VZCZCXRO6079
RR RUEHRG
DE RUEHBR #1362/01 2891059
ZNR UUUUU ZZH
R 151059Z OCT 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 2668
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 6758
RUEHSO/AMCONSUL SAO PAULO 2928
RUEHRG/AMCONSUL RECIFE 8593

UNCLAS SECTION 01 OF 02 BRASILIA 001362 
 
SIPDIS 
SENSITIVE 
 
STATE FOR WHA/BSC, WHA/EPSC, EEB/CIP, EEB/IFD 
STATE ALSO FOR E HASTINGS WHA KELLY WHA MCMULLEN 
STATE PASS USTR FOR KDUCKWORTH 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONSE NRIVERA CMERVENNE 
DEPT OF TREASURY FOR JHOEK BONEILL 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD BR
SUBJECT: Brazil: U/S Jeffery - Central Bank and External Relations 
Ministry meetings readout 
 
REFS: A) Sao Paulo 0486, B) Sao Paulo 0522, C) Brasilia 1299, D) Sao 
Paulo 0086, E) Sao Paulo 548 
 
 
1)  (SBU) SUMMARY. During his October 3 visit to Brasilia, Under 
Secretary for Economic, Energy and Agricultural Affairs Reuben 
Jeffery III met with Brazilian Central Bank Deputy Governor 
Alexandre Tombini to discuss the current global financial crisis, 
its ramifications, and the steps Brazil is taking to minimize the 
effects.  In a separate meeting with the newly appointed Under 
Secretary for Economic Affairs at the Ministry of External 
Relations, Pedro Mendonca, the conversation focused on the global 
financial crisis but also touched on the GOB interest in 
U.S.-Mercosul trade negotiations and the Pathways to Prosperity 
initiative.  Please see septel readout of the October 3 Biofuels 
Steering Group meeting.  END SUMMARY 
 
CENTRAL BANK 
- - - - - - - 
 
¶2.  (SBU) Under Secretary Jeffery's meeting with Brazilian Central 
Bank Deputy Governor Alexandre Tombini (taking place just hours 
after the House passed the Emergency Economic Stabilization Act) 
focused on the global financial crisis. Tombini, widely rumored 
eventually to replace Central Bank Governor Meirelles when he steps 
down, applauded what he called the USG's quick and correct response 
to the crisis.  Tombini stated that the Troubled Asset Rescue 
Program will likely lessen the crisis' impact on the global economic 
downturn and shorten the duration of the crisis.  Tombini stressed 
the importance of taking future lessons from the crisis and 
implementing a regulatory framework with a long-term perspective, 
designed to combat downturns, and capable of discouraging reckless 
risk taking in the future. 
 
¶3.  (SBU) Tombini cited Brazil's pragmatic fiscal policies, the 
growth of the middle class, an increase in agrobusiness investment, 
the inherent liquidity of the Brazilian economy, and a strong 
domestic market as key economic factors that will help Brazil 
weather the current financial crisis. Tombini referenced Brazil's 
favorable balance of payments and an annual credit growth of 20% 
over the past 5 years as additional factors that will help Brazil 
weather the crisis. However, Tombini noted that Brazil's external 
credit line sources were severely damaged by the crisis and that 
Brazil will need to offset this with other external sources or 
through domestic policies.  Tombini detailed the Brazilian Central 
Bank's recent announcement to lower reserve requirements, as well as 
a move to allow larger institutions to exempt forty percent of their 
time deposits from reserve requirements when these funds are used 
for buying smaller institutions' loans.  This measure would funnel 
credit to the small and medium size companies that Tombini stressed 
were the most vulnerable to the crisis' liquidity crunch. Tombini 
mentioned that the Central Bank would intervene to stabilize the 
exchange rate by using Brazil's international reserves to sell USD 
on the open market. He cautioned that if the economic downturn were 
prolonged and commodity prices continued to decline, Brazil's 
balance of payments surplus could become negative, requiring that 
the gap be financed. Tombini confirmed that Brazil would continue to 
buy treasury bonds and that the Central Bank is examining currency 
swaps with the Federal Reserve. 
 
MINISTRY OF EXTERNAL RELATIONS (MRE) 
- - - - - - - - - - - - - - - - - - 
 
¶4.  (SBU) U/S Jeffery next met with the new MRE Economics Under 
Secretary Pedro Luiz Carneiro de Mendonca, who assumed the portfolio 
September 23.  At the GOB delegation's request, U/S Jeffery 
described the US response to the global financial crisis.  PDAS 
Kelly offered an overview of the Pathways to Prosperity September 24 
communique and stressed USG wants the process to be inclusive.  MRE 
Multilateral trade A/S Carlos Marcio Cozendey indicated GOB does 
"not view with trepidation" the initiative and would welcome further 
details on how these FTA countries will work together.  Cozendey 
indicated the GOB is interested in Mercosul-United States trade 
negotiations.  Returning to the financial crisis, Mendonca noted 
"political history" has changed and the world is at a "crossroads" 
as countries decide how best to react to a new world.  MRE Financial 
Affairs DAS Luis Balduino amplified that the world will have to find 
a new balance of cooperation and regulation. 
¶5.  (SBU) COMMENT: U/S Jeffery's meetings confirm what we have been 
hearing from contacts at post.  Brazil is focused on the financial 
crisis and managing it correctly, but they are not panicked.  It was 
also refreshing to hear informed contacts expressing appreciation 
 
BRASILIA 00001362  002 OF 002 
 
 
for U.S. effort to mitigate the crisis.  Notably both meetings 
featured calls for learning from this crisis and working 
constructively to avoid such problems in the future. END COMMENT 
 
E staff has cleared this message. 
 
SOBEL