VZCZCXRO7539
PP RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHQU RUEHTM RUEHVC
DE RUEHSO #1131/01 2961637
ZNR UUUUU ZZH
P 231637Z OCT 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 5971
INFO RUEHBR/AMEMBASSY BRASILIA 7032
RUEHRG/AMCONSUL RECIFE 3198
RUEHRI/AMCONSUL RIO DE JANEIRO 7546
RUCNMRC/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUCPDOC/USDOC WASHDC 2600
RUEABND/DRUG ENFORCEMENT ADMIN HQ WASHDC

UNCLAS SECTION 01 OF 02 SAO PAULO 001131 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR WHA/BSC 
 
E.O. 12958:  N/A 
TAGS: PGOV ECON KCRM BR
SUBJECT:  AMBASSADOR SOBEL'S MEETING WITH SAO PAULO GOVERNOR-ELECT 
JOSE SERRA 
 
REF: SAO PAULO 899 
 
SAO PAULO 00001131  001.2 OF 002 
 
 
¶1. (SBU) Summary: During an October 18 meeting with Governor-elect 
Jose Serra, Ambassador Sobel stressed the USG's interest in working 
with the state government on public security issues.  Serra 
acknowledged that crime is a major challenge facing his 
administration and that there are many possibilities for 
cooperation.  In discussing the political situation, Serra said 
President Lula is likely to be re-elected but that a surprise result 
is still possible.  He criticized Lula's economic policies, 
highlighting the negative effects of the strong currency, and 
predicted Lula would have a difficult time in a second term.  End 
Summary. 
 
¶2. (U) The Ambassador told Serra he had met in August with Governor 
Claudio Lembo (reftel) and had discussed the state's problems with 
drugs, guns, and gangs.  Lembo requested USG assistance in the area 
of public security.  Subsequently, the Consulate organized a 
roundtable with experts from academia, police and security agencies 
to discuss the issue.  The Ambassador indicated that the USG has 
training and assistance programs with the federal government, and 
that it can also work directly with the state.  He noted that the 
USG has expertise in a variety of areas, including combating gangs 
in the prison system, from which Sao Paulo state might benefit. 
 
¶3. (U) The Ambassador asked if Serra would like to meet with DEA 
Administrator Tandy when she visits Sao Paulo.  Serra said he would 
if he is in town during her visit.  In a future trip to Washington, 
Serra said he plans to meet with the World Bank and the IDB, among 
others.  (Note: The World Bank is supporting a public-private 
partnership project to expand Sao Paulo's subway system. End note.) 
Serra commented that although the federal government has primary 
responsibility for combating drug trafficking and organized crime, 
there are huge opportunities for cooperation at the state level. 
Drugs, weapons, and illegal trade (contraband and piracy) are among 
the major challenges facing his administration. 
 
¶4. (SBU) The Ambassador also asked Serra for his views on the 
election.  Serra replied that the most recent poll, showing 
President Lula with a 20-point lead over ex-Governor Alckmin, was 
not good, but that there was some volatility in the numbers. 
Furthermore, Lula's Workers Party (PT) has people who are "experts 
in surprises."  They had ginned up a "dossier" against him, and it 
had boomeranged on them, resulting in a major scandal.  They (the 
PT) also made a big mistake in trying to establish direct relations 
between the party and the federal police, which could yet come back 
to haunt them.  In short, the election isn't over yet. 
 
¶5. (SBU) Serra said that Lula, if re-elected, will have a difficult 
time dealing with Congress.  He will need to pass Constitutional 
amendments to re-authorize two important measures: a tax on 
financial transactions and an entitlements bill.  Serra criticized 
Lula's economic policy, saying that Brazil needs to grow in order to 
reduce its debt.  The overvaluation of the currency is "a disaster," 
he said.  Lula's popularity, in Serra's view, derives not so much 
from the "Bolsa Familia" assistance program or the increase in the 
minimum wage as it does from the low price of food, which is one 
effect of the strong currency.  At the same time, agricultural 
exports are hurt and the sector is in crisis. According to Serra, 
there is a possibility of inflation next year.  The overvalued Real 
also makes it difficult for the states, which are in a tight fiscal 
situation, to get financing for major infrastructure projects, such 
as roads and public transportation.  Lula will also encounter legal 
problems deriving from the scandals as some forty leaders of his 
party remain under investigation. 
 
¶6. (SBU) Ambassador Sobel asked if Lula may try to create a grand 
coalition with Serra's Social Democracy Party of Brazil (PSDB) and 
other opposition parties, enabling him to pass legislation.  Serra 
opined that such a coalition may be possible in theory but very 
difficult to accomplish in practice, especially with municipal 
elections coming up in 2008.  For his own part, Serra said he will 
"not start a war" between the state and federal governments, but 
does not expect the relationship to be easy. 
 
¶7. (SBU) Asked to recommend members of Congress with whom the 
Ambassador should meet, Serra suggested Senator Sergio Guerra of 
Pernambuco (who is coordinating Alckmin's campaign) and Senator 
Arthur Virgilio from the State of Amazonas who is the PSDB leader in 
the Senate. 
 
¶8.  (U) This cable was coordinated with Embassy Brasilia and cleared 
by Ambassador Sobel. 
 
SAO PAULO 00001131  002.2 OF 002 
 
 
 
MCMULLEN