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

UNCLAS SECTION 01 OF 03 BRASILIA 000373 
 
SIPDIS 
 
STATE PLEASE PASS TO CODEL BLUNT 
 
E.O. 12958: N/A 
TAGS: OREP ETRD PREL BR
SUBJECT: SCENESETTER CABLE FOR VISIT OF CODEL BLUNT 
 
REF: STATE 23775 
 
¶1. The United States Mission in Brazil warmly welcomes your 
visit to Brasilia, Rio de Janeiro, and Sao Paulo, February 
22-23 and February 25-28.  As requested reftel, Mission 
grants courtesy country clearance for your travel.  (Threat 
assessment to be sent septel.)  Overall Mission Control 
Officer for your visit will be our Economic Counselor, 
Bruce Williamson.  Economic Officer Erin McConaha will be 
the control officer in Rio de Janeiro and Consul General 
Simon Henshaw will be the control officer in Manaus.  To 
set the stage for your visit, we have prepared some 
background material (below). 
 
BACKGROUND 
 
¶2. Brazil is the largest country in Latin America in area 
(bigger than the continental U.S.) and population (184 
million).  Most of its industry, including auto, steel, 
petrochemical, and aircraft sectors, is in the southeastern 
states.  The country is among the world's leading producers 
of sugar, coffee, soybeans, meats, tobacco, and orange 
juice.   Internal migration from the poor northeastern 
states continues to feed urban growth in the southeast, 
particularly the megacities of Sao Paulo and Rio de 
Janeiro.  Brazil has among the world's most unequal 
distributions of income and arable land.  Crime, drug 
abuse, and environmental degradation are grave and growing 
problems. Historically, Brazil's values have mostly 
paralleled our own, and bilateral relations have been 
generally amicable.  During World War II, the US 
established airbases in the northeastern states ("the 
Trampoline to Victory"), and Brazil was the sole South 
American nation whose troops fought alongside the Allies in 
Europe.  After the 9/11 attacks, then-President Cardoso was 
the first to invoke the Rio Treaty in solidarity with the 
U.S.  Brazil continues to respond to U.S. requests for 
support against terrorism at an operational level. 
 
PRESIDENT LULA 
 
¶3. Two years into his four-year term, President Lula da 
Silva has convinced financial markets that his government 
is handling Brazil's economic challenges responsibly and 
well.  Lula is Brazil's first working-class President - he 
was a metalworker and union leader who founded the left-of- 
center Workers' Party (PT) in 1980.  Hallmarks of the 
administration's first twenty months have been responsible 
fiscal policies, passage of major tax and pension reform 
legislation, but a slow start on the social agenda. 
 
¶4. While part of the administration's appeal is based on 
its accessibility (Lula began his term giving access to 
civil society organizations such as labor, NGOs, and 
religious groups, as well as consulting with key governors 
and mayors), Lula's style has evolved toward a more 
workable and standard governing style.  His inner circle of 
advisors includes Chief of Staff Jos Dirceu, 
Communications Secretary Luiz Gushiken, Finance Minister 
Antonio Palocci, and Staff Secretary General Luiz Dulci. 
In recent years, the PT party has moderated its leftist 
orthodoxy and moved toward the center, creating a noisy 
backlash from the party's small radical wing but making it 
easier for the party to forge alliances with centrist 
parties and to appeal to the business community. 
 
¶5. Public security remains one of the administration's 
greatest challenges. Organized crime has grown steadily 
bolder, particularly in Sao Paulo and Rio de Janeiro, where at 
times the authorities seem to exert only tenuous control.  The 
administration's long-term solution is that economic and 
social progress will address the causes of crime.  But in the 
short run, the situation has worsened. 
 
 
ECONOMIC ACCOMPLISHMENTS 
 
¶6. President Lula has made economic growth and poverty 
alleviation top priorities.  Export growth figures 
prominently in official plans to fuel economic growth and 
reduce Brazil's historical vulnerability to international 
financial market gyrations.  At the same time, though, the 
economic and social benefits of liberalizing the import 
regime are not widely touted, and the fear of job losses 
remains.  To boost exports, the government is seeking 
foreign markets through trade negotiations, stepping up 
government financing for exports, and establishing export 
promotion expertise in its embassies.  The government is 
also trying to lower the overall "Brazil cost" associated 
with local production by addressing systemic fiscal issues 
such as social security and tax reform, with labor and 
microeconomic reforms also targeted in the medium-term, as 
well as seeking funds for infrastructure improvements 
through public-private partnerships. 
 
¶7. After weak economic growth in 2002 and 2003, 2004 proved 
to be a very good year.  GDP expanded at a rate of 5 
percent, the best result since 1994.  Consumer price 
inflation dropped to 7.6 percent, down from 9.3 percent in 
¶2003.  And exports in 2004 reached an all-time record at 
US$ 96 billion, substantially over the GOB's original 
target of US$ 73 billion. 
¶8. For economic as well as geopolitical reasons, the Lula 
administration is aggressively seeking expanded trade ties, 
particularly with developing countries. Brazil and its 
Mercosul partners are negotiating trade agreements with the 
EU, South Africa, Russia, and India and are considering 
trade talks with China - Brazilian exports to China have 
doubled in the last year.  Brazil places particular 
importance on expanding trade ties with its South American 
neighbors.  Mercosul has free-trade regimes with several 
South American countries. 
 
