US embassy cable - 05BRASILIA2681

UNCLAS SECTION 01 OF 03 BRASILIA 002681 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: PGOV, PREL, PHUM, ETRD, ECON, BR, OVIP (ZOELLICK ROBERT), Bilateral Relations with the US 
SUBJECT: DEPUTY SECRETARY'S MEETINGS WITH BRAZILIAN SENATOR 
ALOISIO MERCADANTE, OCTOBER 6, 2005 
 
SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY. 
 
1.(SBU) Summary: In a cordial, hour-long meeting, 
Deputy Secretary Zoellick and Senator Aloisio Mercadante 
discussed the Brazilian political and economic situation 
and the current crisis, as well as regional issues and the 
need for Brazil and the U.S. to work closely together in 
partnership with other regional players, such as the OAS 
and IDB, to strengthen democratic institutions and 
governance in Latin America. End Summary. 
 
2.(U) PARTICIPANTS: 
 
BRAZIL: 
 
Senator Aloisio Mercadante 
Economic Advisor Gerson Gomes 
Economic Advisor Marcel Zero 
MFA North American Desk Officer Paulo Chuc 
 
U.S. 
 
Deputy Secretary Robert Zoellick 
Ambassador John Danilovich 
DCM Phillip Chicola 
NSC Senior Director Tom Shannon 
D Senior Advisor Rich Mills 
Notetaker 
Interpreter 
 
3. (U) The Deputy Secretary began by asking abut the 
current situation in Brazil, especially the recent 
political turmoil.  He was also interested in the Senator's 
perspective on the region as a whole.  Mercandante, a 
member of the ruling Workers' Party (Partido dos 
Trabalhadores - PT) from Sao Paulo, provided a 
comprehensive picture of the strength of the Brazilian 
economy.  Both exports and imports are sharply up, as is 
foreign direct investment, and foreign debt is greatly 
reduced.  The Balance of Payments situation is very solid. 
The inflows from trade and investment have caused some 
e 
over-appreciation of the currency, but the greatest 
challenge at the moment is management of public finances. 
The sustained growth and good macroeconomic performance 
have not been hurt by the ongoing political turbulence. 
Mercadante expressed gratitude for the U.S. government's 
show of trust and support for Brazil as exemplified by 
Treasury Secretary Snow's July visit. 
 
4.(SBU) With respect to the scandal, Mercandante 
characterized it as essentially a problem of campaign 
finance.  Electoral campaigns cost too much, and political 
parties had taken to seeking dubious sources of funds.  The 
country needs an overall campaign finance reform, with 
transparency in campaign spending and public lists of 
contributors.  The Senate had passed such rules, but the 
lower house had not.  Mercadante's party, the PT, had 
always had high ethical standards and had demanded such 
standards of others, so it is only to be expected that the 
revelations of financial abuses would resound so loudly. 
Ultimately, the crisis would have a healthy effect on the 
body politic, he said.  Everything is being investigated. 
Most likely some Congressmen will be expelled, but the 
worst of the crisis is over.  President Lula is no longer 
as unbeatable as he previously appeared but should 
nonetheless fare well in next year's election, because of 
the strength of the economy. 
 
5.(SBU) Turning to international affairs, Mercadante 
reiterated Brazil's interest in reform of the UN Security 
Council and a permanent seat on the Council.  With respect 
to Haiti, where Brazil leads the UN stabilization force, he 
suggested U.S. could be helpful in ensuring a flow of 
resources for that country that would enable the UN to 
withdraw its forces once a new, democratically elected, 
government was in place.  However, the situation remains 
fragile and any such withdrawal should be done carefully. 
 
6.(SBU)Concerning the upcoming Summit of the Americas 
in Mar del Plata, with its agenda focused on poverty and 
d 
governance issues, Mercadante said Brazil wants to defend 
its interests without at the same time creating undue 
frictions or unjustified tensions.  President Lula has good 
relations with the host government of Argentina and will 
try to help.  Venezuelan President Chavez has a different 
style, but Brazil will seek balance and dialogue. 
 
7.(SBU) With respect to Doha, Mercadante said Brazil is 
still expecting a more generous offer from the U.S. Trade 
is doing well but could be better.  He also believes there 
is movement towards a more flexible FTAA. 
8.(SBU) Mercadante said Brazil wants to show solidarity 
with the U.S., and be more "daring" in our bilateral 
relationship.  He noted Brazil's concerns about U.S. 
relations with Paraguay, but said Brazil shared the U.S. 
interest in combating terrorism in the tri-border region. 
Bolivia's instability also poses serious concerns, he said. 
Bolivia needs to find solid macroeconomic solutions.  Lula 
and the PT had had a positive effect in the region, he 
e 
noted, by bringing a leftist party into the political 
mainstream and governing responsibly, and it would be 
helpful to see if that model could be replicated elsewhere. 
 
