VZCZCXRO3003
PP RUEHRG
DE RUEHSO #0428/01 1141754
ZNR UUUUU ZZH
P 241754Z APR 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 4898
INFO RUEHBR/AMEMBASSY BRASILIA 6043
RUEHRG/AMCONSUL RECIFE 2858
RUEHRI/AMCONSUL RIO DE JANEIRO 7015
RUEHAC/AMEMBASSY ASUNCION 2516
RUEHBU/AMEMBASSY BUENOS AIRES 2171
RUEHMN/AMEMBASSY MONTEVIDEO 1923
RUEHLP/AMEMBASSY LA PAZ 2727
RUEHSG/AMEMBASSY SANTIAGO 1665
RUEHCV/AMEMBASSY CARACAS 0250
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 2378
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 03 SAO PAULO 000428 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/BSC AND EB/IFD/OMA K.MOSS 
STATE PASS USTR FOR SULLIVAN/LEZNY 
STATE PASS USAID FOR LAC 
NSC FOR CRONIN 
TREASURY FOR OASIA - DAS LEE AND FPARODI 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITAUSCS/OIO/WH/RD/DDEVITO/SHUPKA 
SOUTHCOM ALSO FOR POLAD 
 
TAGS: PGOV PREL ECON ETRD BR
SUBJECT: ALCKMIN THE BETTER MANAGER, SAO PAULO BUSINESS TELLS A/S 
WAYNE 
 
REFS: (A) Sao Paulo 415; (B) Brasilia 608 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY. 
 
------- 
SUMMARY 
------- 
 
¶1.  (SBU) E. Anthony Wayne, Assistant Secretary of State (A/S) for 
Economic and Business Affairs, visited Sao Paulo April 5-6 to 
participate in the World Economic Forum on Latin America.  While 
here, A/S Wayne also had several meetings with Sao Paulo business 
leaders. They indicated a general disappointment in the Lula 
Administration's lost opportunities for improving the economy over 
the last four years, particularly the failure to make headway on the 
microeconomic reform agenda, and conveyed a preference for leading 
opposition presidential candidate Geraldo Alckmin.  Despite trailing 
substantially in the opinion polls, political and financial analysts 
claimed Alckmin has a fighting chance to win the presidency in 
October.  Alckmin, who recently resigned his post as governor of Sao 
Paulo state to run for president, is seen in the business community 
as a better manager and more likely to favor trade agreements with 
the United States.  END SUMMARY. 
 
--------------------------------------------- ----- 
IF YOU CAN'T CHANGE GOV'T POLICY, CHANGE THE GOV'T 
--------------------------------------------- ----- 
 
¶2.  (SBU) In general, the business leaders with whom A/S Wayne met 
in Sao Paulo expressed dissatisfaction with the state of the 
Brazilian economy and the way it has been managed by the Lula 
Administration (Ref A).  On April 5, A/S Wayne met with the 
president and several directors of the Industry Center of Sao Paulo 
State (CIESP), a non-profit trade organization providing technical, 
legal and other support services to 9,700 member companies.  A/S 
Wayne was told that the GoB has wasted many opportunities to spur 
greater economic growth and has fostered policies, including high 
interest rates and an appreciated currency, that have had the effect 
of favoring commodity exports at the expense of the manufacturing 
sector.  While several CIESP directors remained circumspect 
regarding the upcoming presidential election and which candidate the 
business community likely would support, President Claudio Vaz 
pointedly said he had no qualms stating that most industrialists he 
knows want to see a change in Brazil's leadership.  "Knowing we 
cannot expect change from the Lula government," said Vaz, "we would 
prefer a change in government." 
 
¶3. (SBU) When asked at lunch about former Sao Paulo state governor 
Geraldo Alckmin's (Brazilian Social Democracy Party - PSDB) chances 
for success in the presidential race, former journalist and current 
political consultant Carlos Eduardo Lins da Silva said Alckmin is a 
viable candidate and has a solid chance of beating Lula.  While a 
string of corruption scandals have toppled major players in the 
governing Workers' Party (Partido dos Trabalhadores - PT) and the 
Lula Administration, all agreed that Lula himself is still a strong 
political figure, especially among the poor.  Even with lackluster 
economic performance (see Ref A), Lula will be hard to beat, said 
Silva.  He elaborated that, unlike in years past, Brazil is in a new 
era where political scandals do not rattle the economy; without 
severe economic shocks, the government remains stable and the 
Brazilian people appear satisfied with the status quo.  Political 
consultant Joseph Tutundjian added that while many Brazilians were 
expecting much more from Lula in terms of poverty elimination and 
promotion of socio-economic equity, there has been a net gain of 
"formal" jobs in Brazil over the last three years. (NOTE:  Some 
analysts believe Brazil's informal sector, in which many people hold 
jobs of limited duration, benefits and pay, comprises more than 40% 
of the economy as a whole.  END NOTE.) 
 
SAO PAULO 00000428  002 OF 003 
 
 
 
--------------------------------------------- ------- 
NEW STYLE BUT NO POLICY SHIFTS EXPECTED FROM ALCKMIN 
--------------------------------------------- ------- 
 
¶4. (SBU) The business leaders with whom A/S Wayne met over two days 
almost unanimously agreed that if Alckmin were elected, they would 
see immediate and important changes in how the GOB operates, and 
consequently, in Brazil's business environment.  At CIESP, Boris 
Tabacof, an entrepreneur originally from the Northeast of Brazil 
with experience in electronics, chemicals and banking, said, "We 
expect that with a new president, we will see change on the first 
day."  Yet, all the business leaders and analysts cautioned that 
they would not expect to see major economic policy shifts with 
Alckmin as president, especially regarding macro-economic 
management.  Rather, the business leaders suggested, based on 
Alckmin's solid state-level record, that the government under 
Alckmin would simply be more effective in carrying out policy. 
 
