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INFO RUEHRG/AMCONSUL RECIFE 9796
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RUEHSO/AMCONSUL SAO PAULO 4381
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S E C R E T SECTION 01 OF 10 BRASILIA 000960 
 
NOFORN 
SIPDIS 
 
STATE FOR WHA AND WHA/BSC 
 
E.O. 12958: DECL: 08/03/2019 
TAGS: PREL BR
SUBJECT: BRAZIL: SCENESETTER FOR AUGUST 4-6 VISIT OF 
NATIONAL SECURITY ADVISER GENERAL JAMES JONES 
 
Classified By: DEPUTY CHIEF OF MISSION LISA KUBISKE, 
REASON 1.4 (b) and (d) 
 
¶1.  (C)  Summary:  The relationship between the United States 
and Brazil is as productive and broad-based as it has ever 
been in recent decades, the result of the cordial personal 
connection already established between President Obama and 
President Luiz Inacio Lula da Silva, which is building on 
Lula,s excellent relationship with former President Bush. 
New cooperation mechanisms on biofuels, business issues, and 
economic matters, and our shared goals of fostering 
hemispheric stability, promoting democracy, developing a 
consensus on next steps regarding climate change, and 
achieving a mutually satisfactory conclusion to the Doha 
round of WTO negotiations have fostered the view in Brazil 
that relations between our two countries are closer than 
ever.  Brazil appears to be headed for a rapid recovery from 
the effects of the global financial crisis, and Lula remains 
as popular as ever as the country turns its focus to the race 
to succeed him in January 2011. 
 
¶2.  (C)  Internationally, U.S.-Brazil cooperation is often 
limited by the GoB's unwillingness to speak out against 
anti-democratic actions in the hemisphere (Venezuela and 
Cuba), take proactive steps to address key issues such as 
nuclear proliferation and counterterrorist concerns, and 
expand its international leadership in meaningful ways. 
However, military-to-military relations are good and growing, 
and most of the Brazilian military understands the potential 
benefits of partnership with the United States, including 
through the purchase of Boeing,s F-18 fighter, which is a 
competition with French and German aircraft that will likely 
bet finalized over the next month.  At the operational level, 
cooperation on law enforcement issues, such as 
counternarcotics, container security, and intelligence 
sharing, is excellent and improving.  As the most senior 
official of the Obama Administration to visit Brazil, your 
visit provides an opportunity to highlight the importance to 
the United States of our bilateral partnership with Brazil 
and to explore new avenues for cooperation.  End Summary. 
 
 
Lula Popular, But What Comes Next? 
 
 
¶3.  (C)  With approval ratings above 70 percent, President 
Lula's popularity has dropped only slightly from its high 
point earlier this year as a result of the effects of the 
global downturn on Brazil.  Continuity and legacy have been 
the guiding lights of Lula's second term.  Lula continues to 
shape his legacy as a friend of the poor and builder of a 
foundation for prosperity for the lower and middle classes 
through broad social welfare programs and a vast, new 
economic growth program of public works and growth 
incentives.  At the same time, Lula has failed to promote 
needed reforms to abolish a political culture of corruption, 
clientelism, and spoils.  This was highlighted recently by 
Lula's public support for embattled Senate President, and 
former President of Brazil, Jose Sarney, who is embroiled in 
a nepotism scandal involving secret deals by him and other 
senators to obtain comfortable, high paying jobs on the 
senate payroll for close family members and other, more 
distant relatives.  This is but the latest in a seemingly 
endless series of corruption scandals, none of which has 
dented Lula's personal popularity or that of his government. 
At the same time, these scandals have felled political 
allies, including cabinet ministers, in recent years. 
 
¶4.  (SBU)  President Lula and his economic team's prudent 
fiscal and monetary policies and reform efforts are a major 
reason for his popularity, and have resulted in Brazil's 
position as one of the ten largest economies in the world, 
with a trade surplus and BB-plus credit rating.  Prior to the 
financial crisis, exports and investment inflows grew 
steadily, as did Brazil's currency, the Real, allowing the 
government to pay down its external debt.  Annual GDP growth 
grew 5.1 percent in 2008, and inflation was 5.8 percent. 
Prospects for 2009 have been dimmed by the global economic 
crisis, which is likely to reduce annual GDP growth for 2009 
from a predicted 4 percent to essentially flat.  Despite this 
decline in immediate prospects, Brazil has thus far weathered 
the crisis better than many major economies, due in large 
part to its conservative macroeconomic policies and highly 
regulated banking sector.  Brazil is already showing signs of 
an early recovery, and is making the most of its new-found 
economic leadership.  The GOB recently announced a loan to 
 
BRASILIA 00000960  002 OF 010 
 
 
the IMF and has played a major role in the post-financial 
crisis restructuring effort, particularly through the G-20. 
 
