, 5:00 P.M., Finance Ministry, Brasilia,
Brazil.
2. Participants:
United States:
The Deputy Secretary
Tom Shannon, Special Assistant to the President and
Senior Advisor for Western Hemisphere Affairs
Ambassador John Danilovich
Phillip Chicola, Deputy Chief of Mission
Christopher Padilla, D Chief of Staff
Janice Fair (notetaker), Econoff
Brazil:
Finance Minister Antonio Palocci
Roberto Abdenur, Brazilian Ambassador to the United States
Joaquim Levy, Treasury Secretary, Ministry of Finance
Luiz Awazu Pereira, Assistant Secretary for International
Affairs
Marcos Galvao, Minister's Chief of Staff
Paulo Chuc, Foreign Ministry America Desk
3. (C) Summary. In a cordial one hour meeting on Thursday,
October 6, Deputy Secretary Zoellick and Brazilian Finance
Minister Palocci discussed a generally positive regional
economic scenario, as well as the need to address underlying
economic problems that have contributed to political
difficulties in some of the region's more fragile
democracies. As a means of pre-empting the rise of populist
leaders, the Deputy Secretary broached the idea of
hemispheric leaders mobilizing the Organization of American
States (OAS) and the Inter-American Development Bank (IDB) to
implement economic development programs targeting the more
marginalized segments of society, thereby generating support
for sound economic management and democracy. Palocci
identified legal reforms and improvements in the business
climate among his priorities for further structural reforms
in the Brazilian economy and noted international negotiations
could help speed an opening of the reinsurance sector. The
Deputy Secretary described the U.S.-Brazil relationship as
good, but not developed to its full potential. Both
expressed an interest in expanding and deepening the
bilateral political and economic dialog. End Summary.
4. (C) Minister Palocci gave an upbeat assessment of the
economic outlook for Latin America. Brazil has reached solid
economic stability through prudent government policies, and
enjoys a reduced vulnerability to oil price shocks due to
private investment and diversification in energy use -- 68
percent of the autos produced in Brazil can run on ethanol as
well as gasoline. The country is now prepared for a period
of sustained growth, he added. Palocci noted problems in
Bolivia, and to a lesser extent in Ecuador, but praised
Chile, Colombia and Uruguay for implementing policies firmly
grounded in sound economic principles. Palocci touched
briefly on Brazil's economic collaboration with Argentina,
conveying confidence in Argentine Economic Minister Lavagna,
but noting difficulties in that country due to incomplete
reforms, inflationary pressure, and resistance by Argentine
industrialists to trade liberalization. Despite good
economic policies in a number of countries, Palocci cautioned
that economic adjustments in major economies -- such as U.S.
Federal Reserve announcements on interest rate changes -- can
have substantial impact on the region's emerging markets; he
advocated orderly, transparent and coordinated actions to
mitigate market disruptions.
5. (SBU) In response to an inquiry from the Deputy Secretary
regarding the GoB's agenda for structural reforms, Palocci
counted among government successes the new bankruptcy law and
an expansion of credit instruments. With regard to future
initiatives, Palocci explained that the creation of 100,000
jobs per month as a result of economic policy reforms helped
convince him that traditional labor reform is not as
important as it was once. Instead, he believes the emphasis
should be on legal reforms and other improvements in the
general business climate which will have a more profound
impact on economic growth and employment. Palocci also said
a successful outcome in the WTO Doha trade negotiations is
important for advancing economic development throughout the
world.
6. (C) Picking up on the trade theme, the Deputy Secretary
said he believes Brazil, along with China, could emerge as an
industrial power within 10 years, and noted the importance of
trade liberalization in the manufacture and services sectors
for boosting the competitiveness of an increasingly outward
oriented Brazilian industry. Palocci responded that Brazil's
financial services sector is open, and added that a bill is
in the Brazilian Congress to open the reinsurance sector,
currently a government monopoly. He suggested that the
process for opening this sector could be accelerated as a
result of international negotiations. Speaking more
generally, Palocci shared his impression from recent IMF
meetings of a more positive climate toward trade among
developing countries, but added that although there is
increased willingness on the part of developing countries to
consider expanded market access for manufactures, the
expectation remains that developed countries must make the
first move.
7. (C) The Deputy Secretary characterized the U.S.-Brazil
relationship as good, but not developed to its full
potential, despite the goals we share as the two largest
democracies in the western hemisphere. He said part of his
motivation for coming to Brazil was to seek a deepening of
that relationship and, in particular, to explore working more
closely with the GoB on ideas for improving economic and
political stability in the region. The Deputy Secretary
reasoned that economic problems underlie many of the
political difficulties besieging some of the more fragile
democracies. He argued that people must see the benefit of
economic development policies in their own lives or their
dissatisfaction will be exploited by populists, such as
Venezuela's Chavez and Nicaragua's Aleman.
8. (C) An idea broached by the Deputy Secretary with
Palocci, and raised earlier with Presidential advisor Marco
Aurelio Garcia, was to urge the OAS and the IDB to marshal
and coordinate their resources and expertise for projects
that focus economic development at the individual level.
Projects could include micro-lending, property rights for
indigenous peoples, mortgage financing -- projects which by
producing concrete results for marginalized citizens would
help generate support for sound economic management and
democracy. The Deputy Secretary suggested that having USG
and Brazilian officials compare notes and exchange ideas
about the nexus between political and economic issues would
be a useful exercise. He noted that since Luis Moreno and
Jose Insulza are both relatively new in their positions at
the IDB and OAS, respectively, now is an opportune time to
approach them on reassessing the kind of economic assistance
that would be most useful for bolstering democracy in the
regions' less stable countries.
9. (C) Palocci agreed that populism is a problem in Latin
America, noting the importance of governments such as
Brazil's, Chile's and Uruguay's in demonstrating that "left"
does not equate with populist or unsound economic policies.
Without endorsing the specific idea regarding the OAS and
IDB, Palocci supported expanding the USG-GoB political and
economic dialog and thought that Marco Aurelio Garcia would
as well. He praised the bilateral Group for Growth
initiative, launched as a result of the 2003 summit between
Presidents Bush and Lula, for providing a mechanism for
substantive exchanges between our economic teams; he thought
the model could be adopted for discussions of other issues as
well. Palocci indicated an interest in encouraging the IDB to
support countries pursuing public-private partnerships by
helping with evaluation of projects and contracts. The
Deputy Secretary took the point further and suggested the
time is ripe for development banks to reassess their mission,
focusing more on improving access to information on a wide
range of issue areas and facilitating implementation of
economic development policies.
10. This cable was cleared by the Deputy Secretary's
traveling party.
Danilovich