VZCZCXRO4487
RR RUEHRG
DE RUEHBR #0661/01 1031601
ZNR UUUUU ZZH
R 131601Z APR 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 8660
INFO RUEHRG/AMCONSUL RECIFE 6504
RUEHRI/AMCONSUL RIO DE JANEIRO 4198
RUEHSO/AMCONSUL SAO PAULO 9619
RUEHBU/AMEMBASSY BUENOS AIRES 4708
RUEHAC/AMEMBASSY ASUNCION 6047
RUEHSG/AMEMBASSY SANTIAGO 6191
RUEHMN/AMEMBASSY MONTEVIDEO 6844
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 BRASILIA 000661 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR CRONIN 
STATE PASS USAID FOR LAC 
TREASURY FOR OASIA - J.HOEK 
NSC FOR FEARS 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV BR
SUBJECT: BRAZIL: SUBCABINET LEVEL ECONOMIC TEAM CHANGES 
 
REF: A) BRASILIA 60 
 B) BRASILIA 555 
 
¶1. (SBU) Summary:  With the make-up of President Lula's second-term 
cabinet now finally finalized (ref B), attention has shifted to some 
of the second tier positions in government.  The Central Bank 
announced on April 11 that it was asking Lula to nominate Mario 
Gomes Toros, a former Vice President of the private bank 
Santander-Banespa, to the position of Director of Monetary Policy. 
Toros would take the place of Rodrigo Azevedo, who cited personal 
reasons for returning to the private sector.  The appointment of 
Toros, an economist with orthodox credentials and extensive 
operational experience in financial markets, suggests there will be 
continuity of policy and outlook at the Central Bank.  The Finance 
Ministry, in turn, appears to be making an effort to make amends 
with the Central Bank over previous criticisms of the pace of 
interest rate cuts.  Finance Minister Mantega has been careful in 
recent public appearances not to criticize interest rate levels and 
recently accepted the resignation of his Secretary for Economic 
Policy, Julio Gomes de Almeida, after the latter did publicly 
criticize the Bank.  Finance Ministry Executive Secretary 
(vice-minister equivalent) Bernardo Appy has stepped into the 
economic policy job, while former Social Security Minister Nelson 
Machado, who was displaced during the cabinet shake-up, has been 
named the new Executive Secretary.  End Summary. 
 
Central Bank 
------------ 
 
¶2. (SBU) Brazilian Central Bank Monetary Policy Director Rodrigo 
Azevedo cited personal reasons for returning to the private sector 
in an April 11 Central Bank press release.  Azevedo has been a frank 
interlocutor with the Mission and well-regarded in the financial 
community.  His replacement, Mario Toros, has extensive operational 
experience in financial markets, including a stint as Vice-President 
and Director of Treasury and market operations at Santander-Banespa. 
 He later operated an investment fund, the Thassos fund.  His 
treasury experience will be very relevant to his new position, as 
Toros will oversee the Central Bank's open market operations.  An 
advisor to the Central Bank Board told Emboff that he believes Toros 
to be amply qualified for the job.  The advisor dismissed any 
suggestion that the personnel change would have any implications for 
monetary policy.  Separately, several financial analysts have told 
the press the same.  It also appears that Central Bank President 
Meirelles has opted not to name a director to replace Afonso 
Bevilaqua, the director for economic policy, who resigned earlier 
this year.  Mario Mesquita has taken over Bevilaqua's 
responsibilities and Meirelles indicated to the press on April 11 
that Mesquita would continue covering both Bevilaqua's and his own 
directorate for the foreseeable future. 
 
Finance Ministry 
---------------- 
 
¶3. (SBU) Separately, there has been a re-shuffling of senior 
personnel at the Finance Ministry.  The Secretary for Economic 
Policy, Julio Gomes de Almeida, a long-time associate of Minister 
Mantega, tendered his resignation on April 4, a day after the press 
published an interview in which Almeida was sharply critical of the 
Bank's exchange rate stance.  Almeida's departure was part of a 
shuffle of the senior sub-ministerial positions in the finance 
ministry which saw Executive Secretary Bernardo Appy (vice-minister 
equivalent) take over as Secretary for Economic Policy (a job he had 
already held under former minister Palocci).  Meanwhile, former 
social security minister Nelson Machado, who lost his ministry to 
one of Lula's allies in the PT, became executive secretary in Appy's 
place.  Lula reportedly was satisfied with Machado's work, but 
needed a ministry to give to PT cadres.  Machado agreed to take a 
less senior job, albeit at a more central ministry.  In addition, 
Mantega has not yet named a permanent replacement for Treasury 
Secretary Carlos Kawall, who quit over disagreements with the 
 
SIPDIS 
presidency on the financing of Lula's stimulus package (ref A); the 
interim secretary, Tarcisio Godoy, remains on the job. 
 
Making Up 
 
BRASILIA 00000661  002 OF 002 
 
 
--------- 
 
¶4. (SBU) The Finance Ministry has been working to reduce public 
disagreements over policy with the Central Bank.  Over the last 
several weeks, not only has Mantega not repeated any of his previous 
outbursts about the pace of interest rate reductions, he has made 
statements supportive of central bank decisions.  In announcing the 
Finance Ministry personnel shakeup on April 4, the press quizzed 
Mantega about Almeida's criticism of the Central Bank of the 
previous day.  Mantega disavowed Almeida's criticism in fairly 
strong terms, stating that, as Almeida was already on his way out 
the door when he made those statements, those comments represented 
his private views and in no way represented the ministry's official 
position.  Mantega then reiterated his support for the Bank, noting 
that the economy was growing, inflation was under control and 
interest rates were falling.  Monetary policy, he said, had been 
"correct." 
 
¶5. (SBU) Comment:  Lula wants continuity on economic policy in his 
second term, albeit with a slightly lower primary surplus but higher 
growth rates.  Nothing in the sub-cabinet personnel shuffle suggests 
that there would be substantive changes in policy or outlook.  While 
it is encouraging that Mantega seems to be making a greater effort 
to limit criticism of the Central Bank, previous cease-fires have 
not held for long. 
 
SOBEL