¶5.  (SBU)  Still, Brazil faces major structural challenges to 
long term growth.  Access to credit is difficult and, 
although interest rates have dropped significantly in 
response to the financial crisis, traditionally Brazil,s 
real interest rates are among the highest in the world.  The 
informal sector constitutes an estimated 40 percent of the 
economy, in part due to the tax burden (34.2 percent of GDP 
in 2006), one of the highest among large developing 
economies.  Brazil's opaque and onerous regulatory and legal 
system, as well as poor transportation and other 
infrastructure, continue to constrain growth. 
 
¶6.  (SBU)  The presidential election campaign to choose 
Lula,s successor is already well under way, unofficially, 
affecting most major GOB decisions.  Fifteen months out from 
the October 2010 elections, the two principal candidates are 
Lula's "prime minister" (Head of the Civilian Household), 
Dilma Rousseff, and the opposition governor of Sao Paulo 
state, Jose Serra.  Although Serra currently has a 
significant lead in the polls, Brazilians are notoriously 
independent (only ten percent of voters have a party 
affiliation) and Rousseff, with the strong backing of Lula, 
is trying to regain ground after experiencing a setback 
because of uncertainties about her health after she was 
diagnosed with lymphatic cancer in March.  She appears to be 
responding well to treatment and is back on the campaign 
trail, although the state of her health is being closely 
followed by the press and public.  Serra is also facing a 
strong challenge from the governor of Minas Gerais state, 
Aecio Neves.  Whoever wins is likely to continue the sound 
economic management and aggressive international outreach 
that have characterized Lula's presidency. 
 
¶7.  (U)  Despite a healthy economy and a slight drop in 
homicide rates that are some four times those of the United 
States, public opinion polls over the last several years 
consistently show that the top concerns for Brazilians remain 
public security and lack of jobs.  These are normally 
followed by quality of health care and education, corruption, 
low wages, and lack of opportunities for youth.  These will 
likely remain issues heading into the 2010 presidential 
elections. 
 
 
Foreign Policy: Expanding its Global Footprint 
 
 
¶8.  (C)  Under Lula, Brazil's priority has been to solidify 
its regional leadership, deepen ties with traditional 
partners like the United States and Europe, and cultivate 
relations with a broader range of states.  Despite a great 
deal of criticism from those in Brazil who question the value 
of this so-called South-South strategy, the GOB has expanded 
its diplomatic presence in Africa, Asia, the Middle East, and 
the Caribbean and has promoted cross-regional meetings such 
as the Arab States-South America Summit, the Africa-South 
America Summit, the BRICs (Brazil, Russia, India, China) 
meetings, and the IBSA (India, Brazil, South Africa) forum. 
Asserting that regional countries should be able to talk 
among themselves, Brazil has also sought to create new 
regional mechanisms, such as the Union of South American 
Nations (UNASUL), the South American Defense Council, and the 
Summit of Latin America and the Caribbean (CALC) that serve 
to strengthen its leadership in South America and the Western 
Hemisphere more broadly.  With its eye on a permanent seat in 
the UN Security Council, Brazil has taken a more visible role 
on major international negotiations, including the Doha trade 
round, G20 discussions on the global economic crisis, and 
post-Kyoto climate change talks, taken the lead on 
peacekeeping in Haiti, and is seeking a role in the Middle 
East peace process. 
 
¶9.  (C)  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 and refuses 
to criticize human rights violations in Venezuela and Cuba, 
has worked hard to restore relations with Bolivia even at the 
expense of its own economic interests, and stood firmly on 
the principle of respect for sovereignty, with only minimal 
mention of counterterrorism concerns, in responding to the 
2008 dispute between Colombia and Ecuador. 
 
