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UNCLAS SECTION 01 OF 02 SAO PAULO 000367 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EFIN SENV BR
 
SUBJECT: BRAZIL: PRIVATE SECTOR AND CENTRAL BANK DISCUSS BILAT 
RELATIONS, REFORMS, OPPORTUNITIES WITH DEPUTY NATIONAL SECURITY 
ADVISOR MICHAEL FROMAN, JUNE 19 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
¶1.  (SBU) Summary: The U.S.-Brazil bilateral relationship is 
probably at a multi-decade high, thanks in part to institutions like 
the CEO Forum, which provide a flexible vehicle for the business 
sector to move the relationship forward, according to Sao Paulo 
private sector and Central Bank interlocutors who met with DNSA 
Michael Froman on June 19.  They also told him that Brazil should be 
one of the first countries to emerge from the ongoing global 
economic crisis, though the next GOB administration still faces 
important pending reforms in both the economic and political arenas. 
 China is now Brazil's number one trade partner, but also an 
economic competitor.  According to former Brazilian Ambassador to 
the U.S. Sergio Amaral, Brazilian stabilization forces have 
performed brilliantly in Haiti, showing that the GOB has assets that 
it can bring to the table in resolving thorny international issues. 
End Summary. 
 
¶2.  (U) Deputy National Security Advisor for International Economic 
Affairs Michael Froman exchanged views with various private sector 
interlocutors and Central Bank Director in Sao Paulo on June 19. 
During his visit, Froman met with Sao Paulo Federation of Industries 
(FIESP) representatives Mario Marconini, Frederico Arana Meira, 
Thomas Zanotto, and UNICA representative Carolina Costa.  He also 
met with Coteminas President and CEO Forum Brazil co-chair Josue 
Gomes da Silva, Brazilian Central Bank Deputy Governor for Economic 
Policy Mario Mesquita and former Brazilian Ambassador to the U.S. 
and private consultant Sergio Amaral.  Several themes dominated the 
conversations: 
 
The U.S. Relationship is Good and Getting Better 
 
¶3.  (U) All those interviewed described U.S.-Brazil bilateral 
relations in glowing terms.  FIESP's Marconini talked about how the 
Brazilian business class had, in recent years, moved away from a 
defensive, protectionist view of the U.S. and had adopted a positive 
attitude toward engagement.  Marconini cited FIESP President Paulo 
Skaf's planned upcoming trade mission to the U.S. as evidence of the 
eagerness of the Brazilian business class to engage.  Ambassador 
Amaral discussed how a variety of factors -- the Lula's government's 
move away from a leftist-ideological foreign policy in its second 
term, President Obama's popularity and, above all, Brazil's growing 
independence from the U.S. -- all fostered greater self-confidence 
in Brazil and more willingness to work with the U.S.  Marconini 
noted that in recent WTO Doha Round trade negotiations, the U.S. and 
Brazil positions had converged, moving the countries toward 
partnership promoting more open trade.  He added that right now, 
while the world is in the grip of a global economic crisis, both 
Washington and Brasilia must work to fight rising protectionist 
pressures. 
 
¶4.  (U) One key element that various interlocutors cited in 
improving the U.S.-Brazil relationship was the development of new 
mechanisms for cooperation.  In this connection, the CEO Forum came 
in for special praise as a breakthrough initiative.  As Josue Gomes 
da Silva described it, the Forum allows the private sector to set a 
faster, more forward moving agenda, even when government 
bureaucracies are inclined to move more slowly.  He saw 
possibilities for the Forum to continue to push cooperation in key 
areas, including negotiations for a bilateral tax treaty, a possible 
U.S.-Brazil agreement to import duty free products with value added 
from Haiti (a new idea), and increased energy cooperation. 
Ambassador Amaral also mentioned Haiti, stating that the Brazil U.N. 
Stabilization Force there had performed brilliantly in a clear 
demonstration that the GOB can now take on an enhanced international 
role in this type of operation. 
 
Brazil Strongly Positioned 
 
¶5.  (U) The majority of those interviewed saw Brazil as well 
positioned to become one of the first countries to emerge from the 
global economic recession.  Central Bank Deputy Governor Mario 
Mesquita said that the Brazilian banking sector was in a strong 
position.  Small banks have stabilized and the big banks are in an 
excellent financial position.  Both Marconini and Gomes da Silva 
cited Brazil's strong fiscal position. 
 
¶6.  (U) Marconini observed that the ongoing crisis had turned 
Brazilian economic vices into virtues.  In his view, the Brazilian 
interest rates are too high, bank spreads too wide, and trade as a 
percentage of GDP is too low.  Nonetheless, Marconini noted, all 
 
SAO PAULO 00000367  002 OF 002 
 
 
these elements had served to insulate Brazil from the ongoing 
economic turmoil. 
 
¶7.  (SBU) Ambassador Amaral was the lone dissenter from this 
generally optimistic view of Brazil's post-crisis prospects.  Amaral 
argued that the global recession had only begun to hit Brazil, 
striking first the export-sensitive sectors, but that now it was 
spreading into the economy more generally.  The government has 
already taken the easiest measures to stimulate the economy.  Amaral 
predicted that the ongoing downturn would eventually cut into tax 
revenues, force higher government spending and undermine President 
Lula's sky-high popularity.  (Comment: Amaral is a close advisor to 
Sao Paulo State Governor and leading contender for the PSDB 
nomination Jose Serra.  PSDB observers in general have been more 
pessimistic on the economy, arguing that the ongoing recession could 
work to Serra's advantage in the campaign.  Amaral is said to be a 
candidate for Foreign Minister in a possible future Serra 
Administration.  End Comment.) 
 
But Challenges Remain 
 
¶8.  (U) While all interlocutors were basically bullish on Brazil, a 
number of them cited key areas that need reform.  Marconini, for 
example, argued that when the recession eases, Brazil will need to 
work hard to reduce taxes, bank spreads, and interest rates, 
particularly if it is to compete with countries like China.  In this 
connection, Mario Mesquita complained that while China is now 
Brazil's largest foreign trade partner, trade between the two 
countries follows an "old fashioned" commodities-based pattern and 
does not stimulate the production of value-added goods in Brazil. 
 
¶9.  (U) Mesquita, though convinced of the stability of the banking 
sector, said that it, too, needed to change.  He observed that large 
Brazilian banks, accustomed to making safe, high-interest/high 
profit loans to the GOB are only slowly opening up their lending to 
private borrowers in the business sector.  The GOB also needs to 
invest heavily in infrastructure, he said.  Ambassador Amaral 
lamented that Brazil is not more forward-looking on the environment. 
 He observed that green technologies constituted a lucrative future 
market, but thought that Brazilian hostility to environmentalists, 
driven by agricultural interests and a "defensive" stance on the 
Amazon rainforest, had blinded too many Brazilians to the 
opportunities offered by this new market. 
 
¶10.  (U) Mario Marconini argued that political reforms must 
accompany economic changes.  There are too many ministries in 
Brasilia (34) and too many political parties (over 30), a situation 
that makes it difficult for even an extremely popular President like 
Lula to enact a comprehensive change agenda. 
 
¶11.  (SBU) Comment: These key contacts welcomed DNSA Froman's visit 
as continued evidence of high-level USG interest in Brazil.  They, 
in turn, demonstrated Brazil's increasingly confident engagement and 
willingness to partner with the United States on the range of 
bilateral, regional, and international issues.  End Comment. 
 
¶12.  (U) This cable was coordinated/cleared with Embassy Brasilia 
and DNSA Froman's office. 
 
WHITE