US embassy cable - 04BRASILIA2468

UNCLAS SECTION 01 OF 02 BRASILIA 002468 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR S/ES, WHA, WHA/BSC 
 
E.O. 12958: N/A 
TAGS: PGOV, ECON, PREL, SOCI, BR, Bilateral Relations with the US 
SUBJECT: SCENESETTER: THE SECRETARY'S VISIT TO BRAZIL, 4-6 
OCTOBER 2004 
 
 
1. (SBU) The United States Mission in Brazil warmly welcomes 
your visit to Sao Paulo and Brasilia.  You are the senior USG 
official to travel to Brazil during the administration of 
President Lula da Silva.  Your visit has been much sought 
after by the GOB, and the President and Foreign Minister 
Amorim will view their meetings with you as invaluable 
opportunities to exchange views.  In Sao Paulo, you will 
address the American Chamber of Commerce of an industrialized 
metropolis that is one of the world's most populous cities 
and capital of the state that generates a third of Brazil's 
GDP. In both cities you will interact with young Brazilians 
who have benefited from U.S. Government and private corporate 
outreach programs.  A brief list of key issues that may be 
discussed in the official meetings is at paragraph 2. 
General background on Brazil follows in paragraphs 3-9. 
 
KEY ISSUES 
---------- 
2. (SBU) Issues that may be raised in your meetings with the 
GOB include: 
 
-- Bilateral Relations: Follow up to the 2003 Presidential 
summit, working together on future challenges (e.g., 
successful cooperation at Doha), proposal of a possible 
Defense Cooperation Agreement 
-- Brazil and the International Hunger Initiative: Follow up 
to 20 September meeting 
-- UNSC: Council Reform (including Brazil's desire for a 
permanent seat), Haiti PKO, Iraq, Darfur, Middle East peace 
issues 
-- Non-Proliferation: Iran, Brazil-IAEA discussions on 
Additional Protocol, 2005 NPT Review Conference 
-- Regional: Current situations in Venezuela and Bolivia 
-- Trade: Way ahead on FTAA and WTO; piracy issues (GSP and 
IPR) 
 
GENERAL 
------- 
3. (SBU)  Brazil is the largest country in Latin America in 
area (bigger than the continental U.S.) and population (182 
million).  It is a strong democracy and an economic 
powerhouse, with a thriving industrial base producing and 
exporting products ranging from airplanes to shoes. Its 
agricultural sector leads the world in production of many 
crops (Brazil's agricultural exports to the US are seven 
times higher than U.S. agricultural exports to Brazil). In 
recent months, the Brazilian economy has shown signs of 
growth based on sound government fiscal policy.  However, 
despite its robust democracy and economic force, Brazil still 
has one of the world's most unequal distributions of income 
and land, and suffers from severe criminal violence. 
 
POLITICAL AND SOCIAL LANDSCAPE 
------------------------------ 
4. (SBU) Brazil's democracy is less than two decades old, 
having succeeded the military regime that ruled from 
1964-1985. Lula da Silva, the country's first working-class 
president, took office in January 2003.  He passed important 
tax and pension reforms but has made little progress on his 
social agenda, including his flagship Zero Hunger project. 
Lula's Workers' Party (PT) leads an eight-party coalition 
that holds a majority in both houses of Congress, but the 
coalition is undisciplined, and Lula must make compromises to 
pass his legislation. On October 3, the first round of 
nationwide municipal elections will be held to select the 
country's mayors and city councils.  Many key races, 
including the mayor of Sao Paulo, are likely to go to a 
second-round runoff on October 31.  National elections will 
be held in 2006, and Lula is expected to seek a second term. 
 