 
BRASILIA 00000960  003 OF 010 
 
 
 
Foreign Policy: Cooperative Relations with China 
 
 
¶10.  (C)  Sino-Brazilian relations are officially excellent, 
characterized by a booming economic relationship and a 
political relationship that has become increasingly closer, 
especially since the exchange of visits by Presidents Hu and 
Lula in 2004.  The economic relationship is based on 
"complementarity," not competition: Brazil exports to China 
low value added commodities such as iron ore, soy, and 
petroleum, with these three commodities representing about 
70% of the export value, while China exports high value added 
goods such as electronics and industrial equipment.  In 2008 
China surpassed the United States as Brazil's largest trading 
partner.  There is some discontentment in the Brazilian 
private sector over the unbalanced trade relationship and low 
level of Chinese investment in Brazil, but both governments 
are taking a long-term view and believe a patiently 
constructed relationship will increasingly yield political 
and economic fruits.  Brazil and China have designated each 
other a Strategic Partner.  In 2006, they inaugurated the 
High Level Committee on Consultation and Cooperation 
(COSBAN), which meets biennially, and they agree to support 
each other in international organizations, work toward a 
successful conclusion of the Doha Round, and cooperate in 
many political areas to strengthen south-south relations and 
the voice of the developing world globally.  Yet China does 
not support Brazil's top foreign policy goal: a seat on the 
UN Security Council. 
 
 
Foreign Policy: "Balanced" Middle East Approach 
 
 
¶11.  (C)  As part of its efforts to burnish its global 
leadership credentials Brazil has a relatively new but active 
Middle East agenda.  Brazil prides itself on maintaining 
solid relationships with every country in the region and on 
maintaining an ability to "talk to all sides."   During the 
Lula administration Brazil has been the driving force behind 
the establishment of the Arab-South America summit, which 
held its second presidential-level meeting in late March. 
Brazil is active in the Israel-Palestine peace process, 
having participated in the Annapolis peace conference and 
making its largest foreign aid pledge*USD 10 million*at the 
Sharm al-Sheikh donors conference in Egypt earlier this year 
for Gaza reconstruction.  Brazilian officials see themselves 
as balanced in their dealings with Israel and the 
Palestinians, but they have yet to define a substantive role 
for Brazil. FM Amorim's suggestion that Iran, Syria, Hamas, 
and Hizbollah should be included in peace negotiations 
suggests continuing naivete regarding the peace process and 
Middle East relations. 
 
¶12.  (C)  Brazil is expanding its relationship with Iran.  An 
early-May visit by Iranian President Ahmadinejad to Brasilia 
-- following the first visits by each country,s foreign 
ministers in almost two decades -- was cancelled the day 
before it was to take place, but may be back on the calendar 
in the near future, possibly followed by a Lula visit to 
Iran.  Brazil likes to characterize its relationship with 
Iran as &normal8 -- one cognizant of Iran's troubled status 
within the international community, but that does not 
repudiate Tehran either.  Brazil and Iran hold annual 
bilateral political talks, and FM Amorim has remarked that 
Brazil's growing "friendship" with Iran might prove useful 
should the United States, in the future, decide to engage 
Iran.  However, the relationship is largely commercial.  Iran 
has been the largest trading partner for Brazil in the Middle 
East and Brazil sees great potential to expand trade further. 
 Commodities currently dominate Brazilian exports to Iran, 
but Iran is interested in Brazilian machinery for the oil and 
gas industry, medical equipment, and engineering and 
construction services.  The Brazilian Government is 
considering establishing a mechanism to assist in the 
financing of exports to Brazil in order to overcome Iran,s 
difficulty in obtaining letters of credit.   Petrobras and 
the GOB are both acutely aware of our concerns about their 
operations in Iran.  They have reassured us at multiple 
junctures that they have no intention of further pursuing oil 
exploration activities there, in large part because the 
current arrangements required under the Iranian constitution 
provide only for foreign companies to act as service 
providers, an arrangement not commercially attractive to 
Petrobras as it draws down operations in many foreign markets 
 
BRASILIA 00000960  004 OF 010 
 
 
and seeks to concentrate its resources on the daunting 
challenges of deep sea oil exploration at home. 
 
¶13.  (C)  With regard to Iran's nuclear program, Tehran seeks 
out Brazil in order to draw parallels between Brazil's 
peaceful nuclear energy program and Iran's nuclear 
activities.  Although Brazil voted in favor of referring Iran 
to the UN Security Council in February 2006, the GOB opposed 
the effort until the vote in the IAEA had become a foregone 
conclusion, when the PRC and Russia agreed to a western 
compromise proposal.  Brazil did not vote to condemn Iran's 
nuclear activities until Iran missed the UN-mandated deadline 
for allowing international inspectors to visit suspicious 
nuclear facilities.  As is often the case with its Mideast 
diplomacy, Brazil's pursuit of a "correct" relationship 
likely will continue to produce mixed results that at times 
will be at odds with the policy objectives of most Western 
countries. 
 
