AMBASSADOR'S CALL ON PRESIDENCY CHIEF OF STAFF

C O N F I D E N T I A L SECTION 01 OF 02 BRASILIA 002513

SIPDIS

E.O. 12958: DECL: 10/04/2014
TAGS: PREL PGOV BR US
SUBJECT: AMBASSADOR'S CALL ON PRESIDENCY CHIEF OF STAFF
DIRCEU, 1 OCTOBER 2004


Classified By: AMBASSADOR JOHN J. DANILOVICH. REASONS: 1.4
(B)(D).


1. (C) Summary. In an affable and candid first meeting with
Ambassador, Presidential Chief of Staff and Lula right-hand
man Jose Dirceu expressed optimism about bilateral relations,
Brazil's economy and the potential for American investment in
major new infrastructure projects. At the same time, he
acknowledged "grave problems" and challenges to sustained
development -- including educational inadequacies,
unemployment, heavy debt and severe crime -- but stressed the
GOB's efforts to attack all of these. He assured Ambassador
that the GOB appreciates the current high sensitivity of
nuclear non-proliferation issues and is "95 percent there" on
conclusion of an agreement with the IAEA to facilitate agency
inspections of Brazil's Rezende nuclear facility. End
summary.

Bilateral and Regional Affairs


2. (C) Dirceu opined that the U.S. and Brazil are "enjoying
their best bilateral relationship in 30 years." Both
governments, he said, know how to separate out points of
disagreement from the many other areas in which cooperation
is robust and fluid. The excellent personal relationship
between Presidents Bush and Lula da Silva augments the close
ties between Brazilians and Americans in commerce,
technology, sports, culture and other areas, Dirceu said. In
regional affairs, Dirceu said that the U.S. and Brazil share
a common interest in stability. He said Lula had made a
decision that placing Brazil in the lead PKO role in Haiti
was "important and worthwhile," and Brazil plans to continue
its efforts to ameliorate tensions in Venezuela. He added
that Brazil will also continue to strengthen democratic
institutions and economies in Bolivia and Paraguay.

Internal Challenges


3. (C) Internally, Dirceu expressed optimism about prospects
for development, even as he recognized "grave problems and
challenges" that Brazil must address over the next two to
three decades. These include the need: to expand educational
opportunity throughout the population while adjusting
priorities to address critical shortfalls Brazil faces in
technical and medical disciplines; to use education and
technical training to create conditions to absorb into the
workforce "millions of unemployed" who are trapped in
poverty; to attract financing for investment in
infrastructure; and to address comprehensively the critical
problem of Brazil's heavy internal and external debt burdens.
On debt, Dirceu noted that the GOB had succeeded in reducing
the "dollarized" portion of Brazil's internal debt from 40
percent to about 15 percent, with efforts underway to bring
the percentage down to 10 percent. This is an important
structural step to increase Brazil's defenses against
external economic shocks, Dirceu added.


4. (C) Ambassador observed that Brazil is, indeed, in an
excellent position, with the GOB's fiscal policies applauded
in financial centers worldwide, and Brazil's regional and
international leadership recognized. But Ambassador observed
that many potential investors still register concerns about
the investment climate in Brazil, citing taxes, excessive
regulation and other issues as impediments.


5. (C) Dirceu agreed and repeatedly stressed the GOB's
interest in attracting foreign investment in the
infrastructure, including North American investment. Dirceu
said that the GOB is striving to award contracts in a
completely transparent and objective manner. He said the GOB
is currently pursuing legislation to deal with lowering
taxes, diminishing long-term capital investment costs,
restructuring the mortgage real estate sector and adjusting
bankruptcy laws. The GOB is especially keen to bring
investment back into the energy sector, Dirceu said, where
Brazil has construction or planning underway for a total of
57 hydroelectric plants. Dirceu also stressed that he was
personally responsible for some of the new iniatiatives
Brazil's Public-Private Partnerships drive, with focus on
attracting investment and stimulating construction activity
(and employment opportunities) that will expand and improve
Brazil's ports, railroads and highways.


6. (C) Responding to Ambassador's observation that
international perceptions that Brazil suffers a severe crime
problem (e.g.,reference recent highly-publicized incidents on
Ipanema/Leblon beaches in Rio) inhibit investment and
tourism, Dirceu agreed and said the GOB is addressing public
security as a top priority. The GOB's recent announcement
that Brazil would implement its 1998 law permitting lethal
force interdiction of suspected narcotrafficking aircraft
had, Dirceu claimed, already resulted in 40 to 50 percent
reduction of suspect flights in the Amazon region (although
there has also been a small increase in such activity along
the Bolivia-Peru borders). He said the GOB is also working
to increase control along its frontiers, especially in the
triborder and Amazon areas, and striving to enhance its
intelligence capabilities. Brazil's flawed state police
system, in which patrol and investigative functions are
awkwardly divided between competing uniformed and civil
police services, needs reform and the GOB is taking the lead
in encouraging integration of key functions. Observing that
corruption and infiltration of criminal elements into the
police and justice systems of many states is endemic, Dirceu
claimed that it is necessary for the federal government to
lead on improving law enforcement against organized crime and
trafficking in Brazil. Federal Police operations against
organized crime and money laundering over the past 20 months
are indicative of the current administration's assumption of
this responsibility, which is a first in Brazil's history,
Dirceu said.

Non-Proliferation


7. (C) Ambassador raised the issue of Brazil's cooperation
with the IAEA in negotiating inspections at the Rezende
nuclear facility and with regard to the Additional Protocol
to the NPT. Ambassador stressed that the USG fully
understands that Brazil's credential in non-proliferation are
superb, and there is no suspicion that Brazil's nuclear
program is directed toward weapons activities. Nonetheless,
Ambassador stressed that the highly-charged question of
mobilizing international pressure against nuclear weapons
development in North Korea and Iran make Brazil's reluctance
on inspections and the AP extremely awkward. Dirceu
immediately acknowledged that he and President Lula
understand the political sensitivity of the issue, have been
meeting weekly with the Defense and Science Ministers to
discuss resolutions, and Dirceu opined that he felt the IAEA
and GOB are "95 percent there" in coming to an agreement for
Rezende inspections in the near future.


8. (C) Comment: Dirceu was affable, candid and thoughtful in
his observations, and clearly interested in maintaining
continued contact with Ambassador. He indicated he would
encourage President Lula to make a stop in California (en
route perhaps to the Orient of a future trip) to see Silicon
Valley, talk to investors and firms with presence in Brazil,
and speak at Stanford University (Dirceu's interest seemed
fueled partly by his expression of a life-long desire to
visit San Francisco). While some of his comments may have
been boilerplate, Dirceu was quite energetically engaged in
appealing for American interest in new infrastructure
investment opportunities, and extremely alert and reactive in
discussing the IAEA issues.

Danilovich