US embassy cable - 04BRASILIA2680

UNCLAS SECTION 01 OF 02 BRASILIA 002680 
 
SIPDIS 
 
NSC FOR MIKE DEMPSEY 
STATE PLEASE PASS TO USTR FOR SCRONIN 
DEPT OF TREASURY FOR FPARODI 
USDOC FOR 4332/ITA/MAC/WH/OLAC/SHIELDS 
USDOC ALSO FOR 3134/ITA/USCS/OIO/WH/RD/CREATORE 
USDA FOR FAS/ITP AND FAS/FAA/WH 
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE 
STATE PASS EXIM FOR NATALIE WEISS, COCONNER 
STATE PASS USTDA FOR AMCKINNEY 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, ETRD, EIND, BR, Macroeconomics & Financial 
SUBJECT:  AMBASSADOR AND PLANNING MINISTER MANTEGA 
DISCUSS INVESTMENT IN BRAZIL 
 
REF:   A) BRASILIA 2605, B) BRASILIA 2447, C) RIO 
 
DE JANEIRO 1291 
 
1. (SBU) SUMMARY AND INTRODUCTION.  IN THE 
AMBASSADOR'S OCTOBER 20 COURTESY CALL UPON GOB 
PLANNING MINISTER GUIDO MANTEGA, THE LATTER EMPHASIZED 
BRAZIL'S NEED FOR INCREASED PUBLIC AND PRIVATE 
INVESTMENT.  MANTEGA FELT THAT BRAZIL WAS ON THE RIGHT 
TRACK AND THAT THE SUCCESS, TO DATE, OF THE GOB'S 
MACROECONOMIC PROGRAM WOULD HELP PULL IN GREATER 
LEVELS OF FOREIGN DIRECT INVESTMENT (FDI).  MANTEGA 
PREDICTED THAT BY THE END OF THE YEAR THE BRAZILIAN 
CONGRESS WOULD PASS THE PUBLIC-PRIVATE PARTNERSHIP 
LEGISLATION (CURRENTLY AWAITING A SENATE VOTE). 
MANTEGA'S REMARKS COINCIDE WITH WHAT WE HAVE HEARD 
PUBLICLY AND PRIVATELY FROM OTHER GOB ECONOMIC 
POLICYMAKERS, WHO EMPHASIZE THE IMPORTANCE OF ECONOMIC 
GROWTH IN ATTRACTING FDI - AS OPPOSED TO NUTS AND 
BOLTS ITEMS SUCH AS BOLSTERING THE JUDICIAL SYSTEM, 
AND ESTABLISHING A STABLE, TRANSPARENT REGULATORY 
REGIME.  MANTEGA MAY BE IN WASHINGTON IN DECEMBER 2004 
OR JANUARY 2005 TO VISIT THE IDB, AND, IF SO, WOULD 
LIKE TO MEET WITH TREASURY SECRETARY SNOW OR U/S 
TAYLOR AT THAT TIME.  END SUMMARY AND INTRODUCTION. 
 
2. (U) ON OCTOBER 20, AMBASSADOR PAID A COURTESY CALL 
UPON MINISTER OF PLANNING GUIDO MANTEGA.  PLANNING 
MINISTRY INTERNATIONAL AFFAIRS ADVISOR JOSE CARLOS 
MIRANDA ACCOMPANIED THE MINISTER; ECONCOUNS AND 
SPECASST SAT IN FOR THE U.S. SIDE. 
 
3. (SBU) MANTEGA OPENED THE MEETING NOTING THAT, AFTER 
THE ECONOMIC AND FINANCIAL INSTABILITY OF 2002 TO 
2003, BRAZIL WAS FINALLY ON THE RIGHT TRACK.  GDP 
GROWTH WAS EXPANDING, EXPORTS WERE AT RECORD LEVELS, 
AND INFLATION WAS IN CHECK.  AS A RESULT, THE 
FINANCIAL MARKETS IN PLACES LIKE NEW YORK, LONDON, AND 
FRANKFURT HELD PRESIDENT LULA IN HIGH REGARD - AS DID 
THE GENERAL PUBLIC.  MANTEGA FELT THAT ALL THIS GOOD 
ECONOMIC NEWS WOULD HELP ASSUAGE THE GOB ECONOMIC 
TEAM'S PRINCIPAL WORRY:  I.E., FINDING A WAY TO 
STIMULATE BOTH PUBLIC AND PRIVATE INVESTMENT.  FOR IF 
THE GOB PROVED UNABLE TO RAISE THE CURRENT LOW RATE OF 
INVESTMENT, IT WOULD BE DIFFICULT FOR THE GOVERNMENT 
TO ACHIEVE, ON A SUSTAINED BASIS, THE 5 TO 6 PERCENT 
GDP GROWTH IT WAS SEEKING.  SPECIFICALLY, THE MINISTER 
NOTED, THE DEFICIT IN PUBLIC TRANSPORTATION 
INFRASTRUCTURE, PARTICULARLY RAILROADS, HIGHWAYS, AND 
PORTS, WAS THREATENING TO BRAKE THE COUNTRY'S RAPIDLY 
EXPANDING EXPORTS OF COMMODITY GOODS.  HAVING THE RAIL 
LINE INTO THE PORT OF SANTOS (BRAZIL'S PRINCIPAL 
MARITIME DISPATCH POINT) TERMINATE 6 KMS PRIOR TO THE 
ACTUAL PORT TERMINAL WAS SOMETHING THE GOB COULD NO 
LONGER AFFORD. 
 
