VZCZCXRO5626
OO RUEHRG
DE RUEHBR #0405/01 0902130
ZNR UUUUU ZZH
O 312130Z MAR 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3976
INFO RUEHSO/AMCONSUL SAO PAULO 3830
RUEHRI/AMCONSUL RIO DE JANEIRO 7531
RUEHRG/AMCONSUL RECIFE 9336

UNCLAS SECTION 01 OF 06 BRASILIA 000405 
 
SIPDIS 
 
DEPARTMENT FOR H/CTO, WHA/BSC, WHA/EPSC 
 
E.O. 12958: N/A 
TAGS: OREP SENV KGHG ENRG ECON ETRD EINV EFIN PREL BR
SUBJECT: BRAZIL SCENESETTER: CODEL PASTOR APRIL 4-10 
 
¶1.   This message is sensitive but unclassified, please treat 
accordingly. 
 
¶2.   (U) SUMMARY:  Your visit comes at a time when the relationship 
between the United States and Brazil is as productive and 
broad-based as ever, with a strong bilateral relationship and 
important economic ties.  Brazil has assumed a larger role in 
promoting regional stability by leading the UN peacekeeping 
contingent in Haiti and views itself as a potential member of an 
expanded UN Security Council. Through the financial crisis, Brazil 
has played a leading role globally in the G20 and also led efforts 
to conclude the Doha round of World Trade Organization (WTO) 
negotiations.  Further, the country has the potential to play a 
major role in promoting global energy security.  The Brazilian 
government seeks to develop a global market for biofuels and also to 
bring into production its vast, new off-shore oil and gas 
discoveries.  In spite of its relatively clean energy matrix, Brazil 
is a major carbon dioxide emitter, largely as a result of 
deforestation, which makes it a critical player in the discussion on 
climate change.  END SUMMARY. 
 
------------------ 
Political Overview 
------------------ 
 
¶3.   (U) With democracy re-established in 1988 after a period of 
military dictatorship, Brazil's democratic institutions are 
generally strong and stable.  President Lula remains a popular 
president - one of the most popular in Brazil's history and indeed 
in the world today, with recent approval ratings as high as 78% - as 
a result of his orthodox economic policies and expanded social 
programs.  In the Congress, ongoing public scandals involving the 
leadership of the Senate and various members of congress have led to 
low ratings for the institution among the Brazilian public. 
Increasingly, the court system has taken steps to curb impunity 
among public officials. These steps have been well received by a 
public accustomed to abuses by authorities. 
 
¶4.   (U) The United States and Brazil share the basic goals of 
fostering hemispheric stability and preventing terrorist and drug 
transit activity.  The attainment of a permanent seat on the United 
Nations Security Council has been a central goal of Brazil's foreign 
policy under President Lula's government.  Regionally, Lula has 
maintained Brazil's historic focus on stability, seeing dialogue and 
good relations with all parties as the best way to achieve this 
goal.  As a result, Brazil maintains an active dialogue with 
Venezuela and Cuba, has worked to foster good relations with 
Bolivia, has given its assistance in resolving the FARC hostage 
crisis in Colombia, and has stood firmly on the principle of respect 
for sovereignty in the region. 
 
----------------- 
Defense Cooperation 
------------------- 
 
¶5.   (SBU) The first potential watershed in achieving a more robust 
defense relationship with Brazil will be the decision on a next 
generation fighter aircraft.  Boeing's F-18 Super Hornet is a 
finalist along with the French Rafale and Swedish Gripen.  A 
decision will be made in June 2009, with a final contract award in 
October.  It would be difficult to overstate the significance of 
Brazil's Air Force committing to a U.S. aircraft as its primary 
fighter for the next generation.  Boeing's proposal combines 
cutting-edge technology with a strong package of industrial 
cooperation.  To be successful, Boeing will have to make a strong 
case that its offset package offers economic benefits to Brazil far 
greater than its competitors. 
 
