GOVERNOR ALCKMIN LAUDS RESULTS OF MUNICIPAL

UNCLAS SECTION 01 OF 02 SAO PAULO 001795

SIPDIS

SENSITIVE

NSC FOR MIKE DEMPSEY

DEPARTMENT ALSO FOR WHA/PD

E.O. 12958: N/A
TAGS: PGOV ETRD EINV BR
SUBJECT: GOVERNOR ALCKMIN LAUDS RESULTS OF MUNICIPAL
ELECTIONS; TELLS AMBASSADOR 2006 PRESIDENTIAL RACE WILL BE
BETWEEN PT AND PSDB

REF: A) Sao Paulo 1541; B) Sao Paulo 1659


1. (SBU) SUMMARY. Sao Paulo Governor Geraldo Alckmin told
the Ambassador during a December 14 courtesy call that he
was confident the country was on good economic and political
footing, and said he expected continued healthy growth in
GDP and exports in both the state and Brazil during 2005.
Alckmin noted the importance of foreign direct investment
(FDI) to the Sao Paulo state economy, citing U.S. firms and
the AmCham in particular as good partners. The Governor
expressed satisfaction with the outcome of the recent
municipal elections, suggesting that the gains by opposition
parties were good for democratic balance in Brazil. He
predicted that the 2006 presidential election would end up
as a race between the PT and the PSDB, the principal
opposition party. Alckmin concurred with the Ambassador
that conclusion of the FTAA negotiations was important, and
expressed reservations about the GOB's decision to grant
market economy status to China. End Summary.


2. (SBU) During Ambassador Danilovich's December 14 call on
him, Sao Paulo Governor Geraldo Alckmin stressed his
interest in maintaining an active partnership with the U.S.
business community and with the USG. He said that
investment by U.S. and other multinational firms was
essential to ensuring economic growth and employment in the
state. He noted that the Sao Paulo AmCham was an important
partner, and that he receives representatives of U.S.
businesses doing business, or interested in doing business,
in the state nearly every day. He noted that the state
government had recently signed an agreement with Ford under
which Ford would reinvest about USD 300 million in state
sales tax (ICMS) rebates on exported products to modernize
its production plants in Taubate and Sao Bernardo dos
Campos, Sao Paulo.


3. (SBU) Alckmin expressed confidence that Brazil's export-
led economic recovery would continue into 2005. He noted
that Brazil had enjoyed a 31% increase in export sales
during 2004, while exports from Sao Paulo state had grown by
nearly 37%. He also noted that while the overall Brazilian
economy had expanded by 5% during 2004, the state had seen
7% growth. He praised Finance Minister Palocci's macro-
economic management, and said he expected healthy stable
growth to continue next year.


4. (SBU) Turning to the results of the October municipal
elections, Alckmin said that the outcome was good for
democratic balance in the country. He said that the
Brazilian electorate had been wise to avoid concentrating
power in the hands of one or two political parties. In
2002, the electorate gave the federal government to the
Workers Party (PT) of President Lula, but did not elect PT
governments to any large states. Now the electorate had
"taken the major cities away" from the PT as well, ensuring
a good balance of power. He suggested that the outcome of
the municipal elections reflected voter unhappiness with the
PT model of government, which he said was too centralized
and authoritarian. He noted that Lula had 36 Cabinet
ministers, "too many" in Alckmin's estimation. The Fernando
Henrique Cardoso (PSDB) government had been more open than
the Lula government, he claimed. Alckmin noted that his own
party, the PSDB, had done well in the municipal elections,
in particular in Sao Paulo state. (See ref A). At the
national level, the PSDB, he said, was a constructive
opposition, and supported many of the important reforms
supported by the Lula government.


5. (SBU) Alckmin predicted that the 2006 presidential
election would end up as a face off against the PT and the
PSDB, though he avoided any mention of who the PSDB standard-
bearer would be. (Comment. Alckmin is widely seen as a
likely frontrunner for the PSDB presidential nomination,
though he always attempted to deflect such speculation in
his public statements, suggesting that it is "too early" to
speculate on the composition of the 2006 race. End
Comment.) He said that the first round of the 2006 election
would be "all about Lula," who would undoubtedly make it
into the second round, but was not "unbeatable" in the
second round.


6. (SBU) On trade, Alckmin agreed with the Ambassador that
progress on negotiating the Free Trade of the Americas
(FTAA) agreement was essential. He noted that Brazil needed
to take advantage of the benefits a hemispheric trade
agreement could bring, acknowledging that the U.S. was
Brazil's largest trading partner. Alckmin expressed
reservations about the GOB's recent decision to grant China
market economy status; it was too soon for such
recognitions. He added that the Sao Paulo private sector
was "preoccupied" with the decision, which it fears will
result in unfair competition from Chinese products dumped on
the Brazilian market. (Comment. We have heard similar
comments directly from private sector contacts; ref B. End
comment.) He added that as Brazil's third largest export
destination, China was also an important trading partner.


7. (SBU) Comment. Governor Alckmin was very relaxed and
forthcoming, stressing the importance he places on
partnership with the private sector, both local and
multinational. Notably, while he credited the Lula
government for good macro-economic management, he also
suggested that the PSDB would have a reasonable shot at
regaining the Presidency in 2006. End Comment.


8. This cable was coordinated with Embassy Brasilia.

DUDDY