VZCZCXRO6189
RR RUEHRG
DE RUEHSO #0639/01 2111731
ZNR UUUUU ZZH
R 301731Z JUL 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 7284
INFO RUEHBR/AMEMBASSY BRASILIA 8389
RUEHRG/AMCONSUL RECIFE 3692
RUEHRI/AMCONSUL RIO DE JANEIRO 8222
RUEHBU/AMEMBASSY BUENOS AIRES 2809
RUEHAC/AMEMBASSY ASUNCION 3061
RUEHMN/AMEMBASSY MONTEVIDEO 2390
RUEHSG/AMEMBASSY SANTIAGO 2096
RUEHLP/AMEMBASSY LA PAZ 3419
RUCPDOC/USDOC WASHDC 2857
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 04 SAO PAULO 000639 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
NSC FOR TOMASULO 
STATE PASS USTR FOR KDUCKWORTH 
DEPT OF TREASURY FOR JHOEK 
USDOC FOR 4332/ITA/MAC/WH/OLAC 
USDOC ALSO FOR 3134/USFCS/OIO 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONSE, NRIVERA, CMERVENNE 
 
E.O. 12958: N/A 
TAGS: ECON ELAB ETRD EFIN EIND BR
SUBJECT: FIESP AND CIESP HEAL RIFT, UNANIMOUSLY ELECT PAULO SKAF 
PRESIDENT OF BOTH SAO PAULO INDUSTRIAL ASSOCIATIONS 
 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
¶1.  (U) SUMMARY:  The Sao Paulo State Federation of Industries 
(FIESP) almost unanimously reelected Paulo Skaf to a four-year term 
as President.  The Sao Paulo State Industry Center (CIESP) also 
overwhelmingly chose Skaf to lead it, ending a three-year breach 
between the two organizations.  Skaf's election had the support of 
122 out of 124 FIESP sectoral employer associations and 97 percent 
votes of CIESP-affiliated small and medium-sized industrial 
companies.  Skaf is convinced that a minimum agenda for Brazil's 
development should include structural adjustments that cannot be 
postponed any longer.  The agenda specifies fiscal and tax reform 
that will lower public debt and reduce the tax burden on the 
productive sector, reduce interest rates drastically, increase 
infrastructure investments, and expand exports in a sustained 
manner.  Skaf expressed concern about the risk of repeat blackout in 
the absence of adequate investment for electric generation.  FIESP 
is preparing a plan to produce energy from an alternative source 
within two to three years.  This energy is expected to come from 
abundant sugar cane bagasse available at the sugar and alcohol 
mills.  Pressure from FIESP will continue on the Lula administration 
for the implementation of a developmental policy not only of 
interest to the productive sector but also to the society as a 
whole.  End Summary. 
 
BACKGROUND 
---------- 
 
¶2.  (U) Sao Paulo's powerful industrial associations, which account 
for more than 40 percent of Brazil's industrial production and 
nearly 34 percent of the country's GDP, are represented by two 
bodies, FIESP and CIESP.  The organizations have a symbolic 
relationship, sharing the same board of directors, support staff, 
and building.  FIESP, a federation of 124 sectoral employer 
associations founded in 1942, is the most influential industrial 
organization in the country and is active in lobbying the GoB and 
the Brazilian Congress to advance members' interests.  FIESP also 
acts as the bargaining agent for management in virtually all 
sectoral labor negotiations.  FIESP's budget for 2007 is estimated 
at USD 500 million, contributed by the sectoral employer 
associations.  These funds also maintain and run two 
industry-sponsored organizations: the National Industrial 
Apprenticeship Service (SENAI), an educational organization for the 
training, development and specialization of both semi-skilled and 
skilled workers; and the Social Welfare Services (SESI) for industry 
workers and supplementary health and education services for workers 
and their families. 
 
