This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 04 BRASILIA 004227 
 
SIPDIS 
 
DEPT FOR WHA/BSC 
 
E.O. 12958: DECL: 11/22/2012 
TAGS: PGOV PREL ECON BR
SUBJECT: A/S REICH'S MEETING WITH LULA 
 
Classified By: POLOFF RICHARD REITER FOR REASONS 1.5(b) AND (d). 
 
1.(C) SUMMARY. Assistant Secretary Reich had warm and 
productive meetings in Brasilia November 20-21 with 
President-elect Lula da Silva, his senior advisors in the PT, 
and Brazilian congressional leaders.  Both Ambassador Reich 
and Lula expressed great interest in working together across 
a range of issues, particularly trade.  The PT team floated 
the idea of concluding a bilateral trade pact with the US, 
but will first consult with their Mercosul partners and then 
likely raise some proposals during Lula's December 10 visit 
to Washington.  Lula is eager to meet President Bush, sure 
that "two politicians like us will understand each other when 
we meet face to face."  In keeping with efforts by Lula to 
distance himself from Castro and Hugo Chavez, PT leader 
Aloizio Mercadante sought to downplay his participation in 
the "Sao Paulo Forum" as an attempt to set a democratic 
example for other Latin American leftists.  Ambassador Reich 
also met with Brazilian congressional leaders, who similarly 
expressed eagerness to strengthen ties with the US in order 
to help address pressing economic and social needs.  END 
SUMMARY. 
 
RELATIONSHIP OFF ON THE RIGHT FOOT 
---------------------------------- 
¶2. (C) WHA Assistant Secretary Otto Reich led a delegation to 
Brasilia November 20-21 that included WHA/BSC Director James 
Carragher, Special Advisor William Perry, and Michael Zarin 
of S/P.  The group, accompanied by Ambassador Hrinak and 
Poloff (notetaker), met November 21 with President-elect Lula 
da Silva and his three senior advisors: Jose Dirceu, Workers' 
Party (PT) President and Federal Deputy from Sao Paulo; 
Aloizio Mercadante, PT Federal Deputy and Senator-elect from 
Sao Paulo; and Antonio Palocci, who resigned this week as 
mayor of Riberao Preto (SP) to devote full time to leading 
Lula's transition team.  All three will have high profile 
positions in the new government. 
 
¶3. (C) The messages on both sides were extremely positive. 
Before Lula joined the meeting, Jose Dirceu expressed the 
interest of the incoming government in strengthening 
Brazil/US ties.  He said the December 10 visit by Lula to 
Washington should focus on items on both countries' agendas, 
including FTAA and free trade, protectionism, terrorism, and 
the possibility of war in Iraq, which would have economic 
consequences for Brazil. 
 
LET'S GET BEYOND THE HEADLINES 
------------------------------ 
¶4. (C) Assistant Secretary Reich commented that even after 
9/11 the US will continue to pursue a range of interests 
(commercial, economic, political, security) in the 
hemisphere.  President Bush's phone call to Lula after the 
Brazilian elections and invitation to the White House are 
strong signals of the USG's desire to strengthen ties to 
Brazil under Lula.  The message, Reich emphasized, is that 
the US and the incoming Brazilian government need to get 
beyond any preconceptions we may have had about each other 
and focus on things that bring us together.  The media often 
highlight policy differences, he added, but it is President 
Bush who sets the USG's direction, and he wants to strengthen 
the US/Brazil relationship.  Reich also reviewed the US 
position on Iraq, noting that there would not have been the 
current need to force compliance if Saddam Hussein had 
complied with the sixteen UN resolutions since 1991. 
 
BILATERAL TRADE PACT ON THE HORIZON? 
------------------------------------ 
¶5. (C) Commenting on Mercadante's remark to D/USTR Peter 
Allgeier the day before that the US seems unwilling to 
negotiate a bilateral trade agreement with Brazil, Reich said 
the US was flexible on the best approach to free trade but 
that his impression was that Brazil was not interested in 
such a bilateral pact.  Mercadante noted that Mercosul 
partners Argentina and Uruguay are currently in crisis, which 
has scared foreign investors throughout South America.  Thus 
Brazil's two highest priorities with the US are: obtaining US 
support in gaining increased access to commercial credit (and 
demonstrating that Brazil is a better risk than Argentina); 
and secondly, to increase foreign trade, and particularly to 
double trade with the US in the next four years.  How, 
Mercadante asked, can the US/Brazilian trade total only $30 
billion per year? 
 