----------------------- 
Expanding Economic Ties 
----------------------- 
 
¶6.   (U) Brazil is the tenth largest economy in the world and 
received investment grade from Standard and Poor's and Fitch in 
¶2008.  Annual Gross Domestic Product (GDP) grew 5.1 percent in 2008, 
and inflation was 5.8%. Prospects for 2009 have been dimmed by the 
global economic crisis, taking previous predictions for annual GDP 
growth from 4 per cent to .01 percent with some analysts predicting 
a recession.  Despite this decline in immediate prospects, Brazil 
has thus far weathered the crisis better than most major economies, 
due in large part to its conservative macroeconomic policies. 
 
¶7.   (U) Despite progress in recent years, income distribution in 
Brazil remains grossly unequal, with 10 percent of the population 
holding over 50 percent of the nation's wealth.  Brazil is home to 
50 percent of the people who live in extreme poverty in Latin 
America.  President Lula's social programs, combined with formal 
sector job growth and real increases in the minimum wage, have 
reduced income inequalities each year since 2004. 
 
BRASILIA 00000405  002 OF 006 
 
 
 
¶8.   (U) Millions of Brazilians have moved into the middle class 
over the last few years.  Nevertheless, roughly forty percent of the 
population lives in poverty, a problem that can only be addressed by 
sustained long-term growth.  Unfortunately, major structural 
challenges to long-term growth include a complicated and onerous tax 
structure, high interest rates, and cumbersome labor and business 
regulations.  As a result of its regulatory structure, Brazil ranks 
125th in the World Bank Group's Doing Business assessment of 
regulatory climate in 181 countries.  The informal sector (one of 
the largest among large developing economies) constitutes an 
estimated 40 percent of Brazil's economy, in large part in response 
to the onerous tax and regulatory requirements to participate in the 
formal economy.  To promote growth, President Lula has vigorously 
pursued a national Growth Acceleration Program (PAC) to increase 
infrastructure investment in energy, transportation, and 
sanitation/housing, a program that has received increased funding as 
a countercylical measure in the face of the economic crisis. 
 
¶9.   (U) Brazil is a major producer and exporter.  Agriculture makes 
up 36 percent of exports, and the agribusiness sector accounts for 
25% of Brazil's GDP.  Brazil is a leading exporter of soybeans, 
beef, sugar, coffee, and orange juice.  Brazil also distinguishes 
itself as a major exporter of civilian aircraft, steel, and 
petrochemicals.  The United States is Brazil's top trading partner, 
and China has moved into position as number two.  Brazil was a 
significant leader in the World Trade Organization's Doha Round 
negotiations and was active in trying to broker a deal between the 
United States and India. 
 
¶10.   (U) Foreign direct investment in Brazil is increasing, with 
inflows of USD 44 billion in 2008; USD 6.9 billion came from the 
United States.  Brazilian investment in the United States almost 
tripled between 2001 (USD 1.4 billion) and 2006 (USD 3.9 billion). 
President Lula has been actively selling Brazil (including at a 
recent Wall Street Journal sponsored investment conference in 
Brazil) as a solid investment destination during the financial 
crisis due to its sound macroeconomic policies and relatively strong 
economy. 
 
¶11.    (U) In recognition of Brazil's growing importance as a world 
economy, the U.S. government seeks opportunities for positive 
bilateral cooperation on economic issues.  Brazil and the United 
States are in discussions over a possible Bilateral Tax Treaty. 
After both countries agreed in June 2008 to significantly expand 
civil aviation opportunities, two U.S. airlines were granted 
approval for 21 new frequencies.  Further frequency allocations for 
2009 under the agreement have been tentatively allocated. 
 
