Identifier
Created
Classification
Origin
05BRASILIA1695
2005-06-24 19:38:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Brasilia
Cable title:  

BRAZIL DEBATING MERITS OF A DEBT-FOR-NATURE SWAP

Tags:  EFIN SENV AID 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 BRASILIA 001695 

SIPDIS

SENSITIVE

NSC FOR BREIER, RENIGAR
TREASURY FOR OASIA - DAS LEE, FPARODI AND KBERG
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE
STATE FOR WHA/BSC, WHA/EPSC, EB/IFD/OMA AND OES
USAID FOR USAID/LAC/SAM - BETH HOGAN

E.O. 12958: N/A
TAGS: EFIN SENV AID
SUBJECT: BRAZIL DEBATING MERITS OF A DEBT-FOR-NATURE SWAP
PACT WITH THE USG

UNCLAS SECTION 01 OF 02 BRASILIA 001695

SIPDIS

SENSITIVE

NSC FOR BREIER, RENIGAR
TREASURY FOR OASIA - DAS LEE, FPARODI AND KBERG
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE
STATE FOR WHA/BSC, WHA/EPSC, EB/IFD/OMA AND OES
USAID FOR USAID/LAC/SAM - BETH HOGAN

E.O. 12958: N/A
TAGS: EFIN SENV AID
SUBJECT: BRAZIL DEBATING MERITS OF A DEBT-FOR-NATURE SWAP
PACT WITH THE USG


1. (SBU) Summary and action request: The GoB is studying
the idea of participating in a debt-for-nature swap of USG
debt to support environmental projects. The GoB likely will
have at least one significant hurdle to clear before it can
engage in a swap, since it would need new legislative
authorities to enshrine the creation of the Board that would
administer projects to be supported by the proceeds of the
swap. Finance Ministry contacts also argued, given Brazil's
size and the scope for conservation projects, for a much
larger swap (on the order of USD 50 million) than the USG
previously has executed. Another key point for the GoB is
the discount factor built into the swap. In an aside, our
Finance Ministry interlocutors noted the Environment
Ministry has some questions about how to ensure that
conservation projects supported by the swap are consistent
with Brazil's overall environmental policies. The Finance
Ministry hopes to conclude its analysis by end-June so that
it can devote the month of July to obtaining the necessary
interagency concurrence within the GoB. The great unknown,
our contacts noted, was whether the Foreign Ministry would
support the proposal. Post recommends that the USG engage
the GoB actively as it considers the costs and benefits of a
swap, and requests guidance for responses to our
interlocutors questions on the contemplated discount factor
and swap size. End Summary.


2. (SBU) Finance Ministry General Coordinator for debt
operations, Paulo Valle and debt manager Cesar Almeida told
Econoffs in a June 15 meeting that the GoB is studying very
closely the idea of engaging in a debt-for-nature swap with
the USG under the Tropical Forest Conservation Act (TFCA).
There is considerable interest in the idea from within
several parts of the GoB, including from the governor of the
Amazon state of Acre, Jorge Viana, a member of President
Lula's Workers' Party (PT). Valle's debt team is
elaborating a detailed financial proposal to put into
numbers the impact on GoB accounts and the amounts that
would be available to support conservation efforts.
Notwithstanding ongoing technical level contacts with the
U.S. Treasury, Valle said, the GoB still had many questions
about aspects of the swap -- particularly the size of the
discount that would be built into the operation.


3. (SBU) Our Finance Ministry interlocutors also sought
clarification on how large a swap the USG would undertake.
Given Brazil's size and the scope for environmental
protection projects, Valle said, the GoB was interested in a
much larger swap (USD $50 million) than the U.S. previously
had executed with other countries. Econoffs explained that
there was a budgetary issue for the USG, as the debt written
off would have to be charged, at a discounted rate, against
the amount the U.S. Congress appropriated for debt
forgiveness. Valle took the point but reiterated the GoB's
interest in a large swap.


4. (SBU) Valle noted that the GoB most likely would have a
legislative hurdle to clear before it could engage in a
swap. He was waiting for Finance Ministry lawyers to issue
a formal opinion, but fully expected that the GoB would need
new legislative authority to set up the fund into which the
proceeds of the swap would be paid. Whether the mechanism
for doing this would be via a draft bill or a presidential
decree (a time-limited executive order which carries the
force of law) has not yet been determined Valle stated,
noting that if the GoB went for the later option this would
speed the process. Valle added in an aside that, while not
a Finance Ministry concern, Environment Ministry colleagues
had questions about the fund's independence and how to
ensure that it hewed to overarching GoB environmental
policies. He declared that the Finance Ministry hoped to
conclude its analysis by end-June so that it could devote
the month of July to obtaining the necessary interagency
concurrence within the GoB. The great unknown, he stated,
was whether the Foreign Ministry would support the proposal.


5. (SBU) Comment: It was clear that the Finance Ministry is
engaging in a cost-benefit analysis on Brazil's
participation in a TFCA debt swap. The key points for the
Finance team appear to be whether the size of the swap, and
the discount (if any),justify the costs and management
resources spent in seeking new legislative authorities to
create the fund. This is a unique opportunity, given the
unprecedented level of Brazilian interest in a TFCA swap, to
advance our environmental protection goals in Brazil. Post
strongly recommends forward-leaning USG engagement to
address the GoB questions.

DANILOVICH