US embassy cable - 03BRASILIA3813

UNCLAS SECTION 01 OF 02 BRASILIA 003813 
 
SIPDIS 
 
NSC FOR SHANNON 
TREASURY FOR SSEGAL 
PLS PASS FED BOARD OF GOVERNORS FOR WILSON, ROBATAILLE 
USDA FOR U/S PENN, FAS/FAA/ITP/TERPSTRA 
USDOC FOR 4322/ITA/IEP/WH/OLAC-SC 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, EINV, EIND, ETRD, EAGR, PGOV, SOCI, BR 
SUBJECT:  BRAZIL:  MORE BUZZING AT BNDES 
 
REF: Brasilia 3701 
 
1.  Brazil's National Bank for Economic and Social 
Development (BNDES) remains in media focus, with totally 
divergent forecasts as to the fate of its leftist Lula- 
appointee President, Carlos Lessa.  Lessa last week flaunted 
his lack of remorse over the maverick actions and comments 
which had raised a few market jitters about a possible 
return to GoB intervention in the economy and reportedly 
earned him a Lula reprimand (Reftel).  BNDES Vice-President 
Darc da Costa subsequently joined his boss in aiming public 
verbal darts in particular at Finance Ministry Secretary 
Marcos Lisboa and Treasury chief Joachim Levi. 
 
2.  In recent front-page articles, financial daily `Valor 
Economico' treated Lessa's imminent ouster as a certainty; 
`Estado de Sao Paulo' asserted that Lessa's November 28 
meeting with Finance Minister Palocci had mended fences and 
made his position "far stronger than a day earlier"; and 
`Folha de Sao Paulo' split the difference by warning that 
the Palocci meeting would help but not permanently shore up 
Lessa's position.  One guess has Planning Minister Guido 
Mantega conveniently shifting to BNDES, making available a 
ministerial portfolio for political allocation outside the 
PT, perhaps to current Minister of National Integration Ciro 
Gomes, as part of Lula's first cabinet overhaul. 
 
3.  Some commentators have excitedly depicted Lessa's 
personal fate at BNDES as a proxy for putative intra-GoB 
policy battles.  As this notion would have it, Lessa is 
catalyzing the protest of the GoB's so-called 
"developmentalists" and traditional PT ideologues against 
the fiscal hard-line incarnated by Finance Minister Palocci. 
Even those advancing this idea offer no basis for it other 
than speculation and Lessa's known attitudes.  Nor do they 
cite any conspicuous GoB figures as being in Lessa's corner 
over the issue, aside from one journalist's mention -- 
offered with zero evidence -- of Planning Minister Mantega 
and Senator Aloizio Mercadante. 
 
4.  Separately, there are new reports of progress concerning 
GoB steps to give BNDES extra resources.  The long-cited 
goal has been to increase BNDES's annual lending capacity 
from the current 35 billion Reals (USD 1 = 2.95 Reals) to 47 
billion in 2004.  The net new capitalization being spoken of 
hovers between five and ten billion Reals.  Various 
specialists claim that BNDES, under Basle capital-ratio 
rules, would be unable to continue major new lending in 2004 
absent a capital influx.  The decision in principle to 
provide such an influx seems unopposed in the GoB.  From 
details of financial-media accounts, however, it is plain 
that the Central Bank is intent on keeping the strictest 
control over the source and mechanism for providing it, as 
well as over guidelines for its future use. 
 
5.  COMMENT.  We judge the hubbub over recent BNDES events 
to be much overblown.  Brazil's "developmentalist"/fiscal 
hard-liner split itself is just a predictable and natural re- 
run of an old film.  An identical fault-line marked the 
early years of Cardoso's first administration.  The 
developmentalists then also included the BNDES head, Luiz 
Carlos Mendonca de Barros, and were spearheaded by Planning 
Minister Jose Serra -- who was utterly eclipsed by Finance 
Minister Malan.  Former-academic Lessa is an order-of- 
magnitude less formidable political actor than was Serra 
then, and, ironically, there seem fewer ministers in Lula's 
PT government inclined to identify with Lessa's dogmatic 
line than there were in FHC's neo-liberal Cabinet ready to 
oppose Malan.  Brazil's latest disappointing GDP growth 
statistics, as well as the GoB's rising rhetoric about 
launching an industrial policy in 2004, may yet give Lessa 
an extra lease of GoB life as a Lula gesture to the social 
importance of growth and to the PT's old-school wing which 
has no other high-profile representation in the GoB.  Either 
way, we see him as zero threat to Palocci's position or 
policies. 
 
6.  This cable cleared with CGs Rio and Sao Paulo. 
 
HRINAK