 
Counterterrorism Overview 
 
 
¶14.  (S/NF)  The primary counterterrorism concern for both 
Brazilian officials and the U.S. Mission in Brazil is the 
presence and activities of individuals with links to 
terrorism--particularly several suspected Sunni extremists 
and some individuals linked to Hizballah -- in Sao Paulo and 
other areas of southern Brazil.  Despite publicly expressed 
sentiments of high-level officials denying the existence of 
proven terrorist activity on Brazilian soil, Brazil's 
intelligence and law enforcement services are rightly 
concerned that terrorists could exploit Brazilian territory 
to support and facilitate terrorist attacks, whether 
domestically or abroad, and have focused their efforts in the 
areas of Sao Paulo (where the vast majority of Brazil's 
estimated 1.2-1.5 million Muslims live); the Brazil,s 
tri-border areas with Argentina and Paraguay and with Peru 
and Colombia; and its borders with Colombia and Venezuela. 
Brazil's recognition of the potential threat from terrorism 
prompted a reform of the Brazilian Intelligence Agency (ABIN) 
that raised the profile of the issue by upgrading the 
counterterrorism division to the department level and 
establishing the Brazilian Intelligence System (SISBIN) -- an 
NCTC-like entity within ABIN to coordinate intelligence 
gathering and sharing across the GOB. 
 
¶15.  (C)  During an early July 2009 hearing before a 
Congressional committee, the Brazilian Federal Police,s head 
of intelligence publicly admitted that an individual arrested 
in April for hate speech who the press had revealed to be 
linked to al Qaeda was indeed connected to the group, 
contradicting the government,s previous claims that there 
was no terrorism-nexus in the arrest.  The arrested 
individual, Khaled Hussein Ali, who was released pending 
trial, was the global head of the Jihad Media Battalion and, 
according to the DPF, had performed duties for the terrorist 
group, ranging from propaganda, to logistics, recruitment, 
and other activities.   Because Brazil lacks counterterrorism 
legislation, the DPF arrested him on charges of hate crimes, 
which carry a much lighter sentence. 
 
¶16.  (SBU)  The Brazilian government continues to be a 
cooperative partner in countering terrorism and related 
activities that could contribute to the facilitation of 
attacks in the region or elsewhere -- to include 
investigating potential terrorism financing, document forgery 
networks, and other illicit activity.  Operationally, 
elements of the Brazilian Government responsible for 
combating terrorism, such as the Federal Police, Customs, and 
to a lesser extent ABIN effectively work with their U.S. 
counterparts and diligently pursue investigative leads 
provided by U.S. intelligence, law enforcement, and financial 
agencies regarding terrorist suspects. The senior levels of 
the Brazilian government, however, publicly deny the 
possibility that terrorist groups or individuals connected to 
such groups operate or transit through Brazilian soil and 
vigorously protests any claims made by U.S. authorities to 
that effect. 
 
¶17.  (SBU)  Brazil's overall commitment to combating 
terrorism and the illicit activities that could be exploited 
to facilitate terrorism is undermined by the GOB's failure to 
significantly strengthen its legal counterterrorism 
framework. Two key counterterrorism-related legislative 
initiatives continued to languish in 2009. An anti-terrorism 
 
BRASILIA 00000960  005 OF 010 
 
 
bill that would have established the crime of terrorism and 
other associated crimes was drafted but shelved before its 
introduction in Congress and a long-delayed anti-money 
laundering bill has not been approved by Congress. If passed, 
the latter bill would facilitate greater law enforcement 
access to financial and banking records during 
investigations, criminalize illicit enrichment, allow 
administrative freezing of assets, and 
facilitate prosecutions of money laundering cases by amending 
the legal definition of money laundering and making it an 
autonomous offense. 
 
Economic Overview 
 
 
¶18.  (U)  The United States is Brazil's top trading partner 
overall, and China has moved into first position as Brazil's 
primary export destination.  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.  As a result of this prominence in 
agriculture, Brazil has developed expertise in agricultural 
research and extension services that provide opportunities 
for cooperation with the United States in third countries, 
especially in Africa, in areas such as food security. 
 
¶19.  (U)  Brazil also distinguishes itself as a major 
exporter of civilian aircraft, steel, and petrochemicals. 
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 as a solid investment destination during the financial 
crisis due to its sound macroeconomic policies and relatively 
strong economy. 
 
¶20.  (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.  With Latin America,s largest population, 
it is home to 50 percent of the people who live in extreme 
poverty in the region.  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. 
 
¶21.  (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. 
 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 
countercyclical measure in the face of the economic crisis. 
 
