Identifier
Created
Classification
Origin
05BRASILIA317
2005-02-03 18:55:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Brasilia
Cable title:  

AMBASSADOR DISCUSSES ECONOMIC AGENDA WITH FINANCE

Tags:  EFIN EINV BEXP SENV BR 
pdf how-to read a cable
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 000317 

SIPDIS

SENSITIVE

STATE PLEASE PASS TO USTR, EX-IM, OPIC
NSC FOR KIM BREIER
DEPT OF TREASURY FOR FPARODI
USDOC FOR 3134/USFCS/OIO/WH/EOLSON
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD

E.O. 12958: N/A
TAGS: EFIN EINV BEXP SENV BR
SUBJECT: AMBASSADOR DISCUSSES ECONOMIC AGENDA WITH FINANCE
MINISTER

UNCLAS SECTION 01 OF 02 BRASILIA 000317

SIPDIS

SENSITIVE

STATE PLEASE PASS TO USTR, EX-IM, OPIC
NSC FOR KIM BREIER
DEPT OF TREASURY FOR FPARODI
USDOC FOR 3134/USFCS/OIO/WH/EOLSON
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD

E.O. 12958: N/A
TAGS: EFIN EINV BEXP SENV BR
SUBJECT: AMBASSADOR DISCUSSES ECONOMIC AGENDA WITH FINANCE
MINISTER


1. (SBU) Summary and Introduction. In a private February 1
meeting with Finance Minister Palocci, Ambassador
emphasized the need for the GOB to continue making progress
on its micro-economic reform agenda. Discussion, in
particular, focussed on the GOB's recently-enacted Public-
Private Partnership regime and how the GOB might best
attract U.S. investors. Ambassador emphasized the
importance of strengthening the country's investment
climate by streamlining bureaucracy, increasing
transparency, and establishing clearer rules of the road.
On specific issues, Ambassador queried Palocci about the
status of the GOB's ratification of the Capetown
convention, Brazilian intentions regarding debt-for-nature
swaps, and prospects for facilitating express delivery
operations in Brazil as well as lowering GOB tariffs on
such services. Palocci made clear that the USG should feel
free to bring to him issues of concern (whether economic in
nature or of broader import) and that he could ensure that
these matters reached the President's attention. End
Summary and Introduction.


2. (SBU) The Ambassador's February 1 meeting with FinMin
Palocci, scheduled at post's initiative, took place just
after the Minister's return from the World Economic Forum
in Davos and just prior to his departure for London for a
BRIC/G-7 breakfast. (The meeting was a one-on-one affair,
in accordance with Palocci's specific request.) As in
Davos the GOB delegation (consisting of President Lula,
Chief of Staff Dirceu, Central Bank Chief Meirelles, Trade
Minister Furlan as well as Palocci) focused on wooing
investors to Brazil, during the session with the Ambassador
increasing FDI in Brazil was uppermost in the FinMin's
mind.


3. (SBU) Palocci stated that with the enactment of the
Public-Private Partnership legislation in late December
2004, now was the time for U.S. investors, particularly
those specializing in transportation infrastructure, to
consider Brazil. The Ambassador responded that with the
recent passage of new bankruptcy legislation, judicial

reform, and an innovation law, Brazil was indeed moving
forward on its micro-reform agenda. However, he added, the
country could do even more to improve the investment
climate, i.e., by streamlining its cumbersome regulatory
bureaucracy, promoting greater transparency, and
establishing clearer rules of the road.


4. (SBU) Palocci took these points, noting that the GOB
indeed realized that its reform agenda had not been
completed and that it had to continue to hold the line in
terms of fiscal discipline. He presented the Ambassador
with a copy of a detailed Ministry study setting forth the
GOB's plans for future taxation, pension, and regulatory
reforms. With respect to the fiscal side, Palocci declared
that notwithstanding pressure from those who wanted to
increase government spending, the GOB planned to maintain a
healthy primary surplus in 2005.


5. (SBU) Ambassador then raised a series of issues
involving the U.S.-GOB bilateral economic/commercial
relationship.

-- Capetown Convention. Ambassador urged Brazil to
consider joining the Capetown Convention, which
establishes, among other things, rules that facilitate the
seizure of aircraft that have been put up as collateral on
loans that go into default. Support for the Convention was
strong in both countries, he said, with Ex-Im Bank pushing
for it in the U.S. and Brazilian aircraft maker Embraer in
Brazil. Palocci promised to look into the matter, which,
it appears, is currently being considered by an interagency
Brazilian committee.

-- Debt-for-Nature Swaps. Noting that such swaps are
possible under the Tropical Forest Conservation Act,
Ambassador queried Palocci as to what Brazil's intentions
were on this issue. The FinMin was enthusiastic about the
idea, replying that he would speak with Lula about it.
Another follow-up item which he would pursue, he continued,
would be to invite the Governor of Acre state (part of the
Brazilian Amazon) to Brasilia for a discussion with the
Ambassador and himself. Note: Contemporaneous contacts
with working-level Ministry officials revealed that prior
to submitting a debt-for-nature swap proposal to Treasury,
the GOB needs to shore up its legal framework. Ministry
staffers are currently drafting the necessary regulations
on an urgent basis.

-- Tax Treaty. Ambassador inquired what was the GOB's
thinking regarding a bilateral tax treaty. Palocci
responded that the GOB wanted to move forward on this and
that he felt that discussions were currently in the "right
channels." Note: this was probably a reference to the
Treasury-led Group for Growth, which last met in December

2004.

-- Express Delivery Services. Noting that that post had
written Palocci in December 2004 requesting that the GOB
lift restrictions on express delivery operations and lower
GOB tariffs on such services, Ambassador queried where the
GOB was on this issue. Palocci responded that he would
look into the matter, and get back to the Ambassador in a
timely fashion.

-- Digital Television. Ambassador advocated for GOB
adoption of the U.S. ATSC digital television standard.
(Although not specifically under the purview of the FinMin,
Ministry reps sit on the interagency committee that is
reviewing the standard issue; during late 2004 Ambassador
had advocated in favor of ATSC with Minister of
Communications Oliveira). FinMin Palocci took note of our
concerns.


6. (SBU) In closing, Palocci made clear that the Ambassador
should feel free to bring to him matters of concern to the
USG, whether such issues were economic/commercial in nature
or not. The FinMin declared that he would make certain
that the items that the USG felt were important got to the
President's attention.

DANILOVICH