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C O N F I D E N T I A L SECTION 01 OF 02 SAO PAULO 000031 
 
SIPDIS 
 
STATE FOR WHA AND PM, PM/DTTC, AND PM/RSAT 
DEFENSE FOR DEPSECDEF, USDP, USD AT&L 
 
E.O. 12958: DECL: 03/14/2018 
TAGS: PREL ETTC EFIN MARR BR
SUBJECT: DELFIM NETTO:  PERSPECTIVES ON FX2, FINANCIAL 
CRISIS, BILATERAL RELATIONS 
 
Classified By: Consul General Thomas White; Reasons 1.4 (b) and (d). 
 
¶1.  (C) SUMMARY:  On January 12, Ambassador Sobel met with 
Antonio Delfim Netto.  (NOTE:  Delfim Netto is a three-time 
former Minister, former Federal Deputy, and currently an 
economics professor at the University of Sao Paulo.  He 
writes a newspaper column, which is well read by the 
political elite, and he is also an informal, personal advisor 
to President Lula.  END NOTE.)  Delfim Netto emphasized that 
a bilateral tax and investment treaty between the United 
States and Brazil continues to be the most important area for 
growth between the two countries.  He shed light on Brazil's 
requirements for its upcoming purchase of fighter aircraft. 
He talked about the future of the Brazilian Central Bank 
(BCB), and discussed his views on the effect of the financial 
crisis in Brazil.  END SUMMARY. 
 
¶2.  (C) A bilateral tax and investment treaty shows the 
greatest potential for a growing partnership between the 
United States and Brazil, according to Delfim Netto.  He 
believes there are many profitable projects in Brazil that 
U.S. organizations could finance.  Delfim Netto told the 
Ambassador that passage of the treaty would lead to the 
absorption of between $35-$40 billion worth of U.S. capital 
into the Brazilian economy over the next six years, and that 
even marginal U.S. investment could solve many of Brazil's 
liquidity problems. 
 
¶3.  (C) Regarding the FX2 program, he emphasized that 
technology transfer regulations have been the most 
significant obstacle to the sale of Boeing's F-18s to the 
GoB.  He believes that the purpose of the Brazilian Air 
Force's purchase of these planes extends beyond simple 
defensive capabilities.  The GoB wants to build an entire 
industry around them, for which it needs the technology 
transfer license.  In his view, this is what has allowed 
France to remain such a strong contender in the field, while 
hampering Boeing's bid. 
 
¶4.  (C) Delfim Netto commended current BCB President Henrique 
Meirelles on a job well done, especially vis-a-vis the 
injection of liquidity into frozen credit markets.  He 
anticipates that Meirelles will ride his success into the 
political arena by running for governor of the state of Goias 
in the middle of this year.  Delfim Netto expects the GoB to 
continue its tradition of respecting the autonomy of the BCB 
by choosing a qualified and independent candidate.  He 
suggested that Luciano Coutinho, the current President of the 
Brazilian Development Bank, is the front-runner to replace 
Meirelles. 
 
¶5.  (C) Brazil's relatively higher level of liquidity has 
helped it weather the financial crisis thus far.  Brazil, 
however, still faces a problem of trusting its workers, 
companies, and banks to spend money.  Delfim Netto fears that 
these players will continue to save and, while this would 
help liquidity, it would further diminish growth in the 
short-term.  He predicts that the Brazilian economy will grow 
between 2.5 and 3 percent next year. 
 
¶6. (C) COMMENT:  Brazil has historically emphasized the 
development of domestic industries and Delfim Netto's 
analysis is consistent with what both GOB and industry 
interlocutors are telling the Mission with regard to why 
France's jet fighter continues to remain a contender, even 
though it is still in a design phase and technically 
inferior.  With the financial crisis and looming unemployment 
issues at the front of Lula's agenda, the transfer of 
technology that will allow boosting production by Brazilian 
companies in Brazil will almost certainly become even more 
important to the GoB's final decision on which jet fighter to 
purchase.  END COMMENT. 
 
¶7. (U) This cable was cleared by Ambassador Sobel. 
 
SAO PAULO 00000031  002 OF 002 
 
 
WHITE