US embassy cable - 05RIODEJANEIRO1120

UNCLAS SECTION 01 OF 04 RIO DE JANEIRO 001120 
 
SIPDIS 
 
SENSTIVE 
________ 
 
STATE FOR WHA/BSC 
 
E.O. 12958: N/A 
TAGS: PGOV, ECON, EFIN, ETRD, BR 
SUBJECT: MINAS GERAIS:  THE VIEW FROM BELO HORIZONTE 
 
Reftel:  Rio de Janeiro 1118 
 
SUMMARY 
------- 
 
1.  (U)  From September 28-30, Rio Econ/Poloff 
visited a variety of people in Belo Horizonte, Minas 
Gerais state, to discuss business investments in the 
state and the state's aggressive and successful 
economic plan as well as national and local 
politics. 
 
Abijaodi on international investments 
------------------------------------- 
 
2.  (U)  Rio Econ/Poloff, accompanied by Foreign 
Commercial Service (FCS) officer John Mueller, met 
with Carlos Abijaodi, manager of the powerful 
Federation of Industries of the State of Minas 
Gerais (FIEMG), which is working in concert with the 
Neves government to speed up the development process 
to attract more foreign investment.  There are 
numerous points in favor of such investments, 
including the size of the state (larger than France 
or Spain) with an excellent climate, rich soil, and 
adequate water; the robust economy (equivalent to 
Denmark's or Chile's); and its strategic geographic 
position, in the center of a region where 78 percent 
of the Brazilian consumer market lies.  The state 
has the best infra-structure in Brazil, according to 
Abijaodi, and its inhabitants are spread evenly 
throughout the state.  The rail network is the 
largest in the country and is linked to maritime 
ports -- Vitoria in Espirito Santo state, Sepetiba 
in Rio de Janeiro state, and Santos in Sao Paulo 
state.  Minas is responsible for almost a third of 
the electrical energy produced in Brazil.  The state 
invests half of its budget in health and education, 
which in turn produces healthy, educated workers who 
can be responsive to innovations in industry. 
 
3.  (U)  The kinds of industries which have been 
established in Minas Gerais include the following: 
mining, coffee, corn, paper and cellulose, soy, 
milk, beef, sugar, leather, automobile parts, cars, 
fruit, furniture, textiles and clothing, 
biotechnology, tourism, gold, plastic, and steel. 
Minas is responsible for 10.17 percent of Brazilian 
exports; in 2004, Minas Gerais achieved record sales 
of approximately USD 10 billion, making Minas the 
second largest exporting state in the country.  For 
the past two years, Minas state registered the 
highest growth in the number of micro, small and 
medium businesses that export their goods.   Imports 
in 2004 represented approximately USD 3,000,000. 
The largest importing partner is the United States, 
with 22 percent of the market, followed by Italy at 
12 percent; the largest exporting partner is the 
United States, with 18 percent of the market, 
followed by China, with 12 percent.  Abijaodi was 
particularly proud of the support his organization 
offers to investors in the state, including the BDMG 
(Development Bank of Minas Gerais), CEMIG (Energy 
Company of Minas Gerais), and the Industrial 
Development Institute of the State of Minas Gerais. 
The partnership between the FIEMG and the state 
government of Aecio Neves has been enthusiastic and 
professional in the promotion of foreign trade, to 
which the numbers attest.  FIEMG has participated in 
organizing business delegations to European 
countries, Mercosur, India, China, Russia, among 
others, with satisfactory results. 
 
Minas Gerais Development Bank 
----------------------------- 
 
4.  (SBU)  Dr. Marilene Chaves, director, and 
Reinaldo Barros Lobo, manager for Planning and 
Economic Studies of the Minas Gerais Development 
Bank (BDMG), received Econ/Poloff on September 29 in 
the bank's downtown office.  The BDMG has been the 
executive agent of State Government projects for 43 
years, Dr. Chaves stated enthusiastically.  These 
projects, she said, have promoted the growth and 
modernization of the state and have diminished 
regional inequalities.  The BDMG's first priority is 
to generate investment, jobs and income, she said. 
When Aecio Neves took office as Governor a little 
over two years ago, he informed the BDMG that his 
government was determined to launch a new style of 
development in the state.  From being one of the 
economically worst managed states in Brazil when 
Neves took over, the state is now functioning in the 
black.  Two important plans were developed at the 
beginning of Neves tenure -- the Plan for Integrated 
Development in Minas Gerais and the Multiannual Plan 
for Governmental Action, both of which have led to 
the promotion and financing of State economic and 
social development. 
 
5.  (U) The BDMG's scope of activities is large and 
diversified, both regionally and sectorally, 
focusing on industrial, agricultural, 
agroindustrial, commercial, and service sectors and 
infrastructure and urban development.  In 2003, the 
BDMG approved loans amounting to Reais 696 million 
(approximately USD 258 million) to 4,691 customer in 
different regions and economic sectors of the state, 
creating approximately 11,700 direct job 
opportunities in the private sector. In addition to 
the expansion and modernization of the economy by 
strengthening the industrial hub, a new project is 
underway -- the Jaiba Project in the north of the 
state, which is an impoverished area with few 
productive opportunities.  When the Jaiba Project is 
completed, it will be one of the world's largest 
irrigated areas, and the largest in Latin America. 
Another area of development is in the sugar/alcohol 
production chain, which will enable the state to 
become self-sufficient in the area.  The BDMG also 
publishes studies by professionals in its areas of 
interest and recently published a ten-volume study 
entitled "Minas Gerais in the 21st Century." Two 
previous studies of this magnitude were done in 1967 
and 1989.  The study has as its goal a discussion of 
how state and municipal governments can create 
programs and projects that will contribute to 
economic development.  These two economists, Dr. 
Chaves and Dr. Barros, were clearly proud to be 
involved in the direction the state government is 
going --  developing social programs along side its 
modernization of industries and businesses in the 
state. 
 