¶3.  (U) The SENAI-SP system's 150 units enroll 700,000 students a 
year.  These students get free training in 45 technical-level 
careers and 31 Industrial Apprenticeship courses.  The system also 
maintains four college-level courses, as well as continuing-studies 
courses in the fields of graphics, mechatronics, fashion, and the 
environment.  The SESI-SP system includes 215 schools that boast an 
enrollment of 190,000 students.  It also promotes the so-called 
"Global Action" initiative in partnership with Globo TV Network and 
the Roberto Marinho Foundation.  SESI-SP health services include 
dental clinics, doctors' offices, infirmaries, laboratories and 
mobile units.  SESI manages programs on "School Health" and "Company 
Health."  It also promotes workers safety, health and rehabilitation 
activities. 
 
¶4.  (U) CIESP, founded in 1928, has over 9,600 affiliated small and 
medium-sized industrial companies.  With an annual budget of about 
USD 35 million, CIESP operates 42 regional offices that provide 
associates with services in the areas of foreign trade, social 
responsibility, technology, and infrastructure.  CIESP also provides 
regional support, legal advice and technical assistance to its 
member companies. 
 
HISTORIC VOTING AND REUNIFICATION OF FIESP AND CIESP 
 
SAO PAULO 00000639  002 OF 004 
 
 
--------------------------------------------- -------- 
 
¶5.  (U) On May 29, Paulo Skaf, 50, was re-elected President of the 
Federation of Industries of the State of Sao Paulo (FIESP) and 
elected for his first term as President of the Sao Paulo Industry 
Center (CIESP) from 2007 to 2011.  His new term will begin on 
September 28.  This time Skaf will serve as President for both of 
Sao Paulo's most important industrial bodies after three years of 
unprecedented internal mistrust and separation.  Skaf's election was 
not challenged by any other candidate for the job.  FIESP'S 
Electoral College, consisting of 124 sectoral employer associations, 
voted almost unanimously for Skaf, giving him 96.7 percent of valid 
votes.  His victory in CIESP was even stronger, with 3,659 company 
votes representing 99 percent of total valid votes.  Although FIESP 
and CIESP conduct separate elections with different sets of 
electors, the two have always elected the same President, the only 
exception being in 2004. 
 
¶6.  (U) Traditionally, the voting has been pro-forma, ratifying a 
single, agreed candidate for President of both entities.  However, 
in 2004, the two associations elected potentially antagonistic 
leadership.  Paulo Skaf, who at that time was friendly to the Lula 
administration, was elected to head FIESP, while Claudio Vaz, 
favored and supported by the most of the business elite, was elected 
president of CIESP, thus dividing the leadership and weakening the 
voice of Sao Paulo industry.  Friction between the two entities was 
such that for a time, post was unable to organize meetings involving 
both groups and had to engage with each separately.  However, in the 
course of the past three years, the business community as a whole 
concluded that Skaf had been working assiduously in defense of the 
industrial sector by leading a movement to meet the expectations of 
the productive sector.  Skaf expressed concern about the heavy tax 
burden, high interest rates on borrowed money, an unfavorable 
exchange rate, and an unresponsive bureaucracy.  The current 
president of CIESP, Claudio Vaz, congratulated Skaf on his 
impressive electoral victory and emphasized "the level of maturity 
that both associations had gained" in the course of past three 
years, and that the convergence around the name of Skaf for his next 
term is vital for industry.  "There isn't room for controversy or 
division.  Skaf conquered the trust of the business community," 
observed Vaz. 
 
¶7.  (U) FIESP is the more significant of the two associations.  Like 
the industrial federations of other Brazilian states, FIESP, in 
theory, is part of, and subordinated to, the Brazilian National 
Confederation of Industries (CNI).  In practice, however, FIESP, 
which includes companies representing forty percent of half of 
Brazil's Industrial production and thirty-six percent of the 
country's GDP, is the most influential industrial representative 
body in Brazil. 
 
THE SHAPE OF THINGS TO COME 
--------------------------- 
 
¶8.  (U) Paulo Skaf, 50, the self-made son of a Lebanese immigrant 
was former President of the Brazilian Textile Industry and Garments 
Association (ABIT).  He said that his reelection with unanimous 
support from both FIESP and CIESP members strengthens his hand to 
pressure the GOB to adopt a tax policy that encourages instead of 
hindering economic growth and productive activities.  He said that 
the true and effective solution to taxation problem is a 
wide-ranging reform of the tx system, one that includes key fiscal 
issues.  Government expenditures are growing faster than government 
revenue.  It is up to the population to define what they expect the 
state to do, how large it will be, how much it will cost, and how it 
will be financed. 
 