4. (SBU) THE MINISTER SAW THE DRAFT PUBLIC-PRIVATE 
PARTNERSHIP LAW (PPP) AS ESSENTIAL TO ATTRACTING THE 
NEEDED INFRASTRUCTURE INVESTMENT.  THE GOB ASSISTANCE 
CONTEMPLATED UNDER THE PPP REGIME WILL STIMULATE 
DEVELOPMENT OF THOSE PROJECTS WHICH THE PRIVATE SECTOR 
OTHERWISE WOULD HAVE PURSUED, MANTEGA OBSERVED.  HE 
PREDICTED THAT CONGRESS WOULD ENACT THE BILL PRIOR TO 
THE END OF THE YEAR.  EMBASSY COMMENT:  THIS TIMETABLE 
COULD WELL SLIP.  END COMMENT. THE DELAY IN MOVING ON 
THE LEGISLATION TO DATE, MANTEGA SAID, WAS DUE TO THE 
FLOOD OF MEDIDAS PROVISORIAS WHICH WERE CURRENTLY ON 
CONGRESS' PLATE (BY LAW, THESE ITEMS MOVE TO THE TOP 
OF THE AGENDA) AND THE ABSENCE OF SOME CONGRESSMEN WHO 
WERE OUT CAMPAIGNING FOR THE UPCOMING MUNICIPAL 
ELECTIONS. 
 
5. (SBU) THE AMBASSADOR QUERIED MANTEGA ABOUT A RECENT 
A.T. KEARNEY REPORT WHICH INDICATED THAT IN 2004 
BRAZIL DECLINED FROM NINTH TO SEVENTEENTH PLACE IN 
THAT FIRM'S FOREIGN DIRECT INVESTMENT (FDI) CONFIDENCE 
INDEX.  THE MINISTER REPLIED THAT THIS REPORT WAS 
EXAGGERATED, AS THE COUNTRY HAD DONE MUCH TO GET ITS 
INTERNAL HOUSE IN ORDER.  THE LULA ADMINISTRATION HAS 
REIGNITED ECONOMIC GROWTH, REFORMED THE TAX REGIME, 
IMPROVED PUBLIC FINANCES, AND WORKED TO REDUCE 
CORRUPTION.  IN ADDITION, THE GOB HOPED TO OBTAIN 
PASSAGE OF A BILL REFORMING THE COUNTRY'S BANKRUPTCY 
CODE.  THESE EFFORTS HAD PRODUCED RESULTS, MANTEGA 
DECLARED.  THE DEVELOPMENT BY FORD OF A SUCCESSFUL 
BRAZILIAN DESIGNED AND MANUFACTURED SUV (THE ECOSPORT) 
SHOWED WHAT BRAZILIAN BUSINESS WAS CAPABLE OF.  WHAT 
WAS ESSENTIAL, MANTEGA CONCLUDED, WAS THAT IN SEEKING 
TO STIMULATE INVESTMENT, THE GOB AVOID THE MISTAKES 
MADE BY THE PREVIOUS CARDOSO GOVERNMENT WHEN IT 
PRIVATIZED ELECTRICITY DISTRIBUTION. 
 
6. (SBU) COMMENT. THOUGH MANTEGA DID NOT SPECIFY, 
PRESUMABLY HE, LIKE MANY OTHER PT LEADERS, BELIEVES 
THAT THE CARDOSO GOVERNMENT'S MISTAKE WAS ALLOWING 
PURCHASERS TOO MUCH LEEWAY IN RAISING ENERGY TARIFFS. 
HOWEVER, MANY PRIVATE SECTOR ANALYSTS WOULD ARGUE THAT 
THE GOB'S "MISTAKE" WAS NOT PROVIDING CLEAR REGULATORY 
RULES OF THE ROAD PRIOR TO SELLING THESE PARASTATALS. 
END COMMENT. 
 
7. (U) IN CLOSING, MANTEGA NOTED THAT AS THE GOB'S 
REPRESENTATIVE TO THE IDB, HE PLANNED TO BE IN 
WASHINGTON FOR MEETINGS IN EITHER DECEMBER 2004 OR 
JANUARY 2005.  DURING THAT TIME, HE HOPED TO MEET WITH 
TREASURY SECRETARY SNOW OR U/S TAYLOR. 
 
DANILOVICH