¶6. (C) Mercadante urged that the US and Brazil sit down to 
discuss a range of bilateral trade issues, for example, IPR 
and music piracy, ethanol sales, and aircraft exports.  He 
added that FTAA ("ALCA" in Portuguese) will be a much more 
difficult project, but that the bilateral talks could start 
immediately.  Reflecting the PT's dedication to regional 
partners, Mercadante urged that the US seek a trade pact with 
Mercosul.  Ambassador Reich said he was pleased to hear of 
Mercadante's interest in such talks, noting that the US is 
open to bilateral pacts (e.g., Chile) as well as pacts with 
sub-regional groups (e.g. the Central American states). 
 
¶7. (C) Ambassador Hrinak asked Mercadante if Lula would be 
extending an invitation to bilateral talks during the 
Washington visit.  Jose Dirceu answered before Mercadante 
could, saying that the bilateral talks were important but 
would have to be approached in the context of Brazil's 
regional commitments.  Dirceu admitted that the incoming 
government would like to conclude a bilateral pact quickly, 
but as Brazil is the only stable economic force in South 
America, they would have to proceed cautiously and in concert 
with regional partners.  Mercadante said that Lula will 
travel to Argentina on December 3, and then there will be a 
December 5-6 meeting of Mercosul presidents in Brasilia. 
Lula would use these opportunities to sound out the Mercosul 
partners on future negotiating mechanisms --for example a 
Mercosul 4 1 with the US.  After these talks, Mercadante 
said, it is possible Lula would arrive in Washington with 
"some initiatives".  Dirceu summed up by noting that while 
Brazil must consult its regional partners, it "does not want 
to be held hostage by them." 
 
LULA WANTS STRONG TIES AND TOUGH NEGOTIATING 
-------------------------------------------- 
¶8. (C)  President-elect Lula then joined the meeting and 
enthusiastically stated his interest in strong bilateral 
relations across the range of issues.  That, he said, is what 
is motivating him to travel to Washington on December 10. 
Appearing upbeat, smartly-dressed and rested, Lula expressed 
hope that after his visit, US officials will no longer 
misunderstand the PT.  Looking forward to meeting President 
Bush, he said "I think two politicians like us will 
understand each other when we meet face to face."  Brazil's 
image has suffered in recent years, he said, and the PT wants 
to consolidate its democracy and rescue it from the 
perception that Brazilian officials are a "bunch of 
irresponsible thieves" and "Brazil is another Colombia." 
 
¶9. (C) The PT has the sense that Brazil can play an important 
role but can only reach its potential in cooperation with the 
US.  In a left jab at the Brazilian Foreign Ministry, Lula 
echoed remarks that he has made in public: "I want to do for 
Brazilians what you US diplomats do for your citizens --fight 
for their interests.  But I think Brazilian diplomacy has not 
been tough enough, not like yours.  We have sometimes made 
bad deals."  Dirceu added that the Brazilian government is 
committed to abiding by all agreements that it inherits, "We 
do not need any more headaches" that we would get by breaking 
deals, he said.  The PT team has emphasized its interest in 
negotiating FTAA with the US, but doing so by vigorously 
defending Brazil's interests.  After the meeting, Mercadante 
told the press. "The Americans always played tough, and now 
they have a Brazilian administration that is going to play as 
tough as they do." 
 
"WE ARE NOT AFRAID OF THE PT" 
----------------------------- 
¶10. (C) Ambassador Reich congratulated Lula on his election 
victory, adding that his own visit was designed to follow up 
on President Bush's post-election phone call and lay the 
groundwork for the December 10 visit.  Ambassador Reich 
expressed support for Lula's social agenda ("Your commitment 
to three meals a day for every Brazilian is something that 
all Americans will want to support."), adding that 
democratization, human rights, economic progress, and 
transparency are key issues for the US public and policy 
makers.  Reich concluded, "We are not afraid of the PT and 
its social agenda". 
 
PALOCCI'S ECONOMIC MESSAGE:  CREDIT, CREDIT, CREDIT 
--------------------------------------------- ------ 
¶11. (C) After Lula was called away, Transition Director 
Antonio Palocci picked up on the economic themes.  He stated 
unequivocally that the PT government will focus on combating 
inflation and working smoothly with the IFIs.  Modifying 
Mercadante's two priorities a bit, Palocci said Lula would 
take two messages to Washington.  First, that Brazil really 
has three short-term priorities: credit, credit, and credit; 
and second, that Brazil will seek clear understandings and 
strong relations with the US in order to develop and grow. 
 
¶12. (C) Ambassador Reich observed that the USG does not 
direct banks to extend credit, but that the Brazilians 
themselves were doing the right things to gain access to 
loans.  Reich noted that "since the elections you have been 
sending the right messages", adding that Brazilian/US 
cooperation will reinforce these messages by conveying to the 
financial markets US confidence in Brazil's economy. 
 
