SCENESETTER CABLE FOR VISIT OF CODEL BLUNT

UNCLAS SECTION 01 OF 03 BRASILIA 000373

SIPDIS

STATE PLEASE PASS TO CODEL BLUNT

E.O. 12958: N/A
TAGS: OREP ETRD PREL BR
SUBJECT: SCENESETTER CABLE FOR VISIT OF CODEL BLUNT

REF: STATE 23775


1. The United States Mission in Brazil warmly welcomes your
visit to Brasilia, Rio de Janeiro, and Sao Paulo, February
22-23 and February 25-28. As requested reftel, Mission
grants courtesy country clearance for your travel. (Threat
assessment to be sent septel.) Overall Mission Control
Officer for your visit will be our Economic Counselor,
Bruce Williamson. Economic Officer Erin McConaha will be
the control officer in Rio de Janeiro and Consul General
Simon Henshaw will be the control officer in Manaus. To
set the stage for your visit, we have prepared some
background material (below).

BACKGROUND


2. Brazil is the largest country in Latin America in area
(bigger than the continental U.S.) and population (184
million). Most of its industry, including auto, steel,
petrochemical, and aircraft sectors, is in the southeastern
states. The country is among the world's leading producers
of sugar, coffee, soybeans, meats, tobacco, and orange
juice. Internal migration from the poor northeastern
states continues to feed urban growth in the southeast,
particularly the megacities of Sao Paulo and Rio de
Janeiro. Brazil has among the world's most unequal
distributions of income and arable land. Crime, drug
abuse, and environmental degradation are grave and growing
problems. Historically, Brazil's values have mostly
paralleled our own, and bilateral relations have been
generally amicable. During World War II, the US
established airbases in the northeastern states ("the
Trampoline to Victory"),and Brazil was the sole South
American nation whose troops fought alongside the Allies in
Europe. After the 9/11 attacks, then-President Cardoso was
the first to invoke the Rio Treaty in solidarity with the
U.S. Brazil continues to respond to U.S. requests for
support against terrorism at an operational level.

PRESIDENT LULA


3. Two years into his four-year term, President Lula da
Silva has convinced financial markets that his government
is handling Brazil's economic challenges responsibly and
well. Lula is Brazil's first working-class President - he
was a metalworker and union leader who founded the left-of-
center Workers' Party (PT) in 1980. Hallmarks of the
administration's first twenty months have been responsible
fiscal policies, passage of major tax and pension reform
legislation, but a slow start on the social agenda.


4. While part of the administration's appeal is based on
its accessibility (Lula began his term giving access to
civil society organizations such as labor, NGOs, and
religious groups, as well as consulting with key governors
and mayors),Lula's style has evolved toward a more
workable and standard governing style. His inner circle of
advisors includes Chief of Staff Jos Dirceu,
Communications Secretary Luiz Gushiken, Finance Minister
Antonio Palocci, and Staff Secretary General Luiz Dulci.
In recent years, the PT party has moderated its leftist
orthodoxy and moved toward the center, creating a noisy
backlash from the party's small radical wing but making it
easier for the party to forge alliances with centrist
parties and to appeal to the business community.


5. Public security remains one of the administration's
greatest challenges. Organized crime has grown steadily
bolder, particularly in Sao Paulo and Rio de Janeiro, where at
times the authorities seem to exert only tenuous control. The
administration's long-term solution is that economic and
social progress will address the causes of crime. But in the
short run, the situation has worsened.


ECONOMIC ACCOMPLISHMENTS


6. President Lula has made economic growth and poverty
alleviation top priorities. Export growth figures
prominently in official plans to fuel economic growth and
reduce Brazil's historical vulnerability to international
financial market gyrations. At the same time, though, the
economic and social benefits of liberalizing the import
regime are not widely touted, and the fear of job losses
remains. To boost exports, the government is seeking
foreign markets through trade negotiations, stepping up
government financing for exports, and establishing export
promotion expertise in its embassies. The government is
also trying to lower the overall "Brazil cost" associated
with local production by addressing systemic fiscal issues
such as social security and tax reform, with labor and
microeconomic reforms also targeted in the medium-term, as
well as seeking funds for infrastructure improvements
through public-private partnerships.


7. After weak economic growth in 2002 and 2003, 2004 proved
to be a very good year. GDP expanded at a rate of 5
percent, the best result since 1994. Consumer price
inflation dropped to 7.6 percent, down from 9.3 percent in

2003. And exports in 2004 reached an all-time record at
US$ 96 billion, substantially over the GOB's original
target of US$ 73 billion.

8. For economic as well as geopolitical reasons, the Lula
administration is aggressively seeking expanded trade ties,
particularly with developing countries. Brazil and its
Mercosul partners are negotiating trade agreements with the
EU, South Africa, Russia, and India and are considering
trade talks with China - Brazilian exports to China have
doubled in the last year. Brazil places particular
importance on expanding trade ties with its South American
neighbors. Mercosul has free-trade regimes with several
South American countries.