¶22.  (U)  President Lula, taking a leading role in the debate 
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.  Both as an advocate for 
developing nations, concerns and as a partner in our efforts 
to shore up the global financial system, Brazil has become a 
leader and a largely constructive advocate in the ongoing 
debate over reform.  The government has reacted to the 
economic downturn thus far with a series of actions aimed at 
increasing liquidity in the banking system, stimulating 
growth through a series of targeted tax cuts, and seeking to 
shore up exports. 
 
 
BRASILIA 00000960  006 OF 010 
 
 
 
Energy: Beyond Biofuels 
 
¶23.  (U)  Brazil and U.S. energy cooperation has evolved from 
its initial focus on biofuels, under the 2007 Biofuels MOU, 
to a point where we are now considering cooperating in almost 
every aspect of the energy sector.  Brazil is looking to 
become a major strategic player in energy, building on its 
current status as the leading exporter of ethanol and 
becoming a potential exporter of oil as it explores its vast 
pre-salt resources recently discovered offshore.  We have 
common interests in many areas and Brazil believes it has 
much to teach us in areas ranging from incorporating biofuels 
into the national energy matrix, to long-line transmission, 
to how to make use of the hydro potential in the United 
States.  They are also eager to cooperate with us in bringing 
energy to third countries. 
 
¶24.  (U)  The convergence of our interests offers 
opportunities to enhance both countries, national energy 
security and open up positive relations in the hemisphere and 
other places in the developing world.  Based on recent 
high-level meetings, including your meeting with Energy 
Minister Lobao, we are now working to define a list of 
initiatives for our energy cooperation.  The possibilities 
are numerous and include: oil and gas, with financing and R&D 
cooperation, as well as possible work to prevent the flaring 
of natural gas from the pre-salt reserves; biofuels, under 
the 2007 MOU, continued R&D, standards harmonization, and 
third country outreach; nuclear, sharing experiences on 
creating an independent regulator and new licensing 
experiences, as well as addressing the strong Brazilian 
interest in enrichment and waste disposal technologies; wind 
and solar, new areas of interest for cooperation based on a 
recent Brazilian visit to our National Renewable Energy 
Laboratory; and clean coal, as Brazil seeks to maximize all 
aspects of their energy matrix, they are very interested in 
developing clean coal technology. 
 
¶25.  (U)  Internationally, in addition to continued 
collaboration in helping third countries develop their own 
biofuels capabilities, we have agreed to work together on 
hydropower in Haiti.  Brazil is also leading an initiative 
under the Energy and Climate Change Partnership of the 
Americas to bring energy efficiency technologies to low 
income housing and urban transport.  Energy Minister Lobao is 
ready to work with us to further energy cooperation hemi 
spherically and has offered to co-host a regional energy 
event. 
 
 
A Major Player on Global Environment and Climate Change Issues 
 
 
¶26.  (U)  Brazil is the seventh largest emitter of greenhouse 
gases and the 74th largest emitter in per capita terms based 
on 2005 data.  The Brazilian government calculates that the 
vast majority of the country's green house gas emissions come 
from Amazon deforestation.  This is changing as the 
deforestation rate declines and emissions from industry and 
the rest of the economy grow.  Post estimates that by 2015 
other sources of greenhouse gas emissions will surpass the 
quantities released due to deforestation.  Brazil is a 
relatively "green" country in terms of power generation with 
hydropower providing around 85% of Brazil's electricity. 
However, in order to satisfy growing demands for electricity 
that cannot currently be met through hydropower, the 
government may resort more often to fossil fuels (which 
currently provide less than nine percent of Brazil's 
electricity).  In the transportation field, cars now use more 
ethanol than gasoline, though trucks and buses rely on diesel. 
 
¶27.  (U)  Brazil has set a domestic target to reduce the 
deforestation rate by 80% by 2020.  In international climate 
change negotiations, however, Brazil has been far less bold 
and innovative.  Together with China and India, Brazil 
contends that only developed countries should be required to 
assume emission reduction targets.  In addition to the 
overall architecture of an international climate agreement, 
Brazil has been very focused on issues like historical 
responsibility, burden-sharing, and how best to address 
offsets.  Recently Brazil offered that it and other 
developing countries will register their Nationally 
Appropriate Mitigation Actions (NAMAs), which for Brazil 
could include projects to Reduce Deforestation and forest 
Degradation (REDD) and reforestation projects.  While NAMAs 
 