"THE PT IS A MODEL FOR LATIN AMERICAN LEFTISTS" 
--------------------------------------------- -- 
 
¶13. (C) Ambassador Reich asked Mercadante about the "Sao 
Paulo Forum", which Mercadante has addressed and which has 
included FARC and Cuban participants, among others. 
Mercadante downplayed the PT's work in the Forum, explaining 
that his primary interest is in developing the left in Latin 
America, and that many of the participants in the Forum are 
unreconstructed "outdated" leftists who can learn a lot from 
the PT's democratic model and emphasis on economic 
development.  He added that the Forum had issued a 
declaration after 9/11 condemning the terrorist attacks and 
defending the right of the US to respond in self-defense. 
"We are democratic," Mercadante assured us, "Washington needs 
to hear our ideas and our arguments." 
 
¶14. (C) On Colombia, Dirceu said that the FARC needs to 
understand that if they cross into Brazilian territory, 
Lula's government will use the military and "treat them as 
enemies."  He added that groups such as the FARC that operate 
outside of democratic processes "do not interest us".  After 
Ambassador Reich outlined the range of human rights concerns 
in Cuba, Dirceu responded that "the strongest force in the 
world for changing Cuba is US trade", but he concluded that 
"we will simply have to agree to disagree" on Cuba policy. 
 
WASHINGTON AGENDA 
----------------- 
¶15. (C)  Mercadante said that he will accompany Lula to 
Washington.  The rest of the travel team has not been 
decided, and the agenda will be finalized only after 
consultations with the Brazilian embassy in Washington, 
though Ambassador Barbosa has been consulting in Brasilia 
this week. 
 
INAUGURATION LIKELY JANUARY 1 
----------------------------- 
¶16. (C)  In response to a question from Ambassador Reich, 
Dirceu stated that the inauguration will be on January 1. 
(N.b., Dirceu himself was a big proponent of moving the date 
to January 6 and had been urging his congressional colleagues 
to take quick action on the required constitutional 
amendment, so his statement on the January 1 date may well be 
the last word.)  Minister Pedro Parente, head of the outgoing 
administration's transition team, also told us November 21 
that the inauguration would be January 1. 
 
CONGRESSIONAL MEETINGS 
---------------------- 
¶17. (C) Earlier, Ambassador Reich's group met with outgoing 
Chamber Speaker and PSDB leader Aecio Neves and separately 
with PT Senate leader Eduardo Suplicy from Sao Paulo and PT 
Deputy Waldir Pires from Bahia.  Neves, who will take over as 
Governor of Minas Gerais in January, focused his remarks on 
Brazil's economic plight.  He noted that he had supported the 
economic plan of President Cardoso, which had prevented 
Brazil from suffering the same fate as Argentina.  He also 
stressed that the PSDB and other opposition parties expect to 
support many of Lula's initiatives.  Suplicy stressed the 
importance of President Bush's understanding the Brazilian 
democratic process and the fact that Lula's 61% electoral 
support demonstrated that he has overwhelming legitimacy to 
address social and economic issues.  Both Suplicy and Pires 
spoke at length on the importance of addressing Brazil's deep 
social inequities.  Suplicy added that Lula may be a useful 
bridge in improving US relations with Cuba, to which 
Ambassador Reich replied that relations will improve as soon 
as Castro holds free elections. 
 
COMMENT 
------- 
¶18. (C)  Lula and the senior PT officials are clearly eager 
to get down to work with us, and this visit went a long way 
toward reassuring them that the feeling is mutual.  Though 
they have not yet thought through their floater for bilateral 
trade talks, we can expect some sort of proposal in 
Washington, after they have consulted more deeply with their 
Mercosul partners as well as internally. 
 
¶19. (C) The PT leaders have contrasting and complementary 
personalities.  Mercadante's former radicalism lies not far 
from the surface.  He speaks to convince rather than explain, 
often pointing a finger at his listeners.  Yet he is 
courteous and clearly focused on specific bilateral projects. 
 Dirceu is much smoother.  He never corrected Mercadante but 
sometimes stepped in to qualify his remarks.  Dirceu seems to 
be the first among equals and is rumored to become Lula's 
Chief-of-Staff if he does not stay in Congress to become the 
Speaker of the Chamber.  Palocci, whose star has risen 
rapidly in recent months, is perhaps the most pragmatic of 
the group.  He speaks slowly and calmly --often about 
economic issues-- clearly aware of the effect of his words. 
His is a voice seemingly designed to reassure the markets. 
In a November 21 meeting with U/S Larson (septel), Cardoso 
administration minister Parente expressed great admiration 
for Palocci and hoped that we would become Minister of 
Finance.  END COMMENT. 
 
¶20. (U) AMBASSADOR REICH CLEARED THIS CABLE.