9.(U) Mercadante expressed strong approval of the 
developing agenda for the POTUS visit, mentioning 
environment, democracy, race relations, and science and 
technology cooperation. 
 
10.(SBU) In reply to a question from the Deputy 
Secretary on recent legislative accomplishments in Brazil, 
 
SIPDIS 
Mercadante noted that the lower house had passed through 
six very difficult months.  Recently ousted lower house 
President Severino Cavalcanti wasn't experienced enough to 
lead the body, and the political process had a severe 
negative impact on the legislative process.  To make 
matters even more difficult, the government lacks a 
majority in the Senate.  Nevertheless, the Congress just 
adopted a provisional tax measure.  Other recent successes 
included a measure on biosafety, a bill to boost the 
e 
government's role in stimulating private investment, and a 
judicial reform bill.  Mercadante also pointed to the 
government's recent success in reducing the rate of 
deforestation in the Amazon.  Nevertheless, much more 
remains to be done.  The performance of regulatory agencies 
needs to be improved.  Though Congress reformed the Social 
Security system, some things, like labor reform, will 
likely have to wait for a new government, because they are 
too hard to do in an election year.  But the government 
remains strong despite the crisis.  Lula is still popular 
and charismatic, and the PT is recovering from the scandal. 
 
11.(SBU) Deputy Secretary Zoellick observed that Brazil 
is fortunate in having strong democratic institutions that 
will enable it to emerge from the crisis in good shape, and 
perhaps even stronger.  Many countries in Latin America 
have democratic elections but suffer from weak democratic 
institutions.  The U.S. and Brazil, as the two largest and 
most populous countries in the region, have a common 
interest in strengthening those institutions.  He noted 
that both the OAS and the IDB are now under new leadership. 
He had suggested earlier to Lula's foreign affairs advisor, 
Marco Aurelio Garcia, that both countries should think 
about how to work together with OAS SecGen Insulza and IDB 
President Moreno on strengthening democratic institutions 
and creating more economic and social opportunity 
throughout the region. 
 
12.(SBU) The Deputy Secretary offered several examples. 
Brazil has large stakes in Bolivia.  There is a need for 
many observers for the upcoming elections in Bolivia so 
that all parties can accept the result as the outcome of a 
fair process, so as to avoid more disintegration. 
Similarly, Ecuador suffers from high presidential turnover, 
congressional paralysis, and a dysfunctional judicial 
system.  Brazil could send judges to help improve the 
system.  The OAS could help in a variety of ways in 
situations like these.  Nicaragua, where he just came from, 
is another example.  Ortega and Aleman have entered into a 
corrupt pact to undermine the legitimate government, 
placing constitutional democracy in peril.  Brazil, 
together with the U.S., the OAS, and others, should make 
clear its opposition to those who want to undermine 
democracy.  It is good that Garcia is planning to travel to 
Nicaragua soon.  In sharp contrast to Ortega, Lula is a man 
of the left who stayed with democracy, even after losing 
elections, and now he presides over a democratic Brazil. 
This could serve as an example to Nicaragua, which needs a 
democratic party of the center-left.  Again, the U.S. and 
Brazil should encourage the OAS and IDB to outline ways in 
which they might be helpful in situations where democratic 
institutions are challenged.  The OAS could match existing 
resources with needs, develop networks to operate in the 
political area.  The IDB, with its convening power, could 
call sessions on topics of interest and perhaps draw up 
lists of best practices to serve as examples. 
 
13.(SBU) Mercadante strongly agreed with the Deputy 
Secretary on the need for Brazil to help.  He suggested 
 
SIPDIS 
exchange programs involving Brazilian legislators and 
judges. They could travel to places like Bolivia and 
Ecuador and, in a non-interventionist way, help improve 
democratic institutions and practices.  Brazilian 
legislators could travel to Nicaragua, interact and debate 
with Nicaraguan parliamentarians.  Mercadante would go 
himself, but he is a prisoner of his role as his party's 
leader in the Senate.  Nevertheless, he would like to 
participate in the program, and hoped to visit the Deputy 
Secretary in the U.S. and learn from the U.S. experience in 
 
SIPDIS 
democracy.  Brazil has a Presidential system but one 
effectively mixed with a "Parliament" with 18 parties, 
making governing extremely difficult.  There are 513 
Congressman with an abundance of parochial interests, and 
no party fidelity.  In particular, Brazil would benefit 
from learning more from the U.S. experience about the role 
of the legislative branch in the budgetary process. 
 
14.(U) In bringing the meeting to a close, the Deputy 
Secretary observed that Mercadante has gained invaluable 
 
SIPDIS 
experience in his work in the Senate which will serve him 
well in the future, because it is critically important to 
know how to get things done in a democratic system.  He 
looked forward to seeing Mercadante again and said he would 
advise the OAS and IDB of Mercadante's support for the 
approach he had outlined. 
 
15.(U) This message was cleared with the Deputy 
Secretary's party. 
 
SIPDIS 
 
Danilovich 
h