US embassy cable - 04BRASILIA892

UNCLAS BRASILIA 000892 
 
SIPDIS 
 
NSC FOR DEMPSEY, CRUZ 
TREASURY FOR OASIA/SEGAL 
EXIMBANK FOR DIRECTOR FOLEY 
FED BOARD OF GOVERNORS FOR ROBATAILLE 
USDA FOR U/S PENN, FAS/FAA/TERPSTRA 
USDOC FOR 4322/ITA/IEP/WH/OLAC-SC 
SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, EINV, ETRD, PREL, PGOV, BR, Economic Policy & General Analysis 
SUBJECT:  LULA BACKS TRADE MINISTER FURLAN AGAINST BNDES'S 
LESSA 
 
Ref:  (A) 03 Brasilia 3813, (B) 03 Brasilia 3701 
 
1.  President Lula has arbitrated a very public victory for 
Development, Industry and Trade Minister Luiz Furlan in 
Furlan's latest policy bout with the old-school-leftist- 
ideologue president of Brazil's National Bank for Economic 
and Social Development (BNDES), Carlos Lessa.  The fight was 
over BNDES's introduction on March 1 of new guidelines that 
would have compelled "foreign" companies to pay up to 1.5% 
more than "national" ones on certain categories of loans 
from BNDES, which for practical purposes is Brazil's sole 
domestic source of major long-term financing for commercial 
as well as development projects. 
 
2.  Lessa's excuse for his new, discriminatory guidelines 
was that "Brazilian" companies are supposedly disadvantaged 
by their inability to access loans on the international 
market.  Furlan on April 1 sent Lessa a written directive to 
revoke the measure, on the grounds that (i) it conflicts 
with GoB policy and Brazil's self-interest in attracting 
foreign investment; (ii) differentiation between domestic 
and foreign capital is problematical in a transnational 
business age; and (iii) BNDES now has abundant funds to 
lend, the GoB having authorized its budget to be increased 
43% this year, to Reals 47 billion (about US$15.6 billion). 
 
3.  Despite the fact that BNDES bureaucratically exists as 
part of the Furlan's ministry, Lessa made known that he 
viewed Furlan's written instruction as a request rather than 
an order, and BNDES as being "supervised by," not 
subordinate to, the Minister.  On April 13, Lula's Chief of 
Staff Dirceu transmitted to Lessa the President's direct 
order to repeal his March 1 measure.  A hastily-convened 
session of the BNDES board did so that evening, but stressed 
that it was doing so only in obedience to President Lula, 
with no mention of Furlan. 
 
4.  COMMENT.  Lula's appointment of the leftist academic 
Lessa to head BNDES in early 2003 was a consolation prize to 
the Workers' Party's (PT) traditionalist economic dogmatists 
who had been conspicuously shut out of the major economic- 
policy positions in the new GoB.  Furlan resisted it vainly 
then, and has had recurrent run-ins with Lessa since, 
including over a major BNDES investment decision last 
November when Lula slapped Lessa down (Reftels.)  Although 
Lessa remains in place, Lula's backing of Furlan's pro- 
foreign-investment approach in this latest skirmish shows 
once again his unambiguous, pragmatic rejection of the old- 
style PT mindset. 
 
HRINAK