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Cablegate: Exports, Populism and Old Allies: A Trip to Parana

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UNCLAS SECTION 01 OF 06 SAO PAULO 001054

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E.O. 12958: N/A
TAGS: PGOV PREL EAGR ETRD EWWT EINV SCUL KPAO BR
SUBJECT: EXPORTS, POPULISM AND OLD ALLIES: A TRIP TO PARANA


1. (SBU) SUMMARY. On a recent trip to the state of Parana just
southwest of Sao Paulo, Consul General helped launch a Commerce
Department initiative at the Port of Paranagua, which, according to
Port officials and the state's governor, is being revitalized into a
dynamic commercial sea link for southern Brazil. Local authorities,
however, question the efficacy of the State's investments in the
publicly-owned and operated port facilities, and lament the
ramifications of the governor's three-year old ban on the transport
of genetically modified organisms (GMO) through the state. The
Consul General also met with business representatives and government
officials in Parana's capital, Curitiba, a city respected worldwide
for its visionary urban planning and mass transit system, and an
apparent magnet for foreign investment. He also addressed the
state's most important industrial association in conjunction with an
event highlighting investment opportunities in the United States.
In addition to business activities and press interviews, the Consul
General toured a rainforest preservation project, a museum dedicated
to the Brazilian soldiers who fought alongside U.S. troops in Italy
during World War II, and a Brazil-U.S. bi-national center. END
SUMMARY.

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--------------------------------------------- ---------
PORT OF PARANAGUA: NEW GATEWAY, OR WASTED OPPORTUNITY?
--------------------------------------------- ---------

2. (U) Consul General (CG) recently made his first official visit
to the state of Parana, which borders Sao Paulo state to the
southwest. As part of the trip, the CG signed a Network with the
United States of America (NUSA) cooperative agreement with Dr.
Eduardo Requiao de Mello e Silva, the Superintendent of the Ports of
Paranagua and Antonina, whereby information about business
opportunities and partnerships between U.S. and Brazilian firms may
be more readily exchanged. Designed and implemented by the U.S.
Commercial Service (USCS), there are now 47 NUSA agreements in
effect throughout Brazil.

3. (SBU) The Administration of the Ports of Paranagua and Antonina
(APPA) boasts that the Port of Paranagua, now publicly owned and
operated, is the largest solid bulk port in Latin America and dates
back to 1872. The Parana State Government has invested $75 million
in the port in recent years, claiming that under previous
administrations, the port had faced "inefficiency, non-operation,
and losses." Slick marketing materials are obviously aimed at
international firms, including brochures and a promotional video
done in English. The APPA promotes Paranagua as a modernized port
that maximizes efficiencies such as 24/7 operations, new heavy-duty
asphalt for the approach-road, and separate truck entrances and
weighing facilities based on cargo type (dry bulk, wood, or
refrigerated). The APPA claims the port is in a "rebound" phase,
having experienced a 100 percent increase in truck traffic between
2004 and 2005, with 3,000 trucks bringing grain to port each day
during peak harvest time.

4. (SBU) But a tour of the port showed modest improvements, such
as new concrete and updated design features to better regulate
vehicle-flow, while much of the touted renovation and expansion of
the port is still under construction. Further, subsequent meetings
with local officials suggested a more troubled side to the port's
recent history. Paranagua Mayor Jose Baka Filho was a civil
engineer specializing in port construction before he ran for public
office. A member of the Democratic Labor Party (PDT), Baka Filho
barely hides his disdain for and distrust of the state's governor,
Roberto Requiao, of the Brazilian Democratic Movement Party (PMDB).
According to Baka Filho, the port is being mismanaged due to general
incompetence, and most of the improvements cited by the Port
Superintendent and the governor -- who are brothers and part of a
wider Requiao nepotism network -- were either begun under the
previous administration or have yet to materialize. The Mayor
admitted that "some new asphalt has been laid here and there," but
he largely dismissed the cited expansion projects, like new workers'
facilities and a new petroleum storage and transfer bunker,
describing them as "paralyzed" by construction delays. He also said
that a special tax assessed only on port communities -- rather than
general state funds -- funded much of the recent work on the port,
and that public tenders for many project never materialized.