----------------------- 
Global Financial Crisis 
----------------------- 
 
¶12.   (U) The global financial crisis has affected Brazilian 
companies' exports and access to credit. Brazil's Finance Minister 
continues to assert that Brazil is well-positioned to weather the 
crisis while he and Central Bank contacts confirm moves to try to 
mitigate the effects of the crisis.  President Lula, taking a 
leading role in the debt over how to handle the economic crisis 
including through the G20 process, has criticized actors in 
developed countries for sparking a crisis that affects developing 
countries. He has called for increased regulation of the global 
financial system, increased global access to trade finance, and an 
expanded role for large emerging countries like Brazil in 
international financial institutions such as the International 
Monetary Fund (IMF).  Presidents Lula and Obama agreed to work 
together to advance our common interests through the G20 process and 
have established working groups to that end. 
 
¶13.   (U) Over the past quarter Brazil has posted a series of poor 
economic results that confirm the country will not escape the 
current global financial crisis unscathed.  A February 3 report 
detailing a 14.5 percent drop in industrial output in December 2008 
versus December 2007 (the biggest drop in 17 years), finally 
prompted President Lula to admit that his country's economy may be 
contracting.  The government has reacted to the economic downturn 
thus far with a series of piecemeal announcements and actions aimed 
at increasing liquidity in the banking system, stimulating growth 
through a series of targeted tax cuts, and seeking to shore up 
exports.  President Lula has announced his intention to develop a 
comprehensive response plan for release in the coming weeks. 
However, details still remain under interagency discussion. 
 
 
------ 
Energy 
------ 
 
-AREA FOR COOPERATION: BIOFUELS 
 
BRASILIA 00000405  003 OF 006 
 
 
 
¶14.   (U) For Brazil, turning ethanol into a world commodity is a 
key aspect of increasing energy security.  Though Brazilian ethanol 
is produced from sugar cane, Brazil sees expansion of the global 
ethanol market, regardless of feed stock, as a key interest.  In 
March 2007, the United States and Brazil signed a Memorandum of 
Understanding (MOU) on biofuels cooperation.  As a result, 
scientists and laboratories from the two countries are 
collaboratively researching next generation biofuels technologies. 
We are also working together in various multilateral fora to develop 
international biofuels standards and sustainability criteria.  By 
making it easier to treat biofuels as a tradeable commodity, these 
standards should foster the emergence of a vibrant global biofuels 
market. 
 
¶15.   (U) The United States and Brazil are jointly assisting a group 
of developing countries in creating their own biofuel markets, with 
the goal of reducing their dependence on imported oil.  The joint 
cooperative effort initially targeted four countries: Haiti, St. 
Kitts, El Salvador, and the Dominican Republic.  In November 2008, 
five new countries joined the group:  Guatemala, Guinea-Bissau, 
Honduras, Jamaica, and Senegal.  Brazil would like to see the United 
States aggressively expand these cooperation efforts to include 
developing countries in Africa and Southeast Asia, both as a 
development tool and as a way to increase the commodity market for 
ethanol. 
 
¶16.   (U) Modest tax breaks have stimulated the Brazilian domestic 
ethanol market and have led new car purchasers to opt overwhelmingly 
for "flex-fuel" cars that can run on gasoline, ethanol, or any 
combination of the two.  In 2008, ethanol surpassed gasoline as the 
dominant automotive fuel.  Domestic demand consumes 85 percent of 
all production.  The other 15 percent is exported, primarily to the 
United States, making our ethanol import surcharge a continuing 
irritant in bilateral relations.  The GOB also uses mandates to 
promote greater use of biodiesel. 
 
-VAST OIL AND GAS DISCOVERIES 
 
¶17.   (U) The discovery in 2007 of potentially massive offshore 
("pre-salt") reserves of oil and gas estimated to contain between 
30-80 billion barrels of oil equivalent could put Brazil within the 
top ten oil countries by reserves.  Though the discoveries have 
generated a great deal of excitement, industry observers caution 
that developments will probably be slow in coming due to the 
expensive technological challenges involved with ultra-deepwater 
drilling, including a worldwide shortage of equipment such as 
drilling rigs. 
 