BRASILIA 00000960  007 OF 010 
 
 
would be monitored and verified, there would be no binding 
commitments about implementing them or what results they will 
produce.  A growing number of voices in Brazil want the 
government to take a position of leadership on climate 
change:  NGOs, governors, the Environment Ministry, and even 
some in the private sector.  Although he has yet to persuade 
the Ministry of External Relations (which has the lead on 
climate change negotiations), Environment Minister Carlos 
Minc has said Brazil and other developing countries should 
take on emissions reductions targets in return for financial 
assistance and technology transfer.  In early June, President 
Lula suggested in a Reuters interview that Brazil might be 
willing to take on emissions targets.  President Lula and his 
closest advisor and his candidate for president, Minister 
Dilma Rousseff, have not been active in climate change 
positions before but could play a decisive role now. 
Rousseff could be instrumental in steering Brazil's 
international negotiating policy toward a more pro-active, 
ambitious course and away from the current cautious and 
defensive tack pursued by the Ministry of External Relations. 
 
 
Security Cooperation: New Possibilities on the Horizon 
 
 
¶28.  (SBU)  At President Lula's direction, Brazil has 
completed a new defense strategy document to set an overall 
course on security issues.  Published on 17 December 2008, it 
has three main elements: modernization of the armed forces, 
revitalization of defense industries and implementation of a 
new regime of national service.  It also increases the 
civilian control of the 10-year old Defense Ministry over the 
military services, particularly through control of the 
service budgets.  For the Brazilian military, the key result 
of the strategy process has been the reintegration of defense 
goals into the country's overall development strategy and 
political dialogue, increasing prospects for greater 
resources to be devoted to national defense, under-resourced 
since the end of the military government over twenty years 
ago.  The worldwide economic downturn has, however, affected 
Brazil; therefore, boosts to defense spending may be less 
than the military would consider ideal -- especially since 
Brazil's economy is showing signs of early recovery.  The 
resurgence of the Brazilian military presents a unique 
opportunity to increase our bilateral cooperation and defense 
partnership. 
 
¶29.  (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 likely be announced in early 
September 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.  However, the French have strong political 
support, reinforced by Dassault's recent proposal to build 
the 36 Rafale fighters entirely in Brazil.  The Brazilian MOD 
and Air Force have stated clearly that benefits offered by 
Boeing must include substantial transfers of technology. 
Although the USG has already approved all relevant tech 
transfers and is working to assure the Brazilians that this 
is the case, Brazilian decision makers continue to doubt that 
the United States will transfer superior military technology 
to Brazil. 
 
¶30.  (U)  In November 2008, we conducted the first Bilateral 
Working Group for Defense (BWG-D) in over six years, and it 
came at an ideal time with stronger leadership in the MOD 
that is truly interested in building our defense partnership. 
 One of the main goals was to agree that such meetings should 
continue regularly as an ongoing dialogue. We have followed 
up the BWG-D with a technology security dialogue which is 
looking to establish a channel for regular information 
exchanges on technology to demystify U.S. export controls and 
a means to address specific export control cases without 
political involvement. 
 
¶31.  (C)  We are in the process of pursuing information 
sharing agreements with the Brazilian MOD that we believe 
will result in the signing of a GSOMIA this year.  We have 
been stalled on our Defense Cooperation agreement (DCA) for 
over a year because of the Ministry of Exterior Relations 
(MRE) failure to take action and the MOD's unwillingness to 
 
BRASILIA 00000960  008 OF 010 
 
 
expend political capital to push this.  While this situation 
is unlikely to change, we should remind the Brazilians that 
the DCA is important for future partnership, especially as it 
can shorten the process of approval for various future 
cooperative activities.  Brazil signed a large number of 
similar agreements last year, so ours will not be a precedent 
and could be seen in the context of normal friendly mil-mil 
relations.  Southcom Commander General Doug Fraser made his 
first visit to Brazil (and the region) at the end of July, 
during which additional areas for possible cooperation were 
raised. 
 
 
Nuclear Non-Proliferation and Nuclear Energy Issues 
 
 
¶32.  (C)  With the return of democracy in both Brazil and 
Argentina, the two countries abandoned their nuclear weapons 
programs in 1990.  In 1997, Brazil joined the 
Non-Proliferation Treaty (NPT).  As late as mid-2008, despite 
growing resistance from the Ministry of Defense (MOD) some 
within the GOB were considering the possibility of signing an 
International Atomic Energy Agency (IAEA) Additional 
Protocol.  In December 2008 the GoB adopted a new Defense 
Strategy that rejects accepting any new non-proliferation 
measures unless the nuclear powers &disarm.8  This 
hardening of position by Brazil undercut USG efforts to have 
the Nuclear Suppliers Group (NSG) adopt a new rule regarding 
a criteria based procedure for transferring enrichment and 
reprocessing (ENR) technology, including the requirement that 
the recipient have an IAEA Additional Protocol in place. 
Brazil,s opposition to an IAEA Additional Protocol has had 
the collateral effect of preventing Argentina from signing 
one, both for legal reasons (Brazil and Argentina are linked 
with the IAEA by the Quadpartite Agreement) and political 
grounds, not wanting to upset its large neighbor. 
 