FREE TRADE AREA OF THE AMERICAS - FTAA 
 
¶9. The U.S. and Brazil have been Co-Chairs of the FTAA 
("ALCA" in Portuguese) negotiations since November 2002. 
It has been a difficult period fraught with uncertainty 
over Brazil's commitment to the negotiations.  While the 
Lula administration shed the extreme anti-FTAA Workers' 
Party rhetoric of the 2002 presidential campaign, it has 
not embraced the FTAA as a priority.  Strong Brazilian 
commercial interests have yet to overcome ideological 
hurdles to what is viewed as a "U.S.-led initiative." 
 
¶10. During the FTAA Ministerial in Miami in November 2003, 
the US and others agreed to a new framework for 
negotiations to accommodate the sensitivities of Mercosul 
countries, principally Brazil (agricultural domestic 
support and trade are Brazil's principal areas of focus in 
the FTAA).  The compromise allowed countries to assume 
different levels of commitments, but guaranteed that there 
would be a common set of rights and obligations covering 
all the original areas of negotiation.  Since Miami, 
negotiations to define that "common set" have not been 
successful.  Brazilian officials publicly have blamed US 
inflexibility for the failure to reach agreement. 
 
FOEIGN POLICY 
 
¶11. President Lula has run an activist foreign policy with 
a focus on South America.  He has moved to revitalize 
Mercosul as a trading bloc - quickly meeting with new 
Argentine President Kirchner.  In addition, Brazil took the 
lead in creating the "Friends of Venezuela" to find 
peaceful solutions to the crisis in that country, and has 
played helpful roles in Bolivia.  In June 2004, Brazil 
deployed a 1,600-person unit to Haiti to lead UN 
peacekeeping operations there. Though some predicted that 
Lula would aggressively tilt towards Cuba, that has not 
been the case.  The executions of Castro opponents in 2003 
provoked official expressions of concern from Brazilian 
officials, though little willingness to change their 
standard positions.  Lula visited Cuba in September 2003. 
 
¶12. Brazil has a long tradition of commitment to the UN and 
other multilateral institutions.  Many Brazilians were 
therefore deeply concerned by the war in Iraq, viewing it 
as a sign of US unilateralism.  President Lula voiced 
public opposition to the war, although this opposition 
never jeopardized bilateral relations and both sides have 
continued to work as before on the broader bilateral 
agenda. 
 
ENVIRONMENT 
 
¶13. As one of the world's "megadiverse" countries, 
environmental issues loom large in Brazil.  The Lula 
administration further boosted this profile with the choice of 
Marina Silva -a former Senator from the Amazonian state of 
Acre associated with murdered environmental activist Chico 
Mendes- as Minister of the Environment.  22% of the world's 
known plant species exist in Brazil, and the figures for birds 
(17%), mammals (11%), and fish (11%) are also significant. 
 
¶14. The Amazon basin holds 20% of the world's fresh water. 
The relationship between the Amazon and global climate change 
is a topic of great debate.  About 83% of the Amazon forest 
remains intact, while only 7% of the Atlantic Forest ("Mata 
Atlantica") remains.  The rate of Amazon deforestation roughly 
parallels that of GDP growth, and it is driven by strong 
expansion in Brazilian agriculture, particularly the drive for 
land by the cattle and soy industries.  The government's 
ability to regulate economic activity and environmental 
conservation in the Amazon and other remote areas needs to 
improve.  More than 20 million Brazilians live in the Amazon, 
and environmentally-sustainable economic development of the 
region -including reduced-impact logging, rubber-tapping, and 
nut/plant collecting- is recognized by the government and many 
in the environmentalist community as the only viable 
alternative to wholesale deforestation.  Protecting forests in 
parks and reserves is necessary but not sufficient to turn the 
tide against deforestation.  Within 10 years, 12% of the 
Amazon will be protected in parks. 
 
AGRICULTURE 
 
¶15. The agricultural sector (including agribusiness) 
accounts for 30 % of Brazil's GDP, and in 2004, accounted 
for 41 percent of all Brazilian exports and registered a 
positive balance of trade of 34 billion dollars.  The 
agricultural sector is dynamic and growing, especially in 
the center-west regions of the country, where abundant 
fertile "frontier" land area remains available for 
agricultural expansion.  Brazil's total land area of 
approximately 850 million hectares (2.2 billion acres) 
includes 350 million hectares of Amazon rainforest (41 
percent), 50 million hectares of cultivated land (6 
percent), 150 million hectares of breeding pastures (18 
percent), and an estimated 90 million hectares (11 percent) 
of land still available for farming (mostly 'cerrado').  A 
USDA report estimates that 170 million hectares of cerrado 
remains available for farming, assuming that at least half 
of the breeding pastures can be easily converted to crop 
production.  Brazil has an estimated 5.8 million farms and 
about 30 million people living in rural areas, which 
accounts for nearly 20 percent of the population. 
 
¶16. Brazil is the world's largest producer of sugar cane, 
ethanol, coffee, tropical fruits, frozen concentrated 
orange juice, and has the world's largest commercial cattle 
inventory (50 percent larger than the US) at 175 million 
head.  Brazil is also an important producer of soybeans 
(second to the United States), corn, cotton, cocoa, 
tobacco, rice, and forest products.  It is also one of the 
world's largest wheat importers, Argentina being its 
primary wheat supplier.  The remainder of agricultural 
output is in the livestock sector, mainly the production of 
beef and poultry (second to the US), pork, milk, and 
seafood. 
 
DANILOVICH