SAO PAULO 00001054 002 OF 006


Furthermore, Mayor Baka Filho charged that Paranagua's economy has
been severely weakened in recent years by a reduction in grain
shipments leaving the port. He rallied the local business community
to deliver the same message, and representatives of the Paranagua
Association of Commerce, Industry and Agriculture (ACIAP) reiterated
the mayor's charge that the local economy has suffered under the
policies of the current state government.

5. (SBU) The drop in grain shipments from Paranagua is attributed
to the governor's policies against genetically modified organisms
(GMO). Parana Governor Roberto Requiao is a firebrand populist
known for wearing blue jeans to formal events and for freely and
vociferously expressing his left-leaning views. In 2003, he
declared his state GMO-free. With the aid of his brother, the Port
Superintendent, the Governor banned the transportation of
GMO-commodities through his state, including exports leaving from
the Port of Paranagua, the leading port for grain exports in Brazil
at that time. Paranagua officials now complain bitterly that this
policy has caused the volume of shipping to drop precipitously as
growers from other states and from Paraguay adjusted to the
transportation ban by sending their grain exports (mostly soy) to
ports in the neighboring states of Santa Catarina and Sao Paulo.
Since the ban took effect, the Port of Santos in Sao Paulo state has
surpassed the Port of Paranagua as Brazil's leading export terminal
for soybeans.

6. (SBU) Local government officials and businessmen of the small
city argue that the diversion of grain trucks has led to reduced tax
revenue for the port communities and increased unemployment among
stevedores and unskilled laborers who work on the docks and at
related industries. Business representatives said that 80 percent
of the local economy is connected to the port, and when pressed,
neither Paranagua's mayor nor its business leaders could marshal
ideas for near-to-mid term alternative economic drivers. (NOTE:
Governor Requiao recently signaled he will loosen his policy against
the use and transport of GMO-enhanced grains in Parana, in part due
to several court rulings declaring the ban illegal, and likely in
part due to the economic consequences noted by his critics. It is
also worth noting that Requiao must run in a second-round election
race as a result of the October 1 nationwide elections. He received
38.9 percent of the votes cast, well shy of the majority required to
secure a victory in the first round of elections under Brazilian
law. His closest competitor, Osmar Dias of the PDT, received 35.08
percent, and the two will face off in second-round elections on
October 29. END NOTE)

----------------------------
CURITIBA CONTINUES TO THRIVE
----------------------------

7. (U) Curitiba, the Parana state capital, is world renown as a
model of urban planning and mass transportation. Unlike Sao Paulo,
its sprawling neighbor to the east, Curitiba has a well-defined
central downtown area that includes a pedestrian mall extending
several blocks through the heart of a retail shopping, services and
hotel district. Curitiba also managed to preserve more of the
distinctive, Portuguese-influenced architecture represented by the
colonial era homes that once belonged to the coffee barons and
plantation owners of the region; today, restaurants, banks and real
estate agents make their offices in the well-preserved structures.
Central state and municipal government offices, including those of
the governor and the mayor, are located in a compact government zone
near the city center, and the city is zoned to reduce population
density as neighborhoods develop farther from major transportation
arteries. Curitiba also boasts several large and well-maintained
parks with world-class cultural centers.

8. (U) Perhaps the most noteworthy characteristic of Curitiba is
its mass transit system, called the Integrated Transportation Net.
Realizing that a rail or subway system would be prohibitively
expensive to construct late in the city's development, city planners
in the 1970s and 80s instead built an extensive single-fare bus
system that maximizes efficiency at every turn, including its
now-famous elevated, tubular bus stops. Studied closely by urban
planners around the globe, Curitiba's bus system has been used as a

SAO PAULO 00001054 003 OF 006


model for transportation systems in Bogota, Panama City and Los
Angeles, among other cities.

