VZCZCXRO5781
OO RUEHRG
DE RUEHBR #1463/01 3121331
ZNR UUUUU ZZH
O 071331Z NOV 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2818
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 6833
RUEHSO/AMCONSUL SAO PAULO 3018
RUEHRG/AMCONSUL RECIFE 8660

UNCLAS SECTION 01 OF 02 BRASILIA 001463 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR FOR KDUCKWORTH 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONSE, NRIVERA, CMERVENNE 
DEPT OF TREASURY FOR LTRAN, BONEILL 
NSC FOR PAUL BROWN 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ECON ETRD BR
SUBJECT: Brazil: Views on G20 meetings 
 
REF: (A) SAO PAULO 486 (B) SAO PAULO 522 (C) BRASILIA 1299 (D) 
BRASILIA 1362 (E) BRASILIA 1417 (F) ERATH/WHA-EEB OCT 28 E-MAIL (G) 
SAO PAULO 593 (H) SAO PAULO 594 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1. (SBU) SUMMARY:  Brazilian officials across GOB welcome the G20 
approach to address the global financial crisis.  External Relations 
Ministry, Finance Ministry and Central Bank emphasize the G20 must 
be seen as a mechanism to develop concrete proposals that take 
emerging economy input into account.  Brazil will resist attempts to 
empower mechanisms like the Financial Stability Forum or the IMF to 
develop recommendations or oversight absent an effective voice for 
emerging economies in these fora. END SUMMARY. 
 
MERCOSUL PLUS MEETING TO DISCUSS FINANCIAL CRISIS 
 
¶2. (SBU) The October 27 morning discussion included Brazil, 
Argentina, Paraguay, Uruguay, and Venezuela, joined in the afternoon 
by Bolivia, Chile, Colombia, Ecuador, and Peru with participation by 
ForMins, FinMins and Central Bank officials.  According to Ministry 
of External Relations (MRE) and Finance Ministry sources, the 
discussion focused on impact of the crisis in each economy and what 
each is doing domestically, with a view to increasing mutual 
understanding.  Finance contacts emphasize that this meeting was not 
intended to feed directly into the Nov 8 and Nov 15 meetings.  As 
the first meeting of this particular grouping, concrete proposals 
did not emerge.  Rather, the group agreed in general on the need to 
reform international organizations like the World Bank and IMF and 
the need for stronger global regulation.  Whether that "global 
regulation" would be proposed as supranational or each country 
strengthening its own domestic regulation was not discussed in depth 
nor was consensus attempted.  The group agreed that more trade among 
themselves would help ameliorate the effects of the crisis, further 
integration in their banking, capital and insurance markets should 
be considered, and that a "balanced" Doha conclusion would be 
welcome.  (Communique sent to State Oct 28).  Finance contacts noted 
some participants objected to the G20 formulation as 
"non-democratic" but that GOB argued the response to the crisis 
needed to focus on the economies with the most weight. 
 
VIEWS ON G20 MEETINGS NOV 8-9 AND NOV 14-15 
 
¶4. (SBU) MRE and Finance contacts have commented that for Brazil, 
any idea to strengthen the role of institutions such as the IMF 
would be linked for Brazil to governance reform to give GOB more 
voice and vote.  Brazil would not support a model where a 
supranational body had authority to tell Brazil what to do but 
Brazil does not have enough voice in the entity to influence 
decisions on the role of the institution.  Similarly, Brazil would 
be very concerned if, for example, a proposal emerged to give the 
Financial Stability Forum (FSF) more authority to develop standards 
or judge regulatory decisions in countries, since FSF does not 
include Brazil or any other emerging economy.  Central Bank contacts 
note that Brazil may propose IMF borrowing in capital markets as IDB 
and World Bank do. Central Bank would not support proposals for 
tighter controls over portfolio flows, while Finance contacts 
indicate the idea has received internal consideration and no final 
decision.  While CB and Finance agree portfolio outflows have been 
significant, both note that FDI continues to increase notably into 
Brazil. 
 
¶5. (U) FM Amorim reiterated publicly in a press interview this week 
Brazil's call to further reform the IMF.  Finance Minister Mantega 
in an op-ed published November 6 called for expansion of the FSF to 
include emerging economies, arguing why should FSF recommendations 
be universally adopted if emerging economies that are responsible 
for a significant part of global growth do not participate in 
designing these recommended measures (op-ed e-mailed Nov 6 to DOS, 
Treas, NSC).  In seven hours of testimony October 30 before the 
Senate Economic Committee, Mantega asserted dynamic emerging 
economies like Brazil are better placed to weather the crisis than 
"richer countries" due to higher internal growth potential than 
mature markets and a less exposed banking sector, while Central Bank 
Governor Meirelles noted Brazil has fared better than other 
developing countries in part because it is a creditor in dollars and 
has large reserves. 
 
