INTERNATIONAL FINANCIAL ANALYSTS BULLISH ON BRAZIL

UNCLAS SECTION 01 OF 02 SAO PAULO 000743 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/FO, WHA/BSC, WHA/EPSC, INR STATE PASS USTR FOR KATE DUCKWORTH NSC FOR TOMASULO TREASURY FOR JHOEK, DMCCORMICK E.O. 12958: N/A TAGS: ECON EFIN BR SUBJECT: INTERNATIONAL FINANCIAL ANALYSTS BULLISH ON BRAZIL REF: SAO PAULO 709 SAO PAULO 00000743 001.2 OF 002 ¶1. (SBU) The Ambassador and US Treasury Attache met with Goldman Sachs, JP Morgan, and Credit Suisse on August 22 and 23 to discuss the recent volatility in the financial markets. The Brazilian financial markets have calmed down following worldwide financial turmoil earlier this month (reftel),and these leading international financial institutions remain generally bullish on the Brazilian economy citing a much improved public sector balance sheet as the primary reason. In fact, financial analysts from these institutions continue to expect strong economic performance out of Brazil. In particular, Brazil's financial services industry appears to be well positioned to continue to experience rapid growth. ¶2. (SBU) This positive assessment of the Brazilian economy has led Goldman Sachs Brazil to expand its investments and operations in Brazil. Goldman Co-Head Eduardo Centela told the Ambassador and Attache that in the past 18 months, Goldman has increased its local hires by five-fold and expanded across a broad range of financial services. Similarly, Ricardo Stern, Brazil Country Head for JP Morgan, stated that JP Morgan has begun investing heavily into Brazilian small and medium size companies to better position itself for future initial public offerings. (Note: There have been 54 already this year and several more pending. End Note.) ¶3. (SBU) The optimistic economic assessment continued during a meeting with Credit Suisse Brazil Country Manager Jose Pereira. Pereira stated that Brazil has experienced significant growth in local capital market development and is therefore less vulnerable to financial market volatility because it no longer depends on foreign capital flows. Pereira further noted that the most important change taking place in Brazil's economy is the increased breadth and quality of business entrepreneurship. For his part, Stern told the Ambassador he believes that the financial market volatility will continue to decline in coming months. Stern also expects Brazil's equity market to remain much more robust than its bond market and anticipates strong growth in infrastructure and agriculture. ¶4. (SBU) In response to the Ambassador's query of how Washington can support efforts to maintain a robust Brazilian economy, the three financial leaders all agreed that the key variable is improved infrastructure. They further stated that this area can be a major source of private sector investment and growth, but continues to be significantly hampered by public sector bottlenecks. Pereira underscored that in addition to the growth barrier that poorly developed infrastructure creates, environmental regulations create the single most important barrier to investment. Stern also shared the concern that project financing continues to limit high innovation sectors such as technology, and researchers are often reluctant to associate closely with the private sector. They also focused on the labor market as a key growth constraint, especially the lack of a skilled labor force, and encouraged further expansion of English language instruction. Despite the many challenges the private sector faces in Brazil, Centel believes Brazil's business environment is more navigable than China's. ¶5. (SBU) Comment: Despite obstacles to private investment in Brazil, the country's economic outlook remains positive, and the fundamental economic conditions in Brazil are better today than at any other point in recent history. International investors are bullish on investing in Brazil and are expanding services and opportunities across many industries. Further cooperation in line with the Ambassador's efforts to create synergies between the public and private sector would go a long way to help minimize these SAO PAULO 00000743 002.2 OF 002 inefficiencies. End Comment. ¶6. (U) This cable was coordinated by US Embassy Brasilia and the US Treasury Financial Attache. WHITE