9. (SBU) The Mayor of Curitiba, Carlos Alberto Richa, said that of
the thousands of international visitors that contact his office each
year, most are interested in studying the city's methods of managing
environmental issues, transit, and urban planning. Mayor Richa
added, however, that he is also trying to expand the city's image as
a business center primed for international investment. Large
international companies like Volkswagen, Volvo and Kraft Foods have
substantial operations in the Curitiba environs, and the city's
industrial zone looks like many suburban American business parks,
with wide boulevards and well-trimmed lawns leading to corporate
headquarters and modern factories. The mayor noted that HSBC Bank
is considering a software project in Curitiba that would produce
4,000 jobs if realized. Mayor Richa, who is the Parana state
coordinator for the Social Democratic Party of Brazil (PSDB) and a
political rival of the state's governor, is also proud of his city's
reputation as having the best quality schools and health care in
Brazil. Anecdotal evidence supports the mayor's contention that
Curitiba is poised to continue thriving in an environment rich in
foreign investment: Europeans and Americans dominated the guest list
of the hotel and conference center at which we stayed, and the owner
of the transport service we hired told us, in English, that most of
his clients are foreign executives (primarily Europeans but also
Americans) shuttling between businesses and government offices.

--------------------------------------------- -
BRAZILIAN EXECUTIVES MOVE UP IN MULTINATIONALS
--------------------------------------------- -

10. (SBU) While in Curitiba, the CG attended a business lunch
organized by corporate lawyer and long-time political insider Joao
Casillo. Along with the colorful and storied state legislator
Rafael Greca (PMDB), who was once mayor of Curitiba and later served
as federal Minister of Sport and Tourism under President Fernando
Henrique Cardoso, Casillo hosted executives from a dozen U.S.-based
corporations doing business in the region, including American Axle
and Manufacturing (AAM), Phillip Morris, and Becton, Dickinson and
Company. Casillo noted that only a few years ago the attendees of
such a meeting would mostly be American expatriates filling
executive-level jobs in Brazil. By contrast, at our meeting only
two Americans were present in a room full of Brazilian-born managers
and executives. Casillo and Greca attributed this trend to the fact
that well-educated and motivated Brazilians have been climbing the
corporate ladders of multinationals over the years and now, after
having done well in management positions overseas, these officers
are returning to the executive suites in Brazil in posts including
Chief Financial Officer, Managing Director and Chief Executive
Officer. The mood was good and optimistic among these
businesspeople of Curitiba.

-------------------------------------------
INDUSTRIAL VIEW ON GSP, CHAVEZ, AND GEORGIA
-------------------------------------------

11. (SBU) Another highlight of the CG's trip to Parana was a speech
on business opportunities in the United States delivered at the
Federated Industries of Parana State (FIEP). FIEP is the most
important industrial association of Parana, and it is based in an
impressive, sprawling campus with several buildings housing offices,
meeting rooms, teaching and training facilities, an auditorium and a
helipad. The State of Georgia and PNC Bank of Pennsylvania
sponsored the event to draw attention to opportunities for Brazilian
and international businesses based in Parana to use cities like
Atlanta and Savannah as gateways to U.S. markets. Some 100
businesspeople attended the session, which was covered by the press.
FIEP representatives inquired into whether the organization could
reach a more formal agreement with the Commerce Department regarding
direct ties between FIEP and the USG. Commercial Officer discussed
options and a plan for follow-up meetings.

