VZCZCXRO8013
RR RUEHRG
DE RUEHBR #0329 0461221
ZNR UUUUU ZZH
R 151221Z FEB 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 4537
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUEHRG/AMCONSUL RECIFE 4334
RUEHRI/AMCONSUL RIO DE JANEIRO 1539
RUEHSO/AMCONSUL SAO PAULO 6374

UNCLAS BRASILIA 000329 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OASIA - K.BERG/F.PARODI/N.LEE 
USAID/W FOR LAC/SAM, LAC/RSD AND EGAT/ENR 
STATE FOR EB/IFD/OMA - K.MOSS 
STATE FOR OES/ETC - CASWELL AND MCALPINE 
 
E.O. 12958: N/A 
TAGS: EFIN SENV EAID PREL BR
SUBJECT: BRAZIL AND DEBT-FOR-NATURE ... TWO STEPS BACK 
 
REF: A) 05 BRASILIA 1695    B) 05 BRASILIA 3346 
 
¶1. (SBU) Summary and Action Request: Treasury Secretary Joaquim Levy 
told Econoff in a February 9 meeting he was surprised that the USG 
had begun formally to evaluate Brazil's eligibility to participate 
in debt reduction/swaps under the Tropical Forest Conservation Act 
(TFCA).  Before entering into any formal process, he said, the GoB 
would like a signal from the policy-level in the USG on several GoB 
aspirations, key among them its desire for a large TFCA program 
(something approaching US$100 million).  The GoB also has a series 
of unresolved technical questions to discuss.  Levy stated it was in 
both parties' best interest to have a better idea of what was 
feasible before entering into more formal negotiations.  He 
suggested using a previously-planned February 21 visit to Washington 
to discuss these issues with the U.S. Treasury.  Post recommends 
Treasury meet with Levy at an appropriately senior level to discuss 
the outstanding issues.  End summary and action request. 
 
¶2. (SBU) Levy expressed concern to Econoff in a February 9 meeting 
that the USG had begun formally to evaluate Brazil's eligibility for 
debt swaps or reduction operations under the TFCA.  Levy, who was 
accompanied by Ministry of Environment Forestry Director Tasso 
Azevedo, stated that Minister Palocci's November 3, 2005 letter to 
Secretary Snow was intended merely as an introduction for Governor 
 
SIPDIS 
Jorge Viana of the Amazon basin state of Acre. (Note: Viana's 
enthusiasm for landing TFCA-supported projects for his state has 
pushed recent Brazilian consideration of this issue).  Levy said 
that before entering into any formal process, the GoB needed 
assurances from the policy level in the USG that its aspirations 
with regard to a TFCA program were reasonable.  There was no point 
in getting into a formal process, he argued, if GoB desires were not 
realistic. 
 
¶3. (SBU) Key among these aspirations is a large program, on the 
order of US$100 million.  By the ministry's calculation, there was 
about $90 million of eligible bilateral USAID debt, none of which 
had been rescheduled by the Paris Club (Note: By USAID's estimate 
there is US$180.6 million).  Levy clarified that Brazil's planned 
Paris Club (PC) debt pre-payment (ref B) applied only to rescheduled 
PC debt of US$68 million, according to the ministry's estimate. 
Levy stated that, if it were necessary and if allowable under PC 
rules, Brazil could withhold from the prepayment Brazil's 
rescheduled PC debt to the USG in order to "top up" the size of a 
TFCA operation.  Levy said that while there had been discussion at 
the technical level both of the budgetary obstacles to a large 
program and potential work-arounds, he had not received a clear 
signal at the policy-level on how far the USG was prepared to go. 
Forestry Director Azevedo elaborated on the GoB concerns in a side 
conversation with Econoff, noting that the "high transaction costs" 
of participating in a TFCA debt reduction or swap operation were not 
really worthwhile to the GoB unless the program were a large one. 
 
¶4. (SBU) Levy enumerated four other key issues for GoB involvement 
in TFCA.  The first, in addition to the size of the program, was 
whether the USG could undertake a multi-year commitment under TFCA. 
The next two, geographic coverage and whether TFCA can finance 
reforestation projects, are interlocking.  Levy explained that, 
Governor Viana aside, the GoB would like to do more to preserve what 
remains of the Mata Atlantica (Atlantic Forest).  Because over 90% 
of the Mata Atlantica is gone, however, the GoB believes 
reforestation efforts to be an important part of this effort.  But 
the language of the TFCA addresses preservation, Levy affirmed, not 
restoration or reforestation.  (Note: Levy did not state in this 
meeting that the GoB sought to limit the program only to the Mata 
Atlantica.)  Lastly, the GoB would like to use the proceeds of the 
TFCA debt operation to create an endowment, as opposed to spending 
down the funds quickly.  Levy stated he would like to be able to use 
a planned February 21 trip to Washington to meet at the policy level 
in Treasury to discuss TFCA. 
 
¶5. (SBU) Comment:  Levy's trip will be a useful opportunity to make 
sure we are all on the same TFCA page.  Post recommends Treasury 
meet with Levy at an appropriate level to discuss these GoB 
aspirations. 
 
CHICOLA