G20 AS FORUM TO ADDRESS CRISIS 
 
¶6. (SBU) Brazil is gratified regarding the decision to hold the 
November 15 conference in G20 formulation.  However, GOB retains 
sensitivities based on its G8 plus 5 experience.  As one MRE contact 
noted, Brazil would not want, and does not anticipate, the G20 
 
BRASILIA 00001463  002 OF 002 
 
 
response to the global financial crisis to turn into a "coffee chat 
at the end" experience, where the G8 really decide what the response 
will be and the G20 countries are informed at the end of the process 
and asked to come on board. Central Bank Governor Meirelles told the 
Ambassador November 6 that the main purpose of the two upcoming G20 
meetings should be to make clear an intention to extend to the G20 
the same kind of cooperation and coordination the G7/8 does, noting 
the first action that demonstrated such an intention was the recent 
Fed swap mechanism with Brazil, Korea, Singapore and Mexico. 
Finance contacts have recommended highlighting the importance of 
cooperation with and trust in emerging economies at the November 15 
meeting, including underlining the importance of this swap. In his 
November 6 op-ed, FinMin Mantega urged the G20 become a forum for 
concrete policy proposals, more directly influence the work of 
multilateral financial institutions, and reinforce its ability to 
manage crises.  His suggestions included expanding G20 meetings to 
twice yearly on margins of Bank/Fund meetings, calling extraordinary 
sessions, and establishing a G20 host-country-chaired virtual 
"situation room" to exchange information and coordinate responses. 
 
¶7. (SBU) While Mantega explicitly chose not to engage publicly on 
expanding the G7/8, Meirelles indicated in the November 6 meeting 
with the Ambassador that perhaps, from Brazil's perspective, a 
"G-13" would be advantageous, while musing that using an existing 
mechanism like G20 might be easier politically.  In the context of 
the upcoming Bank of International Settlements (BIS) meetings among 
G20 Central Bank Governors November 10-11 in Sao Paulo, he noted 
that the meetings unfortunately will stay general, without tackling 
concrete substance, due to Argentina's reluctance to agree to 
anything positive and concrete. 
 
INTERNATIONAL TRANSPARENCY ALSO A GOAL 
 
¶8. (SBU) While Brazil likes the idea of G20 as a decision-making 
grouping, GOB also wants to advocate a transparent global process. 
Following up President Lula's meeting with UNSG Ban in September, 
Lula sent a letter in October asking Ban to organize an ECOSOC 
meeting of Finance Ministers to discuss the crisis.  MRE contacts 
confirm President Lula understands this not as a decision-making 
meeting or grouping, but rather as a forum where "everybody can have 
their say and express their views" and receive information regarding 
the consensus other fora (like the G20) are developing. 
 
OTHER NEWS - BRIEF FINANCIAL UPDATES 
 
¶9. (SBU) The Monetary Committee (COPOM) minutes indicate the Central 
Bank remains disposed toward further rate hikes despite the COPOM 
decision October 29 to hold the SELIC benchmark at 13.75 percent. 
Contacts indicate privately that the decision to hold rates steady 
was difficult, given Central Bank's legal obligation to keep 
inflation with the target band (4.5 to 6.5 percent, with inflation 
currently near the top of the band) combined with industry's strong 
desire to hold rates steady given economic difficulties that are not 
yet fully reflected in the time-lagged economic data COPOM considers 
in making its rate decision. 
 
¶10. (U) Meirelles stated publicly this week that the CB has provided 
USD 47 billion in liquidity since mid-September.  Autos sales in 
October were down 11 percent relative to September, the largest 
monthly decline since 2003, attributable to the lack of auto finance 
and the decline in consumer confidence.  In agriculture, a 3.3 
percent decline in output is forecast for 2009 - the first decline 
in six years. Factors include low external demand and credit 
conditions.  The Finance Ministry announced an additional R$ 10 
billion (approximately USD 4.7 billion) in lending (via BNDES) to 
large companies and an additional R$ 5 billion (via Banco do Brazil) 
to SMEs. To help boost working capital, Mantega announced a ten day 
extension in payment of federal business taxes due now on the 30th 
vice the 20th of each month).  Brazilian industry groups had 
originally requested a 60 day extension. 
 
¶11.  (SBU) COMMENT: GOB is prepared to engage substantively at 
upcoming G20 meetings in Sao Paulo and Washington and welcomes 
development of this forum as a way to coordinate solutions to the 
global financial crisis.  Brazil is unlikely to welcome proposals to 
empower other fora where it is either a non-member or has relatively 
less weight to develop recommendations or impose solutions.  END 
COMMENT 
 
¶12.  (U) This cable was coordinated with Consulate Sao Paulo and the 
U.S. Treasury Attache in Sao Paulo. 
 
SOBEL