VZCZCXYZ0009
PP RUEHWEB

DE RUEHBR #0751/01 1171716
ZNY CCCCC ZZH (CCY ADB15182 MSI5530 611)
P 271716Z APR 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 8783
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHDC
RUEHC/USDOC WASHDC
RHEBAAA/DOE WASHDC

C O N F I D E N T I A L BRASILIA 000751 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR OASIA 
USDOC FOR 4322/ITA/MAC/WH/OLCA/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA 
 
C O R R E C T E D COPY - ADDED CLASSIFIED BY and REASONS 
statement. 
 
E.O. 12958: DECL:04/25/2017 
TAGS: ENRG EFIN PGOV PREL BR XM
SUBJECT: BANCO DEL SUR BECOMES A BRAZILIAN "PEEVE" 
 
REF: A) BRASILIA 708   B) BUENOS AIRES 808 
 
Classified by Charge d'affaires Philip T. Chicola, reasons 
1.4 (b) and (d). 
 
¶1. (C) Summary: The abrasive and high-handed manner in which 
Venezuelan President Chavez has sought to advance his "Banco del 
Sur" project has pushed Brazil to the point of seriously 
considering not joining the Venezuelan's latest flight of fancy. 
 The Brazilians, according to both the IMF resrep and public 
accounts, were absolute livid at Chavez and Kirchner's surprise 
announcement that they would be creating the bank -- and others 
were welcome to join if they wanted.  Initially willing to 
overlook the slight, the Lula Administration then had all but 
decided not to join after having been effectively excluded from 
initial planning sessions, Finance Ministry International 
Secretary Luiz Eduardo Melin told Emboff April 24.  Ecuadoran 
 
SIPDIS 
President Correa apparently convinced Lula to postpone a final 
decision and obtained a commitment of Brazilian attendance at a 
planning ministerial to be held in Quito (date unknown). 
Finance Minister Mantega, however, used the Mercosul Energy 
Summit in Isla Margarita to lay down some clear public markers 
for Brazilian participation, including full Brazilian 
involvement in planning and guarantees that there will be 
appropriate governance and a practical agenda.  Melin told 
Emboff that absent these, Brazil probably would not join.  End 
Summary. 
 
Banco del Sur: "My Pet Peeve" 
----------------------------- 
 
¶2. (C) In an April 24 meeting, Finance Ministry International 
Secretary Luis Eduardo Melin told Emboff and visiting Treasury 
 
SIPDIS 
OCC reps that Banco del Sur had become his "pet peeve."  Brazil, 
he said, wants to be at the forefront of the creation of 
regional financial mechanisms that will foster regional 
integration.  During President Lula's first term, he championed 
the creation of the South American Community (CASA), one of the 
working groups in which was considering financial integration. 
According to Melin, Brazil had put several practical, low-cost 
ideas on the table for consideration.  Some of these involved 
greater access to Brazilian financial markets or possible 
lending via Brazil's National Social and Economic Development 
Bank (BNDES).  Melin stated that during Lula's first term, 
Brazil had not been in a position to back up its ideas with new 
money, and this had led to some dissatisfaction. 
 
¶3. (C) Melin stated that the Venezuelan President (he never used 
Chavez's name) had become impatient with the pace of discussion 
in the CASA, and unbeknownst to Brazil had begun bilateral 
discussions with Argentina on creating a Banco del Sur. 
Venezuela's approach, Melin stated, had replaced a useful 
multilateral process with a broad focus with a narrowly focused 
bilateral scheme.  Venezuela and Argentina then presented the 
outlines of the Banco del Sur as a done deal.  Melin said that 
initially, despite having been omitted from the planning 
process, Brazil had been willing to consider joining the 
Venezuelan-Argentine project.  Melin affirmed that he had 
convinced Minister Mantega to travel to Buenos Aires and 
participate in the Bank's roll-out.  Despite this gesture, 
Argentina and Venezuela failed to invite Brazil to the first 
working group meeting that was held two weeks later.  When 
finally informed of the meeting the day before it was to take 
place, Brazil's only option was to have an officer from its 
Embassy in Buenos Aires represent it. 
 
¶4. (C) Given this treatment, Brazil had decided to announce that 
it would not participate in Banco del Sur, Melin continued. 
That changed when visiting Ecuadoran President Correa raised the 
issue with Lula.  Correa reportedly convinced Lula to have 
Brazil participate in a finance ministers meeting in Quito to 
consider whether the project could be given practical, useful 
focus.  Melin stated that Brazil would probably not join a 
project that did not have a sound basis for governance and 
feasible goals.  The bank must start small and build, he said. 
Venezuela's all or nothing approach would not work, he argued. 
Taking a shot at Argentina, he noted that they chaired the CASA 
working group on financial integration, but since the emergence 
of Banco del Sur, have refused to call a working group meeting. 
Brazil's proposals in that forum are still on the table, Melin 
noted.  Moreover, Brazil is prepared to back its CASA proposals 
with money.  The Banco del Sur episode, Melin said, "has not 
been our finest hour as a region." 
 
"Absolutely Livid" 
------------------ 
 
¶5. (C) The IMF resrep told us recently that the Finance Ministry 
was absolutely livid at both the Venezuelans and Argentines for 
going behind their backs bilaterally and then publicly 
presenting them with a fait accompli.  Separately, a senior 
advisor to the Central Bank board of directors told Emboff April 
17 that the Brazilian Central Bank has opposed the idea of 
joining the Banco del Sur in internal GoB councils.  According 
to this advisor, the Central Bank sees no value to the 
Venezuelan-Argentine proposal beyond what the IMF, IDB and World 
Bank already provide to the financial system.  The Central Bank 
does not have a lead role in the decision, the advisor noted, 
although it would continue to oppose firmly the idea of using 
any Brazilian Central Bank reserves to finance Banco del Sur. 
¶6. (C) Comment: As noted reftel, many in the Brazilian political 
and foreign policy establishment have begun to feel their 
leadership role in the region is being challenged by Chavez. 
The surprise unveiling of the Chavez-Kirchner Banco del Sur 
project and the highhanded manner in which Brazil was treated, 
therefore, hit a nerve in a way such an action might not have in 
the past.  Despite this, were Chavez and Kirchner to modify 
their proposal to include safeguards for institutional 
governance, a regional infrastructure-focused lending plan and 
some more practical ideas for financing the bank, the Lula 
administration would have a hard time not joining. 
Nevertheless, Chavez and Kirchner have done themselves no favors 
with the Brazilians on this issue. 
 
CHICOLA