FREE TRADE AREA OF THE AMERICAS - FTAA


9. The U.S. and Brazil have been Co-Chairs of the FTAA
("ALCA" in Portuguese) negotiations since November 2002.
It has been a difficult period fraught with uncertainty
over Brazil's commitment to the negotiations. While the
Lula administration shed the extreme anti-FTAA Workers'
Party rhetoric of the 2002 presidential campaign, it has
not embraced the FTAA as a priority. Strong Brazilian
commercial interests have yet to overcome ideological
hurdles to what is viewed as a "U.S.-led initiative."


10. During the FTAA Ministerial in Miami in November 2003,
the US and others agreed to a new framework for
negotiations to accommodate the sensitivities of Mercosul
countries, principally Brazil (agricultural domestic
support and trade are Brazil's principal areas of focus in
the FTAA). The compromise allowed countries to assume
different levels of commitments, but guaranteed that there
would be a common set of rights and obligations covering
all the original areas of negotiation. Since Miami,
negotiations to define that "common set" have not been
successful. Brazilian officials publicly have blamed US
inflexibility for the failure to reach agreement.

FOEIGN POLICY


11. President Lula has run an activist foreign policy with
a focus on South America. He has moved to revitalize
Mercosul as a trading bloc - quickly meeting with new
Argentine President Kirchner. In addition, Brazil took the
lead in creating the "Friends of Venezuela" to find
peaceful solutions to the crisis in that country, and has
played helpful roles in Bolivia. In June 2004, Brazil
deployed a 1,600-person unit to Haiti to lead UN
peacekeeping operations there. Though some predicted that
Lula would aggressively tilt towards Cuba, that has not
been the case. The executions of Castro opponents in 2003
provoked official expressions of concern from Brazilian
officials, though little willingness to change their
standard positions. Lula visited Cuba in September 2003.


12. Brazil has a long tradition of commitment to the UN and
other multilateral institutions. Many Brazilians were
therefore deeply concerned by the war in Iraq, viewing it
as a sign of US unilateralism. President Lula voiced
public opposition to the war, although this opposition
never jeopardized bilateral relations and both sides have
continued to work as before on the broader bilateral
agenda.

ENVIRONMENT


13. As one of the world's "megadiverse" countries,
environmental issues loom large in Brazil. The Lula
administration further boosted this profile with the choice of
Marina Silva -a former Senator from the Amazonian state of
Acre associated with murdered environmental activist Chico
Mendes- as Minister of the Environment. 22% of the world's
known plant species exist in Brazil, and the figures for birds
(17%),mammals (11%),and fish (11%) are also significant.


14. The Amazon basin holds 20% of the world's fresh water.
The relationship between the Amazon and global climate change
is a topic of great debate. About 83% of the Amazon forest
remains intact, while only 7% of the Atlantic Forest ("Mata
Atlantica") remains. The rate of Amazon deforestation roughly
parallels that of GDP growth, and it is driven by strong
expansion in Brazilian agriculture, particularly the drive for
land by the cattle and soy industries. The government's
ability to regulate economic activity and environmental
conservation in the Amazon and other remote areas needs to
improve. More than 20 million Brazilians live in the Amazon,
and environmentally-sustainable economic development of the
region -including reduced-impact logging, rubber-tapping, and
nut/plant collecting- is recognized by the government and many
in the environmentalist community as the only viable
alternative to wholesale deforestation. Protecting forests in
parks and reserves is necessary but not sufficient to turn the
tide against deforestation. Within 10 years, 12% of the
Amazon will be protected in parks.

AGRICULTURE


15. The agricultural sector (including agribusiness)
accounts for 30 % of Brazil's GDP, and in 2004, accounted
for 41 percent of all Brazilian exports and registered a
positive balance of trade of 34 billion dollars. The
agricultural sector is dynamic and growing, especially in
the center-west regions of the country, where abundant
fertile "frontier" land area remains available for
agricultural expansion. Brazil's total land area of
approximately 850 million hectares (2.2 billion acres)
includes 350 million hectares of Amazon rainforest (41
percent),50 million hectares of cultivated land (6
percent),150 million hectares of breeding pastures (18
percent),and an estimated 90 million hectares (11 percent)
of land still available for farming (mostly 'cerrado'). A
USDA report estimates that 170 million hectares of cerrado
remains available for farming, assuming that at least half
of the breeding pastures can be easily converted to crop
production. Brazil has an estimated 5.8 million farms and
about 30 million people living in rural areas, which
accounts for nearly 20 percent of the population.


16. Brazil is the world's largest producer of sugar cane,
ethanol, coffee, tropical fruits, frozen concentrated
orange juice, and has the world's largest commercial cattle
inventory (50 percent larger than the US) at 175 million
head. Brazil is also an important producer of soybeans
(second to the United States),corn, cotton, cocoa,
tobacco, rice, and forest products. It is also one of the
world's largest wheat importers, Argentina being its
primary wheat supplier. The remainder of agricultural
output is in the livestock sector, mainly the production of
beef and poultry (second to the US),pork, milk, and
seafood.

DANILOVICH