12. (SBU) In a private meeting with the CG, FIEP President Rodrigo
da Rocha Loures said that Venezuelan President Hugo Chavez is
politicizing the MERCOSUR economic block and attempting to win

SAO PAULO 00001054 004 OF 006


regional support through populist rhetoric and "paternal" spending.
He noted, however, that "capitalism naturally counters paternalism"
and the corruption that often accompanies it, and opined that
Chavez' influence in South America will ultimately be limited.
Rocha Loures, who founded the processed foods company Nutrimental
with current operations throughout Brazil, also took pains to
explain why Brazil still needs access to the General System of
Preferences (GSP) soon to expire. He said he understands that the
purpose of GSP benefits was to help developing countries achieve a
competitive level of industrialization and sustainability on
international markets, but he insisted that, with some 4 million
young people unemployed without hope of finding good jobs and the
twin problems of chronic crime and social inequities, Brazil has not
yet turned the corner from being a developing nation and could
easily slip into economic stagnation without the trade opportunities
afforded by the GSP.

--------------------------------------------- --
PUBLIC DIPLOMACY: EXCHANGE OPPORTUNITIES ABOUND
--------------------------------------------- --

13. (U) The Consul General conducted numerous press interviews and
participated in several photo ops for print and broadcast news
outlets while in Parana. The trip received fairly extensive
statewide press coverage, particularly from the perspective of
U.S.-Parana business development.

14. (SBU) The CG visited the Inter Americano bi-national center in
Curitiba with the CONGEN's Public Affairs Officer (PAO). Inter
Americano is a relatively large bi-national center with five
locations offering English classes, a United States-focused research
library, and preparation courses for American college and graduate
school exams. But the center suffered a dramatic decline in
enrollment between 2000 and 2004. This decline in community
interest was probably due largely to the same conditions that marked
a worldwide decline in international student travel to the United
States since 9/11; fear of travel and frustration with new rules
governing visas for foreign students. But we believe the loss of
enrollment at Inter Americano might be also be attributed to
inaction by its static, aging Board of Directors. With this visit
we hoped to re-invigorate the center's programming by offering
encouragement to the young and energetic staff and by focusing
attention on innovative program areas that show promise. We note
that enrollment has stabilized and even increased slightly since
2004, and several new programs are showing significant public
interest, such as partnerships with local businesses and
governmental agencies and internship opportunities coordinated by
Inter American. Inter American also coordinates the applications
from Parana State for the Embassy's very successful Youth
Ambassadors Program, which sends 25 young Brazilians, mostly from
rural or disadvantaged areas, to the United States on two-week
cultural exchanges. The Embassy has received over 2000 applications
for each cycle of the program, which are judged on a number of
merit-based criteria. A significant number of qualified candidates
were noted from Parana state, and three of these students were
chosen to participate in different years. The CG met with these
students at Inter Americano, as well with as a teacher who
participated in a similar exchange program, and discussed their
experiences and plans for the future.

15. (U) The CG also met with the administrators of the Advanced
Institute of Business Administration and Economics associated with
the Getulio Vargas Foundation (ISAE/FGV). This prestigious
institution provides executive MBA degrees and other business
certificates largely to working students, most of whom are sponsored
by their employers. ISAE/FGV has had exchange programs with U.S.
business schools and continues to work closely with the Consulate,
and its current curriculum features courses in ethics and corporate
social responsibility.

-----------------------
ALMOST FORGOTTEN HEROES
-----------------------

16. (U) Brazil's contribution to the Allied effort in World War II

SAO PAULO 00001054 005 OF 006


is often misunderstood, or simply overlooked. In addition to
providing raw materials and strategic air and naval bases in South
America, Brazil sent 25,000 troops to Italy as the Brazilian
Expeditionary Force (FEB), which was attached to the U.S. Fifth Army
commanded by General Mark Clark. In the winter of 1944-45, the
Brazilian division, known as the "Smoking Snakes" for their
distinctive emblem, fought a series of brutal but ultimately
successful battles to capture a ridge that came to be known as Monte
Castello, and FEB forces helped push the Allied advance through
Italy to the French border in the spring of 1945. But the FEB was
quickly disbanded upon its return to Brazil, and over the next four
decades the veterans that fought in Italy were all but forgotten;
they were even denied health and pension benefits afforded to
subsequent military retirees who never served in combat.

