MINAS GERAIS: THE VIEW FROM BELO HORIZONTE

UNCLAS SECTION 01 OF 04 RIO DE JANEIRO 001120

SIPDIS

SENSTIVE
________

STATE FOR WHA/BSC

E.O. 12958: N/A
TAGS: PGOV ECON EFIN ETRD BR
SUBJECT: MINAS GERAIS: THE VIEW FROM BELO HORIZONTE

Reftel: Rio de Janeiro 1118

SUMMARY
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1. (U) From September 28-30, Rio Econ/Poloff
visited a variety of people in Belo Horizonte, Minas
Gerais state, to discuss business investments in the
state and the state's aggressive and successful
economic plan as well as national and local
politics.

Abijaodi on international investments
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2. (U) Rio Econ/Poloff, accompanied by Foreign
Commercial Service (FCS) officer John Mueller, met
with Carlos Abijaodi, manager of the powerful
Federation of Industries of the State of Minas
Gerais (FIEMG),which is working in concert with the
Neves government to speed up the development process
to attract more foreign investment. There are
numerous points in favor of such investments,
including the size of the state (larger than France
or Spain) with an excellent climate, rich soil, and
adequate water; the robust economy (equivalent to
Denmark's or Chile's); and its strategic geographic
position, in the center of a region where 78 percent
of the Brazilian consumer market lies. The state
has the best infra-structure in Brazil, according to
Abijaodi, and its inhabitants are spread evenly
throughout the state. The rail network is the
largest in the country and is linked to maritime
ports -- Vitoria in Espirito Santo state, Sepetiba
in Rio de Janeiro state, and Santos in Sao Paulo
state. Minas is responsible for almost a third of
the electrical energy produced in Brazil. The state
invests half of its budget in health and education,
which in turn produces healthy, educated workers who
can be responsive to innovations in industry.


3. (U) The kinds of industries which have been
established in Minas Gerais include the following:
mining, coffee, corn, paper and cellulose, soy,
milk, beef, sugar, leather, automobile parts, cars,
fruit, furniture, textiles and clothing,
biotechnology, tourism, gold, plastic, and steel.
Minas is responsible for 10.17 percent of Brazilian
exports; in 2004, Minas Gerais achieved record sales
of approximately USD 10 billion, making Minas the
second largest exporting state in the country. For
the past two years, Minas state registered the
highest growth in the number of micro, small and
medium businesses that export their goods. Imports
in 2004 represented approximately USD 3,000,000.
The largest importing partner is the United States,
with 22 percent of the market, followed by Italy at
12 percent; the largest exporting partner is the
United States, with 18 percent of the market,
followed by China, with 12 percent. Abijaodi was
particularly proud of the support his organization
offers to investors in the state, including the BDMG
(Development Bank of Minas Gerais),CEMIG (Energy
Company of Minas Gerais),and the Industrial
Development Institute of the State of Minas Gerais.
The partnership between the FIEMG and the state
government of Aecio Neves has been enthusiastic and
professional in the promotion of foreign trade, to
which the numbers attest. FIEMG has participated in
organizing business delegations to European
countries, Mercosur, India, China, Russia, among
others, with satisfactory results.

Minas Gerais Development Bank
--------------


4. (SBU) Dr. Marilene Chaves, director, and
Reinaldo Barros Lobo, manager for Planning and
Economic Studies of the Minas Gerais Development
Bank (BDMG),received Econ/Poloff on September 29 in
the bank's downtown office. The BDMG has been the
executive agent of State Government projects for 43
years, Dr. Chaves stated enthusiastically. These
projects, she said, have promoted the growth and
modernization of the state and have diminished
regional inequalities. The BDMG's first priority is
to generate investment, jobs and income, she said.
When Aecio Neves took office as Governor a little
over two years ago, he informed the BDMG that his
government was determined to launch a new style of
development in the state. From being one of the
economically worst managed states in Brazil when
Neves took over, the state is now functioning in the
black. Two important plans were developed at the
beginning of Neves tenure -- the Plan for Integrated
Development in Minas Gerais and the Multiannual Plan
for Governmental Action, both of which have led to
the promotion and financing of State economic and
social development.


5. (U) The BDMG's scope of activities is large and
diversified, both regionally and sectorally,
focusing on industrial, agricultural,
agroindustrial, commercial, and service sectors and
infrastructure and urban development. In 2003, the
BDMG approved loans amounting to Reais 696 million
(approximately USD 258 million) to 4,691 customer in
different regions and economic sectors of the state,
creating approximately 11,700 direct job
opportunities in the private sector. In addition to
the expansion and modernization of the economy by
strengthening the industrial hub, a new project is
underway -- the Jaiba Project in the north of the
state, which is an impoverished area with few
productive opportunities. When the Jaiba Project is
completed, it will be one of the world's largest
irrigated areas, and the largest in Latin America.
Another area of development is in the sugar/alcohol
production chain, which will enable the state to
become self-sufficient in the area. The BDMG also
publishes studies by professionals in its areas of
interest and recently published a ten-volume study
entitled "Minas Gerais in the 21st Century." Two
previous studies of this magnitude were done in 1967
and 1989. The study has as its goal a discussion of
how state and municipal governments can create
programs and projects that will contribute to
economic development. These two economists, Dr.
Chaves and Dr. Barros, were clearly proud to be
involved in the direction the state government is
going -- developing social programs along side its
modernization of industries and businesses in the
state.