State Secretary for Economic Development 
---------------------------------------- 
 
6.  (SBU)  FCS Mueller also joined Econ/Poloff in 
the office of State Secretary for Economic 
Development Luiz Antonio Athayde Vasconcelos. 
Athayde iterated the dire economic straits of the 
Minas economy in 2003, when Aecio Neves took charge 
of the state government:  it was the worst among the 
27 states of Brazil.  Neves got off to a good start, 
Athayde said, by reducing the bureaucracy, starting 
with cutting 27 Secretariats back to 14.  In 
reality, however, only 6 Secretariats are running 
the state government.  The result is that the state 
has gone from red to black, with a primary surplus 
this year of R800,000,000 (approximately USD 364 
million) because of the huge reduction in 
administrative expenditures.  With a lighter 
administration, decision-making moves quickly.  The 
economic target of his Secretariat is to partner the 
state with private initiatives -- the hope is to 
open new enterprises within eight days, rather than 
the 180 days it takes in the rest of Brazil. 
Athayde predicted that in ten years Minas Gerais 
will have the highest level increase in economic 
activities in the country.  The Neves government, 
with its team of economists and planners, has taken 
a long-term view of economic investment -- 
development of infrastructure, economic 
diversification, and promotion of innovation through 
support of state universities.  They have developed 
a strategic plan for fifteen years -- and are 
currently in the third year.  The central focus of 
this plan now is highway development, sewage and 
water treatment plants, rural electrification, 
building an administration center, airport 
development, improvement of the prison system, and 
building the campus of the state university (UEMG). 
He said many of those working economic issues in the 
current administration used to work at the BDMG and 
demonstrate the same contagious enthusiasm we 
noticed there. 
Coimbra on national and local politics 
-------------------------------------- 
 
7.  (SBU)  No visit to Belo Horizonte is complete 
without talking with Marcos Coimbra, President of 
the Vox Populi polling organization. Coimbra, an 
avid observer of national and local politics, opined 
that the scandals in Brasilia would have little 
impact on the 2006 presidential elections.  He said 
the ball was clearly in Lula's court and that if 
Rebelo won the Presidency of the Chamber (he did), 
the political crisis would end.  Coimbra said the 
press was demonizing the politicians involved in the 
scandals, as the Workers' Party (PT) had not 
deviated at all from the political norm of handing 
out money to secure votes.  President Lula said as 
much in a joint interview with French President 
Jacques Chirac in Paris on July 14, Econ/Poloff 
observed.  Coimbra feels the only way forward now is 
for the PT to recognize the status quo as illegal 
and open an honest discussion on political 
financing.  Coimbra asserted that Lula is still the 
favorite presidential candidate, despite the 
probable opposition of Sao Paulo Governor Alckmin 
and Sao Paulo Mayor Serra.  Alckmin, the incarnate 
anti-Lula, has the support of the monied classes in 
Sao Paulo, and if only business people voted, 
Alckmin would receive 70 percent of the vote.  He 
lacks personality, however, according to Coimbra 
(has never been involved in anything questionable, 
is a man who speaks softly, unemotionally, but is an 
excellent organizer), which will hurt him in running 
in areas of the northeast where Lula has 
particularly high support.  Nonetheless, Coimbra 
believes Alckmin the best candidate by far to run 
for President. 
 
8.  (SBU) Not everything that can happen has yet 
happened, Coimbra stated.  If for some miracle 
Anthony Garotinho (PMDB/Party of the Brazilian 
Democratic Movement) forced a second round in 2006 
in the race for President, Coimbra said, he would be 
roundly defeated.  Coimbra believes the PMDB has two 
other worthy candidates who are much better than 
Garotinho and that all the public brouhaha Garotinho 
is making (reftel) is simply to manipulate for a 
position in the future government.  Coimbra noted 
that the opposition leaders in the PMDB feel 
uncomfortable with Garotinho because they do not 
like how he operates, having two or three satellite 
parties up his sleeve and prioritizing political 
cleverness as opposed to developing sound political 
positions. 
 
9.  (SBU)  Coimbra said the people of Minas Gerais 
state were happy with their governor, Aecio Neves. 
Aecio, Coimbras noted, is moderate, and has 
established good relations with PT Mayor Pimentel 
and Minister of Social Development Patrus.  This is 
in stark contrast to the PSDB in Sao Paulo, which 
tries to draw PT blood at every turn. 
 
10.  (SBU)  Coimbra concluded the meeting by 
elaborating on Lula's likelihood of winning the 
Presidency in 2006, predicated on the economy 
continuing to remain strong.  Lula's social programs 
such as the Bolsa Familia have already reached 8 
million families.  By next year, 11-12 million 
families will be receiving this assistance.  Their 
strong tendency, he thought, would be to think well 
of the present government and vote Lula back into 
office. 
 
11.  (SBU)  Comment:  Certainly, the economic 
figures for the State of Minas Gerais augur well for 
near-term growth and stability; it appears that the 
bubbling enthusiasm of the economists and planners 
involved in this success, under the aegis of 
proactive Governor Aecio Neves, is merited.  Whether 
Coimbra's predictions about the future presidential 
elections come true remain to be seen -- twelve 
months to October 2006 is a long political time. 
12.  (U)  This cable was cleared by Embassy 
Brasilia. 
ATKINS