¶33.  (C)  Multilaterally, the GoB is cautious about taking an 
active role on non-proliferation and has consistently refused 
to take a strong position against Iran's nuclear efforts. 
Although the GoB has been careful to comply fully with UN 
sanctions against Iran and has asserted the importance of 
Iranian compliance with UN resolutions, the GOB has also 
stressed Iran's right (and that of all other countries) to 
develop nuclear energy for peaceful purposes.  Citing efforts 
with North Korea, the GoB has made clear that it believes 
dialogue is the best option to ensure Iran is not a threat to 
the global community.  North Korea,s recent testing of a 
nuclear device only delayed Brazil,s opening of an Embassy 
there temporarily.  In discussions on non-proliferation, GoB 
officials frequently avoid supporting non-proliferation 
efforts by hiding behind shopworn protestations that the 
nuclear powers are not doing enough on disarmament ignoring 
progress being made in this area.  DOE would like to see 
Brazil consider joining us in leading an initiative that 
President Obama first previewed in Prague, working with 
developing countries to establish models for pursuing 
peaceful civilian nuclear energy programs.  The goal is to 
create a way for countries to responsibly develop civilian 
nuclear programs, thereby containing the risk of 
proliferation attendant with these programs.  Minister Lobao 
indicated an openness to considering this idea during his 
recent meeting with Secretary Chu. 
 
¶34.  (C)  Brazil has decided to revive its civilian nuclear 
energy program.  Government-owned entities control every 
aspect of nuclear energy, from mining uranium, to building 
nuclear reactors, to owning, operating, and overseeing those 
reactors.  Currently, two reactors at Angra dos Reis, south 
of Rio de Janeiro, are completed and operating.  Westinghouse 
built Angra I, and Siemens constructed Angra II.  Siemens 
stopped work on a third reactor (Angra III) in 1986, but work 
is scheduled to resume in September.  Brazil plans to build 4 
to 8 new reactors by 2030.  The GOB has expressed interest in 
working with the United States as they move toward developing 
its nuclear sector.  Westinghouse is a top competitor for the 
contracts for these new plants but must contend with strong 
commercial advocacy by France for Westinghouse,s main 
competitor.  Westing house has qualified for USG advocacy and 
would welcome any words of support you can offer during your 
visit. 
 
¶35.  (C)  The Brazilian Navy has revived its program to build 
a nuclear-powered submarine, based on the hull of a French 
conventional submarine.  It is not clear whether the Navy 
will receive sufficient funding for this project, as the 
 
BRASILIA 00000960  009 OF 010 
 
 
economic downturn has led defense spending to be cut from 
earlier projections.  Further, the GOB will need to overcome 
significant technological hurdles.  However, Brazilian 
leaders perceive a nuclear-powered sub as an essential 
trapping of great power status and are unlikely to abandon 
the program ) even if its completion is remote.  The GOB has 
been clear that it has no plans to seek nuclear weapons. 
 
 
Brazilian Media and Public Attitudes toward the United States 
 
 
¶36.  (U)  Public opinion polling shows the election of 
President Barack Obama has influenced views of the United 
States in a positive way.  An Office of Research Opinion 
Analysis released in March 2009 found that seven in ten 
Brazilians believe the Obama presidency will be positive for 
Brazil and the world.  Economically, Brazilians say their 
future lies with the United States and China.  The July 23 
Pew Global Attitudes Survey found that a majority of 
Brazilians hold a favorable view of the United States (61 
percent) and  believe President Obama will "do the right 
thing in world affairs (76 percent)," with 74 percent 
expecting that he will follow a multilateral approach to 
foreign policy.  Nevertheless, while 59 percent of Brazilians 
think of the United States as more of a partner, 49 percent 
say that U.S. economic influence on their country is 
negative.  The report also indicates that by a wide margin 
over other survey countries, Brazilians (90 percent) believe 
that global warming is a very serious problem. 
 