State Secretary for Economic Development
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6. (SBU) FCS Mueller also joined Econ/Poloff in
the office of State Secretary for Economic
Development Luiz Antonio Athayde Vasconcelos.
Athayde iterated the dire economic straits of the
Minas economy in 2003, when Aecio Neves took charge
of the state government: it was the worst among the
27 states of Brazil. Neves got off to a good start,
Athayde said, by reducing the bureaucracy, starting
with cutting 27 Secretariats back to 14. In
reality, however, only 6 Secretariats are running
the state government. The result is that the state
has gone from red to black, with a primary surplus
this year of R800,000,000 (approximately USD 364
million) because of the huge reduction in
administrative expenditures. With a lighter
administration, decision-making moves quickly. The
economic target of his Secretariat is to partner the
state with private initiatives -- the hope is to
open new enterprises within eight days, rather than
the 180 days it takes in the rest of Brazil.
Athayde predicted that in ten years Minas Gerais
will have the highest level increase in economic
activities in the country. The Neves government,
with its team of economists and planners, has taken
a long-term view of economic investment --
development of infrastructure, economic
diversification, and promotion of innovation through
support of state universities. They have developed
a strategic plan for fifteen years -- and are
currently in the third year. The central focus of
this plan now is highway development, sewage and
water treatment plants, rural electrification,
building an administration center, airport
development, improvement of the prison system, and
building the campus of the state university (UEMG).
He said many of those working economic issues in the
current administration used to work at the BDMG and
demonstrate the same contagious enthusiasm we
noticed there.
Coimbra on national and local politics
--------------


7. (SBU) No visit to Belo Horizonte is complete
without talking with Marcos Coimbra, President of
the Vox Populi polling organization. Coimbra, an
avid observer of national and local politics, opined
that the scandals in Brasilia would have little
impact on the 2006 presidential elections. He said
the ball was clearly in Lula's court and that if
Rebelo won the Presidency of the Chamber (he did),
the political crisis would end. Coimbra said the
press was demonizing the politicians involved in the
scandals, as the Workers' Party (PT) had not
deviated at all from the political norm of handing
out money to secure votes. President Lula said as
much in a joint interview with French President
Jacques Chirac in Paris on July 14, Econ/Poloff
observed. Coimbra feels the only way forward now is
for the PT to recognize the status quo as illegal
and open an honest discussion on political
financing. Coimbra asserted that Lula is still the
favorite presidential candidate, despite the
probable opposition of Sao Paulo Governor Alckmin
and Sao Paulo Mayor Serra. Alckmin, the incarnate
anti-Lula, has the support of the monied classes in
Sao Paulo, and if only business people voted,
Alckmin would receive 70 percent of the vote. He
lacks personality, however, according to Coimbra
(has never been involved in anything questionable,
is a man who speaks softly, unemotionally, but is an
excellent organizer),which will hurt him in running
in areas of the northeast where Lula has
particularly high support. Nonetheless, Coimbra
believes Alckmin the best candidate by far to run
for President.


8. (SBU) Not everything that can happen has yet
happened, Coimbra stated. If for some miracle
Anthony Garotinho (PMDB/Party of the Brazilian
Democratic Movement) forced a second round in 2006
in the race for President, Coimbra said, he would be
roundly defeated. Coimbra believes the PMDB has two
other worthy candidates who are much better than
Garotinho and that all the public brouhaha Garotinho
is making (reftel) is simply to manipulate for a
position in the future government. Coimbra noted
that the opposition leaders in the PMDB feel
uncomfortable with Garotinho because they do not
like how he operates, having two or three satellite
parties up his sleeve and prioritizing political
cleverness as opposed to developing sound political
positions.


9. (SBU) Coimbra said the people of Minas Gerais
state were happy with their governor, Aecio Neves.
Aecio, Coimbras noted, is moderate, and has
established good relations with PT Mayor Pimentel
and Minister of Social Development Patrus. This is
in stark contrast to the PSDB in Sao Paulo, which
tries to draw PT blood at every turn.


10. (SBU) Coimbra concluded the meeting by
elaborating on Lula's likelihood of winning the
Presidency in 2006, predicated on the economy
continuing to remain strong. Lula's social programs
such as the Bolsa Familia have already reached 8
million families. By next year, 11-12 million
families will be receiving this assistance. Their
strong tendency, he thought, would be to think well
of the present government and vote Lula back into
office.


11. (SBU) Comment: Certainly, the economic
figures for the State of Minas Gerais augur well for
near-term growth and stability; it appears that the
bubbling enthusiasm of the economists and planners
involved in this success, under the aegis of
proactive Governor Aecio Neves, is merited. Whether
Coimbra's predictions about the future presidential
elections come true remain to be seen -- twelve
months to October 2006 is a long political time.

12. (U) This cable was cleared by Embassy
Brasilia.
ATKINS