US embassy cable - 04SAOPAULO1795

UNCLAS SECTION 01 OF 02 SAO PAULO 001795 
 
SIPDIS 
 
SENSITIVE 
 
NSC FOR MIKE DEMPSEY 
 
DEPARTMENT ALSO FOR WHA/PD 
 
E.O. 12958: N/A 
TAGS: PGOV, ETRD, EINV, BR 
SUBJECT: GOVERNOR ALCKMIN LAUDS RESULTS OF MUNICIPAL 
ELECTIONS; TELLS AMBASSADOR 2006 PRESIDENTIAL RACE WILL BE 
BETWEEN PT AND PSDB 
 
REF: A) Sao Paulo 1541; B) Sao Paulo 1659 
 
1.  (SBU) SUMMARY.  Sao Paulo Governor Geraldo Alckmin told 
the Ambassador during a December 14 courtesy call that he 
was confident the country was on good economic and political 
footing, and said he expected continued healthy growth in 
GDP and exports in both the state and Brazil during 2005. 
Alckmin noted the importance of foreign direct investment 
(FDI) to the Sao Paulo state economy, citing U.S. firms and 
the AmCham in particular as good partners.  The Governor 
expressed satisfaction with the outcome of the recent 
municipal elections, suggesting that the gains by opposition 
parties were good for democratic balance in Brazil.  He 
predicted that the 2006 presidential election would end up 
as a race between the PT and the PSDB, the principal 
opposition party.  Alckmin concurred with the Ambassador 
that conclusion of the FTAA negotiations was important, and 
expressed reservations about the GOB's decision to grant 
market economy status to China.  End Summary. 
 
2. (SBU) During Ambassador Danilovich's December 14 call on 
him, Sao Paulo Governor Geraldo Alckmin stressed his 
interest in maintaining an active partnership with the U.S. 
business community and with the USG.  He said that 
investment by U.S. and other multinational firms was 
essential to ensuring economic growth and employment in the 
state.  He noted that the Sao Paulo AmCham was an important 
partner, and that he receives representatives of U.S. 
businesses doing business, or interested in doing business, 
in the state nearly every day.  He noted that the state 
government had recently signed an agreement with Ford under 
which Ford would reinvest about USD 300 million in state 
sales tax (ICMS) rebates on exported products to modernize 
its production plants in Taubate and Sao Bernardo dos 
Campos, Sao Paulo. 
 
3.  (SBU)  Alckmin expressed confidence that Brazil's export- 
led economic recovery would continue into 2005.  He noted 
that Brazil had enjoyed a 31% increase in export sales 
during 2004, while exports from Sao Paulo state had grown by 
nearly 37%.  He also noted that while the overall Brazilian 
economy had expanded by 5% during 2004, the state had seen 
7% growth.  He praised Finance Minister Palocci's macro- 
economic management, and said he expected healthy stable 
growth to continue next year. 
 
4.  (SBU)  Turning to the results of the October municipal 
elections, Alckmin said that the outcome was good for 
democratic balance in the country.  He said that the 
Brazilian electorate had been wise to avoid concentrating 
power in the hands of one or two political parties.  In 
2002, the electorate gave the federal government to the 
Workers Party (PT) of President Lula, but did not elect PT 
governments to any large states.  Now the electorate had 
"taken the major cities away" from the PT as well, ensuring 
a good balance of power.  He suggested that the outcome of 
the municipal elections reflected voter unhappiness with the 
PT model of government, which he said was too centralized 
and authoritarian.  He noted that Lula had 36 Cabinet 
ministers, "too many" in Alckmin's estimation.  The Fernando 
Henrique Cardoso (PSDB) government had been more open than 
the Lula government, he claimed.  Alckmin noted that his own 
party, the PSDB, had done well in the municipal elections, 
in particular in Sao Paulo state.  (See ref A).  At the 
national level, the PSDB, he said, was a constructive 
opposition, and supported many of the important reforms 
supported by the Lula government. 
 
5.  (SBU) Alckmin predicted that the 2006 presidential 
election would end up as a face off against the PT and the 
PSDB, though he avoided any mention of who the PSDB standard- 
bearer would be.  (Comment.  Alckmin is widely seen as a 
likely frontrunner for the PSDB presidential nomination, 
though he always attempted to deflect such speculation in 
his public statements, suggesting that it is "too early" to 
speculate on the composition of the 2006 race.  End 
Comment.)  He said that the first round of the 2006 election 
would be "all about Lula," who would undoubtedly make it 
into the second round, but was not "unbeatable" in the 
second round. 
 
6.  (SBU) On trade, Alckmin agreed with the Ambassador that 
progress on negotiating the Free Trade of the Americas 
(FTAA) agreement was essential.  He noted that Brazil needed 
to take advantage of the benefits a hemispheric trade 
agreement could bring, acknowledging that the U.S. was 
Brazil's largest trading partner.  Alckmin expressed 
reservations about the GOB's recent decision to grant China 
market economy status; it was too soon for such 
recognitions.  He added that the Sao Paulo private sector 
was "preoccupied" with the decision, which it fears will 
result in unfair competition from Chinese products dumped on 
the Brazilian market.  (Comment.  We have heard similar 
comments directly from private sector contacts; ref B.  End 
comment.) He added that as Brazil's third largest export 
destination, China was also an important trading partner. 
 
7.  (SBU)  Comment.  Governor Alckmin was very relaxed and 
forthcoming, stressing the importance he places on 
partnership with the private sector, both local and 
multinational. Notably, while he credited the Lula 
government for good macro-economic management, he also 
suggested that the PSDB would have a reasonable shot at 
regaining the Presidency in 2006.  End Comment. 
 
8.  This cable was coordinated with Embassy Brasilia. 
 
DUDDY