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 03 BRASILIA 003141 
 
SIPDIS 
 
E.O. 12958: DECL: 11/30/2015 
TAGS: PTER PREL PGOV ECON BR US
SUBJECT: BRAZIL SCENESETTER FOR VISIT OF 3+1 DELEGATION 
 
Classified By: PolCouns Dennis Hearne, Reasons 1.4 (b) and (d). 
 
¶1. (C) The Plenary Meeting of the 3 1 will provide an 
important benchmark for Brazil's willingness to increase 
cooperation with the United States on Counterterrorism, 
something the GOB has been reluctant to do.  We do not expect 
a significant change in the GOB's position, which places 
great importance on not inflaming public opinion, especially 
among its large and influential Arab population, or damaging 
its relations with the nations of the Middle East, including 
those most responsible for terrorist actions worldwide.  The 
GOB places rather less importance on implementing policies 
that will significantly reduce the amount of terrorist 
financing and other support that comes from the Tri-Border 
area, although it has implemented programs to comply with the 
requirements of UNSCR 1267.  Indeed, the Brazilian's top 
political priority appears to remain preventing any public 
statements that might imply that any such activities take 
place there.  The following paragraphs provide a backdrop 
against which to view our Counterterrism efforts with Brazil. 
 
 
-------------------------- 
The Bilateral Relationship 
-------------------------- 
 
¶2. (C)  While relations between the U.S. and Brazil are 
friendly, often the USG encounters major difficulties in 
gaining the cooperation of senior policymakers on issues of 
significant interest to the United States.  Eager to assert 
its own influence, the Brazilian government shies away from 
cooperation with the USG - unless it can clearly be 
characterized as a reciprocal exchange among equals. 
Indeed, hyper-sensitivity on issues viewed as infringing on 
Brazil's sovereignty can get out of hand and may be seen as 
signs of political immaturity.  Many Brazilians believe the 
U.S. has designs on the Amazon.  Our fingerprinting of 
visitors to the U.S. drew reciprocal treatment for Americans 
here; visa and  immigration issues remain sensitive points. 
 
¶3.  (C) During recent months, our ongoing dialogue with the 
Brazilians has focused on a variety of potentially useful 
projects for both sides.  We sought to interest the GOB in a 
Defense Cooperation Accord, but the Foreign Ministry rejected 
the proposal even though the Defense Ministry was supportive. 
 Gaining agreement on privileges and immunities to be granted 
U.S. servicemen engaging in military exercises has been just 
as tough sledding.  While we seek to get the GOB to move 
forward with an agreement governing space launches at the 
country's equatorial base at Alcantara, our pleas are met 
with silence even as Brazil has executed space-related 
agreements with Ukraine and others.  On trade issues, when 
unscripted, President Lula has characterized the FTAA as "off 
his agenda."  IPR is another sore point, as it has become 
clear that the USG and the Brazilian government have 
differing views on the protection to be afforded to 
intellectual property. 
 
¶4.  (C)  However, not all our conversations are difficult. 
On issues involving matters perceived as technical in nature 
- i.e., law enforcement and science (but not the environment 
or counter-terrorism) - the GOB is eager to engage.  For 
example, from 2003 to 2004, the GOB worked quietly with us on 
the timing and details of its shoot-down program to 
accommodate our statutory requirements (although now a new 
crop of GOB bureaucrats appears to be unaware of the 
government's past promises).  Foreign Minister Amorim's 
statements to the press in the wake of his September 26 
meeting with Secretary Rice, i.e., to the effect that Brazil 
would seek intensified bilateral dialogue on scientific, 
education, and environmental issues, reflect this desire to 
cooperate only on matters of marginal interest to the U.S. 
 
-------------- 
Foreign Policy 
-------------- 
 
¶5. (C)  In large part due to Brazil's ambivalence towards the 
United States,  President Lula has run an activist foreign 
policy with a focus on South America and the Third World, 
seeking to forge alliances with other mid-sized powers (South 
Africa, India, etc).  He has traveled extensively in pursuit 
of a higher international profile for Brazil.  Despite 
prodding from the USG and others, Lula has refused to condemn 
Cuba for human rights violations and, in fact, has pushed for 
Cuban membership in the Rio Group.  Brazil has also advocated 
a Cuba-Mercosul trade pact. 
 
¶6.  (C) In addition, the GOB has worked to increase both its 
economic and political ties with Venezuela.  Enhanced 
integration of the two  countries' energy sectors is high on 
its agenda.  Lula has been especially  solicitous of Chavez. 
During the September 29-30 South American Community of 
Nations Summit in Brasilia, Lula praised the Venezuelan 
President's democratic credentials ("if anything, Venezuela 
has an excess of democracy") and declared that the Chavez 
government had been demonized by its foes. 
 
¶7.  (C) In the face of declining inter-bloc trade, Brazil has 
sought to revitalize Mercosul.  It has pursued Mercosul-USG 
trade talks, an effort seen by many as a way to delay/derail 
the FTAA process.  Indeed, given its size and  natural 
resources, Brazil has long seen itself as the natural leader 
of the region (even though that perception is not shared by 
many of its neighbors). 
 
