THE AMBASSADOR'S MEETINGS WITH BNDES AND FIRJAN

UNCLAS SECTION 01 OF 02 RIO DE JANEIRO 000455 SIPDIS SIPDIS WHA/BSC, WHA/EPSC, EB/ENR STATE PASS USAID FOR LAC STATE PASS OPIC FOR HOSTETLER NSC FOR FEARS TREASURY FOR OASIA - J.HOEK STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA E.O.12958:N/A TAGS: ECON EINV ETRD ENRG PGOV BR SUBJECT: THE AMBASSADOR'S MEETINGS WITH BNDES AND FIRJAN Summary -------------- ¶1. Ambassador Sobel, accompanied by the CG, Principal Commercial Officer, and Conoff met on August 21, with the President and senior officials of the Brazilian National Economic and Social Development Bank (BNDES),a federal agency which is the chief source of long-term funding for projects to promote Brazilian development. Discussion centered on BNDES' role in shaping Brazilian economic development, job creation, the promotion of innovation and productivity through investment, and areas where coincident U.S. and Brazilian interests could increase trade and investment. The BNDES leadership identified four priorities areas for further exchange and action: exchanging ideas and contacts for technological innovation, social investment opportunities, Small Business Administration contact and program information, and venture capital possibilities. ¶2. Afterwards, Ambassador Sobel attended a luncheon hosted by the Board of Directors of the Federation of Industries of Rio de Janeiro (FIRJAN),the principal trade association and lobby for the state's industrial companies and a prominent sounding board on social and economic growth issues affecting the state of Rio de Janeiro. There, the discussion covered a range of topics, including progress in the US-Brazil trading relationship, and ways to further contacts among institutions and experts involved in areas of mutual interest. End Summary. BNDES -------------- ¶3. BNDES President Demian Fiocca told the Ambassador during their August 21 meeting that BNDES made a priority of promoting trade, particularly in new areas which are strategically important but not yet economically viable, such as biofuels and renewable energy. Ambassador Sobel commented on the crucial role small and medium-sized businesses (SMEs) play in job creation, citing cooperative activities initiated by the USG's Small Business Administration in Mexico. Fiocca described the mechanism through which BNDES provides incentives to retail banks, its primary customers, to support SMEs, assigning lending targets (a percentage of business) the banks must reach to qualify for higher credit limits. Investment Funds to Support Innovation -------------- ¶4. Responding to Ambassador Sobel's question on BNDES programs to promote innovation and productivity, Dr. Marcos Pinto, the Chief of Staff for Public Private Partnerships, and Dr. Francesco Sirangelo, Senior Advisor to Mr. Fiocca, described the BNDES investment funds which support innovative private sector companies. At present, BNDES has two venture capital funds and four private equity funds; it is planning to create a seed money fund as well. Dr. Pinto noted that the funds are under private sector management, and that some of the funds included investment by private sector entities as well as by BNDES. All companies in Brazil are eligible for these funds - Brazilian and non-Brazilian (including U.S. companies). PPPs and Social Inclusion - Limited Progress -------------- ¶5. In a discussion of the evolution of public-private partnerships (PPPs),Fiocca and Pinto described delays arising from Brazil's public financing law, noting that BNDES was trying to speed up progress, at least at the federal level. Fiocca expressed hope that the federal government would make reforming the process a priority after the October elections. ¶6. In response to the Ambassador's query, Fiocca said that BNDES offered specific low interest loans (prime rate plus zero percent) to the companies it finances. These loans are designed specifically for social projects to help companies' employees and their families, or for the local community. BNDES' Role in Public Policy and Biofuels Industry -------------- -------------- RIO DE JAN 00000455 002 OF 002 ¶7. Fiocca also explained BNDES' role in public policy. Citing ethanol as an example, he outlined that, to develop this industry further, his Director of Planning is studying industry recommendations and is developing proposals to prepare Brazil to enter the world market, ensure the stability of supply, and develop infrastructure with technological input and investments from other countries. With regard the energy sector as a whole, BNDES has increased financing for ethanol production and cogeneration for electricity in the last few years, and is investing in refineries. In addition, BNDES is financing a recently approved biodiesel development plan. Opportunities and Areas for Further Cooperation -------------- -- ¶8. Ambassador Sobel concluded the discussions by noting the critical need to address "pocketbook issues" between the U.S. and Brazil, stressing that increased trade and investment would form the basis of deeper cooperation and stronger relations. He outlined several opportunities for sharing expertise and furthering mutual interests: biofuels, working with the IFC, securitization of mortgages through OPIC, supporting and promoting social development working through the Ministry of Education and the U.S. Competitiveness Council to bring together corporations and universities to stimulate innovation and entrepreneurship, as well as encouraging both public and private organizations to come to Brazil to explore future exchanges. ¶9. The meeting concluded with the BNDES leadership identifying what they viewed as four areas for further discussion and action between the U.S. and Brazil: innovation strategy, social investment opportunities, SME financing, and venture capital funds. Federation of Industries of Rio de Janeiro (FIRJAN) -------------- -------------- ¶10. The Ambassador then attended a luncheon hosted by the Board of the Federation of Industries of Rio de Janeiro (FIRJAN). The Ambassador and Carlos Mariani Bittencourt (Chairman of the Board of PIN Petroquimica SA, also a member of the BNDES Board) opened the discussion by recalling the recent positive changes in the U.S.-Brazil trade and investment climates. For example, Brazil's investments in the United States are increasing - Fundacao Odebrecht is building the new airport in Miami, and Petrobras recently invested in oil blocks in the Gulf of Mexico and the Pasadena Refinery in Houston. In addition, Brazil now ranks third among countries with companies listed on the New York Stock Exchange. ¶11. In discussing ways to enhance U.S.-Brazil trade and investment, Ambassador Sobel encouraged the FIRJAN members to press the GOB, through their companies, to negotiate a tax treaty between the U.S. and Brazil and eliminate the current double-taxation both Brazilian and U.S. companies suffer by doing business in both countries. The Ambassador and the FIRJAN board agreed to pursue various ways for Brazilian and American institutions to work together, including working through BNDES, developing a biofuels experts group, increasing private company/ university collaboration, and creating a private sector leaders group. ¶12. This cable was cleared by Ambassador Sobel and Embassy Brasilia. MARTINEZ