¶18.   (U) Petrobras appears to be overextended internationally and 
is hamstrung by limited equipment resources.  However, it has 
launched a multi-billion dollar procurement initiative and is 
reexamining its international priorities so that it can focus on 
domestic opportunities, though it remains to be seen how the global 
financial crisis will may affect those plans.  U.S. oil companies 
are poised and ready, in many cases, to take on more exploration 
opportunities.  Brazil is currently reexamining its oil sector 
structure to make the most use of these finds.  Interim reports 
suggest that the GOB may be leaning towards developing a state-owned 
company to manage the rights to the oil fields as they contract out 
the exploration.  Brazil has expressed interest in having U.S. 
companies involved in the exploitation of Brazil's oil reserves. 
 
-FURTHER ENHANCING ENERGY COOPERATION 
 
¶19.   (U) Brazil and the United States have many other common areas 
of interest in the energy sector.  The convergence of our interests 
offers opportunities to enhance both countries' national energy 
security.  Building on the success of the biofuels relationship, 
Brazil and the United States have identified three new areas of 
possible collaboration under a preexisting Memorandum of 
Understanding between the U.S. Department of Energy and Brazil's 
Ministry of Mines and Energy and established new working groups in 
the areas of energy efficiency, clean coal, and nuclear energy.  The 
United States also has commercial interests, particularly in nuclear 
energy, as Brazil looks to expand its civilian nuclear energy 
program.  For example, Westinghouse is in the running to build four 
to eight new nuclear reactors in Brazil over the next ten years. 
 
¶20.   (U) The United States would like to parlay these and other 
shared interests into support for a hemispheric energy partnership. 
There are many opportunities for joint cooperation including 
research and development, energy efficiency, and green technologies. 
 It is important that prominent Brazilian policymakers perceive the 
level of importance the USG accords to this efforts.  Any 
appropriate opportunities for the delegation to reinforce this 
message would be invaluable as we pursue this major policy 
initiative. 
 
 
BRASILIA 00000405  004 OF 006 
 
 
---------------------------------- 
The Environment and Climate Change 
---------------------------------- 
 
¶21.   (U) Brazil pursues two sometimes-conflicting goals with regard 
to the Amazon region.  On the one hand, it seeks to preserve the 
natural resources and biodiversity found there.  To that end, the 
government requires landowners to preserve eighty percent of forest 
on their lands and has placed large amounts of the forest into 
protected areas, such as national parks and indigenous reserves.  At 
the same time, the Brazilian government seeks economic growth and 
redistribution of land.  Thus, since the 1970s it has built a 
network of roads through the Amazon, which has opened the region to 
timber and agriculture (mainly cattle and soybean) interests. 
 
¶22.   (U) Massive and ongoing clearing of the Amazon Forest releases 
large quantities of carbon dioxide into the atmosphere.  The GOB 
estimates that about 75% of the country's green house gas emissions 
come from changes in land use and deforestation.  From 1970-2000, 
Brazil's ranked 6th in the world for cumulative carbon dioxide (CO2) 
emissions - the country emitted 51,000 metric tons of CO2 (including 
land use), about six percent of the global total.  During the same 
time period, the United States emitted 137,000 metric tons of CO2 
(including land use), about sixteen percent of the global total, and 
was ranked number one. 
 
¶23.   (U) The GOB has taken a defensive position on deforestation, 
most of which is illegal and takes place on public lands. The GOB 
has not been able to establish an effective presence in the vast 
Amazon, leaving ranchers and farmers to clear government land with 
relative impunity.  However, the national government, state and 
local governments, non-governmental organizations, and the business 
community are pursuing a variety of means to reduce the 
deforestation rate. In October 2008, the national Amazon Fund 
received a pledge of up to one billion dollars from Norway through 
¶2015.  Marriott Hotels and Coca-Cola recently contributed to a State 
of Amazonas program called Foundation Sustainable Amazonas (FAS) to 
financially support residents living in state reserves who choose to 
preserve their forests.  Other organizations, such as the Moore 
Foundation and The Nature Conservancy, have programs to encourage 
conservation and to prevent the Amazon from being turned into 
soybean fields. 
 