5. (SBU) The administration's social agenda has not met 
expectations, as resources have been limited by the 
government's spending cuts.  The Landless Movement (MST), a 
traditional ally of the Workers' Party, has continued to 
carry out land invasions across the country.  Organized crime 
and violence linked to narcotrafficking are acute, 
particularly in Sao Paulo and Rio de Janeiro, where at times 
the authorities  exert only tenuous control.  The GOB is 
fighting back -- in October 2004, the GOB will implement a 
program authorizing the Brazilian air force to shoot down 
illegal narco-trafficking flights. 
 
6. (SBU) Under President Lula, Brazil has achieved a higher 
international profile, reflected in its leading role in South 
America, its push for a UNSC permanent seat, its spearheading 
of a "G-20" group of developing nations, its revitalization 
of Mercosul, and its constructive roles in Haiti and 
Venezuela.  Brazil is an important player on global issues 
such as hunger (witness the September 20 New York 
Conference), HIV/AIDS and the environment.  U.S./Brazilian 
cooperation has been key to progress on the WTO Doha round, 
including at July meetings in Geneva.  Brazil and the U.S. 
are co-chairs of the FTAA negotiations.  The GOB has focused 
on South America and developing countries, engaging 
intensively with Mercosul and forging a regional approach to 
trade talks.  Brazilians are commited to the UN and other 
multilateral institutions.  The majority of Brazilians oppose 
the war in Iraq.  Lula has voiced strong opposition to the 
war, but this has not prejudiced his approach to broader 
bilateral relations. 
 
ECONOMIC ISSUES 
--------------- 
 
7. (SBU) Brazil is living one of its best economic moments in 
recent history.  GDP growth has averaged above six percent 
for three quarters and external accounts remain healthy as 
exports boom. The economic news has been good enough to 
strengthen Lula's hand as he continues with his orthodox 
fiscal policies.  Brazil should run a 1.5 percent of GDP 
account surplus this year.  Unemployment, while still high, 
is falling and real incomes are starting to climb. Increasing 
inflationary pressures are causing the Central Bank to raise 
interest rates (to 16.25 percent).  Strong revenue growth 
places Brazil in a position of strength to deal with its main 
vulnerability: debt.  GOB measures to increase the primary 
fiscal surplus target are helping reduce the debt-to-GDP 
ratio; as a result, analysts have upgraded Brazil's credit 
rating. 
 
8. (SBU) Lula's economic challenges going forward are to 
implement structural reforms, (e.g., public-private 
partnership legislation, bankruptcy law and judicial reform) 
and to increase savings and investment to sustain the higher 
growth rates Brazil needs if the GOB is implement a 
significant program to address social inequalities. 
Potential investors also want to see lower taxes and and more 
rational regulatory environment. 
 
TRADE POLICY 
------------ 
 
9. (SBU)  Exports figure prominently in plans to fuel 
economic growth, yet the economic and social benefits of 
liberalizing trade are not widely promoted, and the fear of 
job losses remains.  In addition to seeking to boost exports 
through trade negotiations and export financing, the Lula 
government is trying to lower the "Brazil cost" of local 
production by addressing systemic problems through reforms to 
social security and other areas, and is looking to improve 
the country's crumbling infrastructure.  For economic and 
political reasons, the administration is seeking expanded 
trade ties, particularly with developing countries.  Brazil 
helped form the G-20 group at the WTO Cancun Ministerial in 
2003 and continues to lead this group.  Brazil and its 
Mercosul partners are negotiating trade agreements with the 
EU, South Africa, Russia, and India and are considering trade 
talks with China.  Brazilian exports to China have doubled in 
the last year.  Brazil places particular importance on 
expanding trade ties with its South American neighbors.  The 
US and Brazil have been co-chairs of the FTAA negotiations 
since November 2002.  It has been a difficult period fraught 
with uncertainty over Brazil's commitment to the 
negotiations.  While Lula has shed the extreme anti-FTAA 
rhetoric of the 2002 campaign, his administration has not 
embraced the accord as a priority, and Brazilian commercial 
interests have yet to overcome ideological hurdles to what is 
viewed as a U.S.-led initiative. 
 
DANILOVICH