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Cablegate: Sao Paulo Key Economic Developments, December 1-15, 2009

VZCZCXYZ0808
RR RUEHWEB

DE RUEHSO #0728/01 3501649
ZNR UUUUU ZZH
R 161647Z DEC 09
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 0255
INFO RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHAC/AMEMBASSY ASUNCION
RUEHBO/AMEMBASSY BOGOTA
RUEHBR/AMEMBASSY BRASILIA
RUEHBU/AMEMBASSY BUENOS AIRES
RUEHCV/AMEMBASSY CARACAS
RUEHLP/AMEMBASSY LA PAZ
RUEHMN/AMEMBASSY MONTEVIDEO
RUEHPE/AMEMBASSY LIMA
RUEHRG/AMCONSUL RECIFE
RUEHRI/AMCONSUL RIO DE JANEIRO
RUEHSG/AMEMBASSY SANTIAGO
RUEHSO/AMCONSUL SAO PAULO

UNCLAS SAO PAULO 000728

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV BR ETRD EINV
SUBJECT: SAO PAULO KEY ECONOMIC DEVELOPMENTS, DECEMBER 1-15, 2009

1. (U) SUMMARY: This cable covers the period of December 1-15,
2009. It highlights economic, energy and science and technology
developments in the Sao Paulo Consular District not covered by
broader reporting. Some significant developments during the period
were: Brazil's bullet train project, results of Brazil's first wind
power auction, reactions to next year's economic stimulus measures,
and the economic impact of the flooding in Sao Paulo. END SUMMARY.

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Bullet Train Unlikely by the 2014 World Cup

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2. (U) Sao Paulo leaders announced December 8 that the construction
of a bullet train from Campinas to Sao Paulo and on to Rio de
Janeiro will not be completed by the time of the World Cup in 2014.
The project is estimated to cost around $20 billion dollars, of
which about $12 billion, or 60 percent, is expected to be funded by
Brazil's National Development Bank (BNDES) and 30 percent, or about
$6 billion, by the Brazilian government. The GOB intends to create
a new government-owned company, which will research and control the
technology associated with the bullet train. The GOB estimates
that about 7 million passengers will travel between Sao Paulo and
Rio via the bullet train annually once complete. Travel time
between Sao Paulo and Rio will fall from approximately five hours
to two. The project is set to start in the first quarter of next
year, and is expected to be completed by the end of 2015--too late
for the World Cup but ready in time for the Rio Olympics in 2016.

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2010 Economic Stimulus Measures Generate Divided Reactions

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3. (SBU) Following the December 9 announcement by Finance Minister
Mantega of additional fiscal stimulus measures to bolster the
Brazilian economy, private sector representatives in Sao Paulo have
responded with mixed sentiments. The package, likely to amount to
more than $118 billion in 2010, includes a new line of credit to
BNDES worth $47 billion to finance investments in infrastructure,
capital goods and exports, among other categories. Corporate
sector contacts have reacted enthusiastically, particularly
following the announcement December 10 of slower than expected
economic growth figures for the third quarter of 2009. Paulo
Godoy, president of Abdib (Brazilian Association of
Infrastructure), for instance, highlighted that the measures
support the demand for long-term loans. However, many analysts,
such as Alexandre Schwartsman, chief economist at Santander,
expressed growing concern about the impact of successive public
stimulus packages on the fiscal accounts and monetary policy.

---------------------------------------------

Economic Impact of the Flooding in Sao Paulo

---------------------------------------------

4. (U) Floods in the city of Sao Paulo December 8-9 generated
economic losses and brought traffic on key cross-city highways to a
standstill as the adjacent Tiete and Pinheiros rivers broke their

banks. The weather service reported it was the heaviest 24-hour
period of rainfall in Sao Paulo this year, dumping half of its
total average December precipitation in one night. The flooding
generated significant economic losses, primarily to small and
medium size businesses. Ceagesp, a warehouse company, lost
approximately $8.8 million in inventory while small establishments
in the municipal market reported a drop in sales of 60 percent
following the rains and Sao Paulo's commercial association reported
a 12 percent decline in commercial transactions in the city. Sao
Paulo Mayor Gilberto Kassab publicly denied repeated accusations
that lack of investment in water canalization was to blame and has
ordered a review of city emergency services to improve the response
to future flooding.
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