¶9.  (U) Skaf is convinced that a minimum agenda for development 
should include four structural adjustments that may not be postponed 
any longer: (1) fiscal and tax reform that will lower public debt 
and reduce the tax burden on the productive sector; (2) A credit 
 
SAO PAULO 00000639  003 OF 004 
 
 
policy that includes lowering interest rates drastically; (3) 
infrastructure improvement; and (4) A trade policy that may increase 
exports in a sustained manner.  Skaf also referred to a study by 
FIESP that increased his concern about the public debt, fiscal and 
tax issues.  He noted that the GOB collects almost 40 percent of 
everything the Brazilians are able to produce.  The usual 
explanation the government authorities is that "we're preserving the 
primary surplus."  He said that since 1995 the public debt jumped 
from 30 percent to more than 50 percent of GDP.  More serious still, 
expenses continued expanding at a 5.5 percent yearly rate. 
 
¶10.  (U) According to Skaf, infrastructure is one of Brazil's 
bottlenecks and the freight transportation system, such as it stands 
today, generates significant economic and competitiveness losses and 
increases the so called "Brazil Cost."  He said it was imperative 
that the country must urgently invest in ports, railroads, and 
terminals.  These investments would reduce operating costs and boost 
efficiency, making Brazilian exports more competitive and cheaper in 
foreign markets.  He warned about the risk of a repeat "blackout" in 
the absence of investment for electricity generation, transmission 
and distribution.  According to FIESP estimates, Brazil needs to add 
between 6 percent and 7 percent to its energy matrix every year in 
order to be able to adequately promote growth. 
 
¶11.  (U) In a visit to Washington earlier this year, Skaf said that 
the protection of IPR is in Brazil's interest.  According to him, 
the Brazilian economy is a "victim" of thousands of illegal and 
counterfeit products.  Imports of Chinese products, besides their 
artificially lower prices, often disrespect internationally 
established brands and patents. 
 
CHALLENGES 
---------- 
 
¶12.  (U) Addressing the FIESP audience after the reelection victory, 
Skaf said that it will be up to the Brazilians to decide what kind 
of a future awaits not only them but their children.  It goes 
without saying that to consistently achieve public account 
surpluses, control inflation, honor both domestic and external debt 
payment schedules, and keep commitments made to multilateral credit 
organizations are all essential.  However, a country that boasts the 
fifth largest population in the world cannot afford to assess 
economic performance only on the basis of tables and numbers that 
relate to some index oscillation or the other.  "We need to reach 
for more, much more, and correct past mistakes as well as economic 
policy concepts that both the past and the current Brazilian 
administrations have stubbornly held," concluded Skaf. 
 
¶13.  (U) Skaf said he will provide the federal and state governments 
with a proposal to intensify investments in alternative sources of 
energy to avoid a crisis in 2010.  The plan consists of increasing 
investments in the production of energy from sugarcane bagasse 
collected from sugar and alcohol mills.  Skaf believes that in two 
or three years, this source could produce double the amount of 
energy then that expected to be produced by the two hydro energy 
plants projected to be built on Madeira river.  These hydro plants 
are expected to become operational only in 2012.  FIESP President's 
plan would cost around USD 5 to 6 billion and he believes he can 
mobilize the business community to make these investments provided 
the GOB would provide tax incentives. 
 
COMMENT 
------- 
 
¶14.  (SBU) Skaf earned a second four-year term after uniting FIESP 
and CIESP into a single body as was the case before 2004.  He 
received unprecedented support from the business community as a 
whole and also from the outgoing President of CIESP, who 
acknowledged Skaf's resourcefulness and ability to defend the 
country's productive sector.  He's been given a mandate to continue 
pressuring the federal government to announce a development agenda 
 
SAO PAULO 00000639  004 OF 004 
 
 
to establish an efficient credit policy to finance both businesses 
and the consumer, as the economy's major source of fuel.  His 
critical posture in FIESP is expected to be more politically 
oriented in defense of not only the industry but also of the society 
in general. 
 
¶15.  (U) This cable was coordinated with Embassy Brasilia. 
 
HELLING