¶24.   (U) The GOB has stepped up enforcement efforts to stop illegal 
clearing and has displayed great interest in the use of programs 
which pay people to avoid deforestation. These efforts, combined 
with a drop in agriculture commodity prices, are expected to result 
in a significant decrease in the deforestation rate this year.  In 
December 2008, the GOB announced a domestic goal of reducing the 
deforestation rate to about 6,000 square kilometers per year by 
¶2017. The deforestation rate dropped from a high of over 25,000 
square kilometers in 2003 and in 2004 to around 11,000 square 
kilometers in 2007 and in 2008. 
 
¶25.   (U) In international climate change negotiations, Brazil has 
been far less bold and innovative, contending that only developed 
countries should be required to assume emission reduction targets. 
However, some within the GOB want Brazil to take a position of 
leadership on climate change.  Although he has yet to persuade the 
Ministry of Exterior Relations (the GOB lead on climate change 
negotiations), Environment Minister Carlos Minc urges Brazil and 
other developing countries to take on emissions reductions targets 
in return for financial assistance and technology transfer. 
 
¶26.   (U) The tremendous international interest in the Amazon has 
made many Brazilian officials ultrasensitive on the topic.  Further, 
a myth has arisen that the United States is interested in militarily 
seizing the Amazon either to preserve it or to claim its vast 
natural resources. 
 
¶27.   (U) Brazil is a relatively "green" country.  Hydropower 
provides around 85% of Brazil's electricity, and passenger cars now 
use more ethanol than gasoline.  However, in order to meet growing 
demands for electricity that can not currently be met through 
hydropower, the GOB may resort more often to fossil fuels (which 
currently provide less than nine percent of Brazil's electricity). 
 
 
---------------------- 
GOLDMAN ABDUCTION CASE 
---------------------- 
 
¶28.   (U) American David Goldman is currently pursuing a Hague 
Abduction Case, involving his son Sean who was brought to Brazil by 
his mother and wrongfully retained here over 4 years ago.  The case 
has been remanded to the 16th Federal Court in Rio de Janeiro.  The 
Court has two cases before it: the return motion from Mr. Goldman 
under the Hague Convention on International Child Abduction, and the 
custody motion by Sean's Brazilian stepfather which was originally 
 
BRASILIA 00000405  005 OF 006 
 
 
filed in a Rio state court.  The Ambassador and numerous elements 
within the Mission have been working firmly but quietly behind the 
scenes to remind the GOB of its obligations under the Hague 
Convention.  We are cautiously optimistic that the move to the 
Federal Court will result in a more just decision on the Hague case. 
 We remain in constant touch with David Goldman and his Brazilian 
attorney to ensure that their interests are represented effectively 
in Brasilia. A decision may be announced soon. 
 
---------------------------- 
Security Situation in Brazil 
---------------------------- 
 
¶29.   Political and labor strikes and demonstrations occur 
sporadically in urban areas and may cause temporary disruption to 
public transportation.  Naturally, protests anywhere in the world 
have the potential to become violent.  In addition, criminal 
organizations, during 2006, staged several violent campaigns against 
public institutions in the Sao Paulo State leading to a large number 
of deaths. While it is unlikely that U.S. citizens would be targeted 
during such events, U.S. citizens traveling or residing in Brazil 
are advised to take common-sense precautions and avoid any large 
gatherings or any other event where crowds have congregated to 
demonstrate or protest.  Individuals with ties to criminal entities 
operate along the tri-border area of Argentina, Brazil, and 
Paraguay.  These organizations are involved in the trafficking of 
illicit goods; some individuals in the area are financially 
supporting designated foreign terrorist organizations.  U.S. 
citizens crossing into Paraguay or Argentina may wish to consult the 
Country Specific Information for those countries. 
 