-------------------------------- 
ALCKMIN, THE DISCIPLINED MANAGER 
-------------------------------- 
 
¶5. (SBU) The consensus among business leaders and analysts was that, 
with 12 years aggregate experience as vice-governor and governor of 
Sao Paulo state, Alckmin, who is also a medical doctor, has simply 
proven to be a better manager than Lula.  CIESP president Vaz noted 
that Alckmin better understands how to make public-private 
partnerships work, and that as an experienced state executive, he 
could harmonize policies and priorities between states more 
effectively than Lula.   Likewise, almost all the business leaders 
consulted said they expected Alckmin to improve trade relations 
between Brazil and the United States, especially in regard to 
bilateral and sectoral agreements.  Former journalist Silva tried to 
bolster this assertion by pointing out that as governor, Alckmin 
regularly convened a well-received council on trade to boost export 
opportunities for companies in Sao Paulo state. 
 
¶6. (SBU) During the lunch session, consultant Tutundjian further 
described Alckmin as "incredibly objective and effective," and as "a 
man of action."  Tutundjian said Alckmin has been able to reduce 
taxes in Sao Paulo state and still grow the economy by effectively 
raising residents' incomes.  Tutundjian added that Alckmin has been 
the only Brazilian governor to do so, and wondered aloud why other 
politicians in Brazil have not tried to replicate this model.  He 
noted that Alckmin would be likely to cut government spending as a 
means to refocus government priorities and spur investment. 
According to Tutundjian, "all he has to do is spend less, and that 
alone will help the economy tremendously."  Even a one percent 
reduction in Brazil's deficit would have a huge impact on Brazil's 
government and economy, because it would force agencies to make 
better choices, and it would free up bank money now used to finance 
the government for private loans. 
 
------------------- 
IMAGE VS. SUBSTANCE 
------------------- 
 
¶7. (SBU) To illustrate the difference between Lula and Alckmin, 
Tutundjian recounted a comment he had heard from someone who has met 
both men.  According to this source, "When you meet Lula, he will 
entice you in two minutes; but when you meet Alckmin, he will change 
your mind in 30." Thus, the problem for Alckmin will be that Lula 
has the warmer, more gregarious image, and generally speaking, 
Brazilians are more taken with image than with substance. 
 
----------------- 
PARTY ALIGNMENTS 
 
SAO PAULO 00000428  003 OF 003 
 
 
----------------- 
 
¶8. (SBU) Tutundjian raised a concern that Alckmin might be swayed by 
advice from party associates who are less inclined to support market 
driven economic policies.  He explained there are two main schools 
of economic thought in Brazil based in two major universities: the 
Catholic University of Rio de Janeiro school advocates reduced 
tariffs and market driven economics, while the University of 
Campinas (Sao Paulo State) school remains more interventionist and 
protectionist.  Many of Alckmin's PSDB predecessors and close 
advisors have aligned in the past with the Campinas school, as has 
the PT.  But Tutundjian said Alckmin has not fostered Campinas-like 
policies as governor.  Franklin Feder, President of Alcoa Aluminum 
of Brazil, added that he had been told by Pedro Malan, Finance 
Minister under Lula's predecessor Fernando Henrique Cardoso and 
long-time PSDB member and advisor, that Alckmin has no interest in 
resurrecting interventionist government policies, and would follow 
market-driven policies. 
 
¶9. (SBU) The CIESP leaders also predicted that if elected, Alckmin 
would be able to attain a power base rather quickly because of new 
rules regarding electoral counts.  A political party now needs to 
achieve a threshold level of five percent of the votes in elections 
for the Chamber of Deputies in order to retain its privileges, such 
as holding leadership positions in Congress.  Many smaller parties 
are expected to fall short.  Thus, surmised CIESP leaders, we should 
see a consolidation of parties down to as few as five, and any 
alliance between Alckmin's PSDB and another leading party will be 
all the more powerful. 
 
----------------------------- 
COMMENT: HOPE SPRINGS ETERNAL 
----------------------------- 
 
¶10. (SBU) The business leaders A/S Wayne met with in Sao Paulo were 
mostly open about their preference for Alckmin over Lula for 
president, but they also could not help but acknowledge that, to 
their general dismay, Lula remains strong in the polls despite what 
one consultant called the "worst corruption scandal in Brazil's 
history."  These business leaders based in Sao Paulo, some Brazilian 
and some expatriate, have grown familiar with Alckmin's style of 
executive leadership and his support of business interests.  (NOTE: 
One Brazilian noted almost mockingly that Alckmin has a very 
"American" style of starting meetings on time, dispensing with 
opening remarks, sticking to an agenda, and closing with specific 
action items on which he will follow up.  END NOTE).  We will need 
to watch closely who Alckmin chooses as his key economic advisors, 
and determine how open he will be to discussions.  But given the 
charismatic Lula's continued strength in the polls, Alckmin will 
need to add some warmth and folksiness to his "ethical manager" 
persona if he wants to gain ground on Lula, especially in the 
Northeast.  END COMMENT. 
 
¶11. (U) This cable was coordinated/cleared with Embassy Brasilia and 
with EB A/S Wayne. 
 
MCMCULLEN