¶37.  (U)  Brazilian journalists, generally speaking, cannot 
be described as "pro-U.S."  Some may be favorably disposed 
toward the U.S. position on particular issues, such as free 
trade, and many are professional and evenhanded in their 
treatment of the United States, even if they do not 
personally agree with U.S. policies.  Some mainstream 
Brazilian opinion writers demonstrate biases against U.S. 
policies, though the trend has started to change with the 
election of President Obama.  A small segment of the 
Brazilian public, including the elite, accepts the notion 
that the United States has a campaign to subjugate Brazil 
economically, undermine it culturally, and militarily occupy 
the Amazon.  Such attitudes and beliefs have influenced 
Brazilian reporting and commentary on issues such as the 
reestablishment of the U.S. Navy's Fourth Fleet (which has 
been characterized as a threat to Brazil's offshore pre-salt 
finds) and U.S. activities in the Amazon.  That said, the 
Brazilian media have reported favorably on U.S. efforts at 
this year's meeting of the General Assembly of the 
Organization of American States and the Summit of the 
Americas, and the Obama Administration overall, signaling a 
change in perspective with regards to U.S. intentions in 
Brazil and the region at large. 
 
¶38.  (C)  Brazilians have shown particular sensitivity 
regarding a few key issues: 
 
-- Fourth Fleet.  The April 2008 announcement of the 
reactivation of the Fourth Fleet caught Brazil by surprise 
and provoked much negative commentary.  Even many Brazilians 
not prone to accept the wild-eyed theories of U.S. intentions 
to invade the Amazon suspect that the announcement, coming as 
it did on the heels of the announcement that Brazil had 
discovered more oil off the Brazilian coast, could not have 
been a coincidence.  While Brazilian military leaders now say 
they understand the reasons for the Fourth Fleet's standup, 
President Lula has recently stated again that it poses some 
threat to Brazil.  Lula's statement was pure domestic 
politics, and his advisors have assured us that he 
understands the true nature and purpose of the Fourth Fleet. 
Nonetheless, the episode both demonstrates and has heightened 
Brazilian sensitivities with regard to U.S. military actions 
in the region. 
 
-- Oil Field Discoveries.  In a similar vein, discoveries of 
oil off Brazil's coast have been cited as justifications for 
increasing Brazil's navy -- even to include a nuclear-powered 
submarine.  While the oil finds will almost certainly 
increase Brazil's future prosperity, we should seek to turn 
the strategic dialogue in Brazil away from fantasies that 
another country--potentially the United States--would try to 
seize the oil fields to a productive discussion of energy 
security and the importance of maintaining freedom of the 
seas. 
 
 
BRASILIA 00000960  010 OF 010 
 
 
-- The Amazon.  There is a portion of the Brazilian 
population, and military, convinced the United States has 
nefarious designs on the Amazon.  Fortunately, the rabid 
ultra-nationalists are in the minority, but fears are stoked 
by continuing circulation of the internet hoax about a 
supposed U.S. social studies textbook which shows a map of 
the Amazon overlaid with the words "International Territory." 
 The issue remains current: it was raised with Ambassador 
Sobel in an interview published this week. 
 
-- Terrorism.  Officially, Brazil does not have terrorism 
inside its borders.  In reality, several Islamic groups with 
known or suspected ties to extremist organizations have 
branches in Brazil and are suspected of carrying out 
financing activities.  Although there is good working-level 
law enforcement cooperation between the U.S. and Brazil on 
terrorism related activities, the official position of the 
government is to deny that Brazil has any terrorist activity. 
 
-- Tri-Border Area (TBA).  Related to the above, Brazilians 
are wary of U.S. officials who say "terrorism" and "TBA" in 
the same sentence.  A frequent Brazilian retort to comments 
about the TBA is, "Which one?  We have nine tri-border 
areas."  As we are generally unable to share intelligence 
regarding terrorism-related activities, the USG is regularly 
accused of unsupported assertions that malign TBA residents 
and have a negative impact on tourism in the region.  The GOB 
often asserts there is no proven terrorist activity in the 
TBA. 
 
-- Indigenous lands.  The GOB is extremely sensitive about 
USG activities with the indigenous because of continuing 
tensions over demarcation of indigenous lands.  The executive 
branch, courts, military, religious groups, non-governmental 
organizations, and large farming interests have all been 
caught up in the last few years in the various disputes over 
demarcation of indigenous lands.  The trial of a wealthy 
farmer for the murder of American nun Dorothy Stang, almost 
certainly the result of her activities to protect indigenous 
lands, continues to move through the courts. 
 
 
SOBEL