¶30.   Crime throughout Brazil (especially Rio de Janeiro) has 
reached very high levels.  The Brazilian police and the Brazilian 
press report that the rate of crime continues to rise, especially in 
the major urban centers - though it is also spreading in rural 
areas.  Brazil's murder rate is more than four times higher than 
that of the United States.  Rates for other crimes are similarly 
high.  The majority of crimes are not solved. 
 
¶31.   Street crime remains a problem for visitors and local 
residents alike, especially in the evenings and late at night. 
Foreign tourists are often targets of crime and Americans are not 
exempt. This targeting occurs in all tourist areas but is especially 
problematic in Rio de Janeiro, Salvador and Recife. 
 
¶32.   Caution is advised with regard to nighttime travel through 
more rural areas and satellite cities due to reported incidents of 
roadside robberies that randomly target passing vehicles.  Robbery 
and "quicknapping" outside of banks and ATM machines are common.  In 
a "quicknapping," criminals abduct victims for a short time in order 
to receive a quick payoff from the family, business or the victim's 
ATM card.  Some victims have been beaten and/or raped. 
 
¶33.   The incidence of crime against tourists is greater in areas 
surrounding beaches, hotels, discotheques, bars, nightclubs, and 
other similar establishments that cater to visitors.  This type of 
crime is especially prevalent during Carnaval (Brazilian Mardi 
Gras), but takes place throughout the year.  While the risk is 
greater at dusk and during the evening hours, street crime can occur 
both day and night, and even safer areas of cities are not immune. 
Incidents of theft on city buses are frequent and visitors should 
avoid such transportation.  Several Brazilian cities have 
established specialized tourist police units to patrol areas 
frequented by tourists.  In Rio de Janeiro, crime continues to 
plague the major tourist areas. 
 
¶34.   At airports, hotel lobbies, bus stations and other public 
places, incidents of pick pocketing, theft of hand carried luggage, 
and laptop computers are common.  Travelers should "dress down" when 
outside and avoid carrying valuables or wearing jewelry or expensive 
watches.  "Good Samaritan" scams are common.  If a tourist looks 
lost or seems to be having trouble communicating, a seemingly 
innocent bystander offering help may victimize them.  Care should be 
taken at and around banks and internationally connected automatic 
teller machines that take U.S. credit or debit cards.  Very poor 
neighborhoods known as "favelas," such as those located on steep 
hillsides in Rio de Janeiro, are found throughout Brazil.  These 
areas are sites of uncontrolled criminal activity and are often not 
patrolled by police.  U.S. citizens are advised to avoid these 
unsafe areas.  Carjacking is on the increase in Sao Paulo, Recife 
and other cities. 
 
¶35.   Travelers using personal ATMs or credit cards sometimes 
receive billing statements with non-authorized charges after 
returning from a visit to Brazil. The Embassy and Consulates have 
received numerous reports from both official Americans and tourists 
who have had their cards cloned or duplicated without their 
knowledge. Those using such payment methods should carefully monitor 
their banking online for the duration of their visit. 
 
BRASILIA 00000405  006 OF 006 
 
 
 
¶36.   While the ability of Brazilian police to help recover stolen 
property is limited, it is nevertheless strongly advised to obtain a 
"boletim de ocorrencia" (police report) at a "delegacia" (police 
station) whenever any possessions are lost or stolen.  This will 
facilitate the traveler's exit from Brazil and insurance claims. 
 
¶37.   In many countries around the world, counterfeit and pirated 
goods are widely available.  Transactions involving such products 
may be illegal under local law.  In addition, bringing them back to 
the United States may result in forfeitures and/or fines. 
 
¶38.   COMMENT: Brazil has seen its importance on the world stage 
multiply exponentially in just the last few years.  It is a major 
player in the region and while the government is largely friendly 
and open to the U.S., they do not and will not always see eye to eye 
with us.  The most promising areas for collaborating with Brazil, 
while also furthering our own national interests, lie in the areas 
of energy and climate change.  Your visit offers the opportunity to 
highlight how important Brazil is in this effort and underline our 
strong interest in expanding our relationships in these areas.  END 
COMMENT. 
 
SOBEL