¶8.  (C)  Emblematic of Brazil's efforts to gain greater 
standing on the world stage is its tenacious pursuit of a 
permanent UN Security council (UNSC) seat.  Brazil and other 
G4 states (India, Germany, Japan) are, despite recent 
setbacks, continuing to press their campaign  for a vote on a 
resolution on UNSC reform.   This stance is at odds with the 
position of many Latin American countries, including those 
which Brazil believes should follow its "natural leadership." 
 
-------------- 
President Lula 
-------------- 
 
¶9. (C) President Luiz Inacio Lula da Silva was inaugurated in 
January 2003 after a career as a Sao Paulo metalworker and 
labor leader.  He founded the left-of-center Workers' Party 
(PT) in 1980 and lost three presidential campaigns before 
winning in the October 2002 elections.  Lula is eligible to 
run for reelection in October 2006.  Elected in large part on 
promises of promoting an ambitious social agenda, including a 
"Zero Hunger" program, Lula's government has failed to 
deliver much in this area, as managerial shortcomings and the 
need for fiscal restraint have limited progress.  The 
public's top concern -- crime and public security -- have not 
improved under this administration. 
 
¶10.  (C) In recent months the Lula Administration has been 
beset by a grave political crisis as interlocking influencing 
peddling/vote-buying scandals  linked to important elements 
of Lula's PT party continue to unfold.  The crisis has placed 
Lula on the defensive and caused near paralysis in the 
congress and the executive branch.  Politics have become 
dominated by investigations, accusations and revelations. The 
President's Chief of Staff  resigned his post, and he and 
several other congressmen are the subjects of investigations 
and expulsion proceedings owing to bribery allegations. 
 
¶11.  (C) Thus far Brazilian society -- including the 
opposition -- seems disinclined to hold Lula personally 
responsible for the scandals or press for impeachment 
proceedings.  However, the  breadth of the crisis and the 
continuing revelations have created a domestic political 
environment that is fluid and unpredictable.  Indeed, some 
rumors link the President directly to the scandal.  Lula's 
popularity has been badly   damaged, with recent polls 
suggesting he could lose his re-election bid should he pursue 
it in 2006. 
 
--------------------------- 
Macro-Economic Developments 
--------------------------- 
 
¶13. (C) Due to a cycle of monetary tightening that lasted 
much of the year, combined with the effects of the ongoing 
political crisis on investment and consumption decisions, 
Brazil's economy will be hard pressed to attain growth of 3% 
in 2005, after posting healthy GDP Growth of 4.9% in 2004. 
The modest growth in 2005 masks some economic strengths: 
Brazil has booming exports, healthy external accounts, 
inflation under control, decreasing unemployment and 
reductions in the debt-to-GDP ratio.  In recent months, the 
real has risen sharply against the dollar and the Sao Paulo 
Stock Exchange (BOVESPA) has hit record levels.  In March 
2005, the Brazilian government declined to renew its 
Stand-by Agreement with the IMF and in mid-July it announced 
that it would pay early US$5.12 billion in Standard Reserve 
Facility payments due by March 2006. 
 
¶14. (C) Overall, while Brazil has made considerable progress, 
problems remain.  Despite registering its first year-on-year 
decline in 2004, Brazil's (largely domestic) government debt 
remains high, at 52% of GDP.  Real interest rates (at more 
than 13 percent) are among the highest in the world.  Income 
and land distribution remain skewed.  Investment (including 
FDI) is low.  The country's sovereign risk ratings are, in 
general, three to four levels below investment grade.  And 
the informal sector constitutes between 35 to 40 percent of 
the economy, in part because the tax burden (nearly 38 
percent of GDP) is so high.   The good news is that, so far, 
the uncertainty surrounding the political scandal has neither 
retarded economic growth or frightened away foreign investors. 
 
¶15. (C) Sustaining high growth rates in the longer term 
depends on the impact of President Lula's structural reform 
program and efforts to build a more welcoming climate for 
investment, both domestic and foreign.  In its first year, 
the Lula administration passed key tax and pension reforms to 
improve the government fiscal accounts.  Judicial reform and 
an overhaul of the bankruptcy law, which should improve the 
functioning of credit markets, were passed in late 2004, 
along with tax measures to create incentives for long-term 
savings and investments. 
 
------------ 
Trade Policy 
------------ 
 
¶16. (C) To increase its international profile (both 
economically and  politically), the Foreign Ministry 
(Itamaraty) is seeking expanded trade ties with developing 
countries, as well as a strengthening the Mercosul customs 
union with Uruguay, Paraguay and Argentina.  In 2004, 
Mercosul concluded free trade agreements with Colombia, 
Ecuador, Venezuela and Peru, adding to its existing 
agreements with Chile and Bolivia to establish a commercial 
base for the  newly-launched South American Community of 
Nations. 
 
------------------------------------- 
Free Trade Area of the Americas- FTAA 
------------------------------------- 
 
¶17.  (C)  As indicated above, the Lula Administration shows 
no serious interest in pursuing the FTAA.  Despite serving as 
co-chair and having secured in the November 2003 Miami 
meeting a new framework for negotiation, Brazil has shown no 
inclination to move the process along and has failed to 
convoke the next FTAA Ministerial - which is now overdue. 
 
LINEHAN