US embassy cable - 05BRASILIA317

UNCLAS SECTION 01 OF 02 BRASILIA 000317 
 
SIPDIS 
 
SENSITIVE 
 
STATE PLEASE PASS TO USTR, EX-IM, OPIC 
NSC FOR KIM BREIER 
DEPT OF TREASURY FOR FPARODI 
USDOC FOR 3134/USFCS/OIO/WH/EOLSON 
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD 
 
E.O. 12958: N/A 
TAGS: EFIN, EINV, BEXP, SENV, BR, Macroeconomics & Financial 
SUBJECT: AMBASSADOR DISCUSSES ECONOMIC AGENDA WITH FINANCE 
MINISTER 
 
1. (SBU) Summary and Introduction.  In a private February 1 
meeting with Finance Minister Palocci, Ambassador 
emphasized the need for the GOB to continue making progress 
on its micro-economic reform agenda.  Discussion, in 
particular, focussed on the GOB's recently-enacted Public- 
Private Partnership regime and how the GOB might best 
attract U.S. investors.  Ambassador emphasized the 
importance of strengthening the country's investment 
climate by streamlining bureaucracy, increasing 
transparency, and establishing clearer rules of the road. 
On specific issues, Ambassador queried Palocci about the 
status of the GOB's ratification of the Capetown 
convention, Brazilian intentions regarding debt-for-nature 
swaps, and prospects for facilitating express delivery 
operations in Brazil as well as lowering GOB tariffs on 
such services.  Palocci made clear that the USG should feel 
free to bring to him issues of concern (whether economic in 
nature or of broader import) and that he could ensure that 
these matters reached the President's attention.  End 
Summary and Introduction. 
 
2. (SBU) The Ambassador's February 1 meeting with FinMin 
Palocci, scheduled at post's initiative, took place just 
after the Minister's return from the World Economic Forum 
in Davos and just prior to his departure for London for a 
BRIC/G-7 breakfast.  (The meeting was a one-on-one affair, 
in accordance with Palocci's specific request.)  As in 
Davos the GOB delegation (consisting of President Lula, 
Chief of Staff Dirceu, Central Bank Chief Meirelles, Trade 
Minister Furlan as well as Palocci) focused on wooing 
investors to Brazil, during the session with the Ambassador 
increasing FDI in Brazil was uppermost in the FinMin's 
mind. 
 
3. (SBU) Palocci stated that with the enactment of the 
Public-Private Partnership legislation in late December 
2004, now was the time for U.S. investors, particularly 
those specializing in transportation infrastructure, to 
consider Brazil.  The Ambassador responded that with the 
recent passage of new bankruptcy legislation, judicial 
reform, and an innovation law, Brazil was indeed moving 
forward on its micro-reform agenda.  However, he added, the 
country could do even more to improve the investment 
climate, i.e., by streamlining its cumbersome regulatory 
bureaucracy, promoting greater transparency, and 
establishing clearer rules of the road. 
 
4. (SBU) Palocci took these points, noting that the GOB 
indeed realized that its reform agenda had not been 
completed and that it had to continue to hold the line in 
terms of fiscal discipline.  He presented the Ambassador 
with a copy of a detailed Ministry study setting forth the 
GOB's plans for future taxation, pension, and regulatory 
reforms.  With respect to the fiscal side, Palocci declared 
that notwithstanding pressure from those who wanted to 
increase government spending, the GOB planned to maintain a 
healthy primary surplus in 2005. 
 
5. (SBU) Ambassador then raised a series of issues 
involving the U.S.-GOB bilateral economic/commercial 
relationship. 
 
-- Capetown Convention.  Ambassador urged Brazil to 
consider joining the Capetown Convention, which 
establishes, among other things, rules that facilitate the 
seizure of aircraft that have been put up as collateral on 
loans that go into default.  Support for the Convention was 
strong in both countries, he said, with Ex-Im Bank pushing 
for it in the U.S. and Brazilian aircraft maker Embraer in 
Brazil.  Palocci promised to look into the matter, which, 
it appears, is currently being considered by an interagency 
Brazilian committee. 
 
-- Debt-for-Nature Swaps.  Noting that such swaps are 
possible under the Tropical Forest Conservation Act, 
Ambassador queried Palocci as to what Brazil's intentions 
were on this issue.  The FinMin was enthusiastic about the 
idea, replying that he would speak with Lula about it. 
Another follow-up item which he would pursue, he continued, 
would be to invite the Governor of Acre state (part of the 
Brazilian Amazon) to Brasilia for a discussion with the 
Ambassador and himself.  Note:  Contemporaneous contacts 
with working-level Ministry officials revealed that prior 
to submitting a debt-for-nature swap proposal to Treasury, 
the GOB needs to shore up its legal framework.  Ministry 
staffers are currently drafting the necessary regulations 
on an urgent basis. 
 
-- Tax Treaty.  Ambassador inquired what was the GOB's 
thinking regarding a bilateral tax treaty.  Palocci 
responded that the GOB wanted to move forward on this and 
that he felt that discussions were currently in the "right 
channels."  Note: this was probably a reference to the 
Treasury-led Group for Growth, which last met in December 
2004. 
 
-- Express Delivery Services.  Noting that that post had 
written Palocci in December 2004 requesting that the GOB 
lift restrictions on express delivery operations and lower 
GOB tariffs on such services, Ambassador queried where the 
GOB was on this issue.  Palocci responded that he would 
look into the matter, and get back to the Ambassador in a 
timely fashion. 
 
-- Digital Television.  Ambassador advocated for GOB 
adoption of the U.S. ATSC digital television standard. 
(Although not specifically under the purview of the FinMin, 
Ministry reps sit on the interagency committee that is 
reviewing the standard issue; during late 2004 Ambassador 
had advocated in favor of ATSC with Minister of 
Communications Oliveira).  FinMin Palocci took note of our 
concerns. 
 
6. (SBU) In closing, Palocci made clear that the Ambassador 
should feel free to bring to him matters of concern to the 
USG, whether such issues were economic/commercial in nature 
or not.  The FinMin declared that he would make certain 
that the items that the USG felt were important got to the 
President's attention. 
 
DANILOVICH