17. (SBU) But since 1946, FEB veterans from Parana have maintained
the Expeditionary Museum in Curitiba. The CG met with a curator and
a group of war veterans at the museum, who retraced the battles they
fought alongside the U.S. 10th Mountain Division in the Italian Alps
using wall-maps and dioramas. The veterans also showed a wide range
of artifacts, armaments, uniforms, documents and photographs from
the War, including period photos of themselves that hang on the
walls of the museum. The museum is well-maintained in an attractive
setting near the heart of Curitiba, and it houses a small but
impressive array of authentic equipment including an aircraft,
battle tank, and several artillery pieces. A curator said that
American scholars sometimes conduct research using original
documents from the museum's collection. The museum demonstrates a
particularly strong historical tie between Brazil and the United
States, one in which the two nations fought side by side against a
common enemy for a common cause. The CG and PAO discussed with the
veterans possible partnerships that could be developed with the
museum via the Mission. One idea would be to help connect the
museum to veterans groups in the U.S., particularly of the 10th
Mountain Division.

------------------
RAINFOREST RESPITE
------------------

18. (U) Parana is a state of striking environmental beauty, from
rolling farmland in the central and northeast regions of the state,
to the near-vertical, rainforest mountain range that looms high over
the southern coast and was referred to as "The Wall" by early
European explorers who dreamt of finding a passage to the interior.
While forests of the tall, prehistoric-looking Aruacaria fir trees
have been all but cleared for farmland from much of inland Parana,
part of the ancient Mata Atlantica rainforest has been preserved
along the state's coastline. The CG toured a portion of the Mata
Atlantica with Dr. Paulo de Tarso Pires, an environmental law
professor at the Federal University of Parana, and the director of a
rainforest conservation project run by the Parana State Department
of the Environment. The Consulate's Public Diplomacy section has
sponsored many exchange and speaker programs in association with
Parana governmental, university and non-governmental environmental
advocates. Tarso Pires himself is a past participant in the
International Visitor's Program (IVP), and on this trip he
introduced us to a number of budding young conservationists who are
following his lead in developing sustainable biodiversity
conservation programs.

--------------------------------------
COMMENT: CURITIBA CONTINUES TO IMPRESS
--------------------------------------

19. (SBU) Parana represents an important industrial and
agricultural region, with state exports to the United States
totaling almost $1.5 billion and U.S. imports reaching $470 million.
Politically, party loyalties of voters give way to the cult of
personality, as we met important state and local leaders from a
number of political parties each apparently able to hold on to a
loyal base by means of very different and specific public personas
and personal accomplishments. The governor's port revitalization
plan may boost the state's importance as a trading hub, but
regardless of the port's efficiency, distribution capacity puts a

SAO PAULO 00001054 006 OF 006


natural limit on growth. Paranagua is linked to Curitiba and the
rest of Brazil by a single rail line that slices through the steep
and rugged mountains ringing the port, and which was an engineering
marvel when built a century ago. The newer adjacent highway also
follows a steep and curvy path through the mountains, and is plagued
by frequent thick fog that envelopes the passes and makes truck
traffic slow, difficult and sometimes dangerous even in the daytime.
But Curitiba continues to impress visitors and attract
international business interest. Thus, if the state government does
improve the image and utility of the Port of Paranagua, and the city
government boosts Curitiba's draw as a center for modern industrial
production, Parana may increase its market share of Brazil's import
and export business and of its foreign direct investment and enhance
its reputation even further as one of Brazil's most comfortable
places to live. END COMMENT.

20. (U) This cable was coordinated/cleared by Embassy Brasilia.

MCMCULLEN

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