BRAZIL: SCENESETTER FOR CEO FORUM - OCT 9/10 - SECRETARY

UNCLAS SECTION 01 OF 07 BRASILIA 001325

SENSITIVE
SIPDIS
WHITE HOUSE NSC FOR PRICE SMART TOMASULO
DOC/ITA/MAC DRISCOLL
E.O. 12958:N/A
TAGS: ECON EFIN EINV ETRD BR
SUBJECT: BRAZIL: SCENESETTER FOR CEO FORUM - OCT 9/10 - SECRETARY
GUITERREZ AND AP PRICE

Refs: A) BRASILIA 1051 B) BRASILIA 1063(AID FORE) C) BRASILIA 1048
D)SAO PAULO 423 (WTO ETHANOL) E) BRASILIA 196 (PAC) F) BRASILIA 1271
G) BRASILIA 1254

1.(U) Summary: The relationship between the United States and
Brazil is as productive and broad-based as it has ever been, with an
excellent relationship between President Bush and President Luiz
Inacio Lula da Silva and new cooperation mechanisms on private
sector priorities (CEO Forum),commercial policy matters (Commercial
Dialogue),economic policy matters (Economic Partnership Dialogue),
and biofuels (March 7 2007 MOU),as well as a June civil aviation
agreement that will permit expanded passenger flights and cargo
services. Brazil and the United States share the goals of fostering
hemispheric stability, promoting democracy, developing a consensus
on next steps regarding climate change, and achieving a mutually
satisfactory conclusion to the Doha round of WTO negotiations in the
near-term. Energy is increasingly becoming a key element in the
bilateral relationship as Brazil takes center stage on biofuels
commercialization and oil exploration. Regarding CEO Forum
priorities, USG and Brazil have had Bilateral Tax Treaty discussions
and continued discussions on bilateral investment issues. USG has
supported workforce development initiatives and other exchanges,
helped organize venture capital events, made significant progress on
reducing visa wait times, and advanced infrastructure cooperation
with Brazil; we are now working on a full time USTDA presence in
Brazil.


2. (U) Your visit is an important part of an overall strategic plan
for developing and highlighting the bilateral energy relationship.
Building on the success of our bilateral MOU on biofuels, we believe
it is critical that we expand and deepen U.S.-Brazil energy
relations as Brazil looks to become a global energy player. Your
visit is the third in a series of three high-profile visits to build
these relationships and to call public attention to the joint
efforts. DOE Acting Deputy Secretary Kupfer's August 4-7 visit laid
the broad groundwork for expanded energy cooperation with Brazil.
U/S Jeffery's October 2 (Rio) and 3 (Brasilia) visit focused on
facilitating American involvement in the exploration and
exploitation of Brazil's newly discovered deep water oil resources,
next steps in our successful cooperation on biofuels, and how to
continue to deepen our cooperation on the broad spectrum of economic
engagement with Brazil. Your visit will include the CEO Forum in Sao
Paulo and a day in Rio to explore opportunities to expand commercial
interests, especially in the energy area. We expect the Deputy
Minister of Mines and Energy to travel to the US for further
meetings in October, laying the groundwork for the Mines and Energy
Minister to visit the US in the spring. We believe these visits are
critical in demonstrating to the Brazilians that we are strong
economic partners in multiple areas, as they chart their course in
developing their newly discovered oil resources and possibly play a
larger role in ensuring global energy security.


3. (U) Your trip also provides a special opportunity to shape the
future of the U.S.-Brazil broader economic relationship. Our
bilateral relationship has been extremely strong in recent years and
Brazilians are acutely aware of the upcoming change of
administrations and want to know what it means for them. We expect
that your meetings will include questions about the transition.
Particularly in the wake of the stalled WTO Ministerial, affirming
our commitment to the US-Brazil economic relationship and exploring
the path forward on trade an other economic issues will be an
important focu for your trip. End Summary.

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Financial Crisis
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4. (U) Though your trip is primarily focused on indentified
priorities of the CEO Forum, the fact that timing coincides with the
escalating financial crisis means this will be an inescapable topic
in many of your meetings. In response to the financial crisis,
Brazil's Central Bank has partially reversed its hawkish
anti-inflationary policies by adding 13.2 billion reais to the
financial system in hopes of freeing up credit and has indicated
that future interest rate hikes are unlikely given the diminishing
threat of inflation due to a global slowdown and falling commodity
prices (that said, analysts widely expect GOB to raise interest
rates again at the end of October above the current 13.75% SELIC
rate). Brazil's Finance Minister continues to assert that Brazil is
well-positioned to weather the crisis while he and Central Bank
contacts confirm moves to try to mitigate the effects of the crisis.
President Lula continues to criticize the United States for a lack
of financial regulation, claiming that a global regulatory body is
needed to address the sitution. Lula acknowledged publicly for the
first time very recently, that the Brazilian economy may be
adversely impacted by the crisis, drawing widespread criticism for
not having a real grasp on the potential of the crisis. Although
Brazilian markets have taken a beating in recent days and the real

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has seen an erosion of its strength from earlier this year, large
Brazilian companies are confident that they will weather the storm,
though there are worries about the effect of
a tightened credit market for smaller enterprises.

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Shared Interests: Biofuels Cooperation
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5. (SBU)Brazil and the United States signed a Memorandum of
Understanding in March of 2007 to cooperate on the development and
deployment of biofuels through a three-pronged approach: bilateral,
third countries, and global. The most recent meeting of the
bilateral Steering Committee under the MOU was held October 3, with
U/S Jeffery leading the meeting for the U.S. side. We continue to
make steady progress under all three pillars and post believes that
Brazil is newly invigorated to move more rapidly toward achieving
our joint priorities, in part to due to new leadership at the
Foreign Ministry and in part due to the desire to show progress at
the November 17 - 21 biofuels conference being hosted by Brazil.

6. (SBU) Under each of the pillars of the MOU we are moving
forward. Bilaterally, we are working to advance the research and
development of next-generation biofuels technology. We have had two
exchange visits between our scientists who have submitted a
cooperative work plan and developed an MOU between our National
Renewable Energy Laboratory (NREL)and Petrobras'research laboratory-
CENPES which will be announced at the November conference. Under the
third country pillar, we are working jointly to bring the benefits
of biofuels to select third countries through feasibility studies
and technical assistance aimed at stimulating private sector
investment in biofuels. We have thus far done studies and identified
funding for 21 projects in the Dominican Republic, St. Kitts and
Nevis, Haiti, and El Salvador. At last week's meeting of the
Biofuels Steering Committee, we confirmed our intention to expand
the program to five more countries (most likely Gutamala, Hondorus,
Jamaica, Guinea Bisseau, and Sengal, with announcement pending
notification of those countries). Globally, to advance the
commoditization of biofuels, the U.S., Brazil, and European
Commission (EC),working through the International Biofuels Forum
(IBF),fast-tracked a process with their respective standards
organizations improving the compatibility of bioethanol and
biodiesel standards and codes.

7. (SBU) In addition to the three pillars of the MOU, we have
reached out to the private sector via the Private Sector Advisory
Group to elicit their input, interests, and concerns. The Advisory
Group, which is made up of private sector experts from both
countries, was informed of activities under the MOU and has begun
the process of providing input and advice to the Steering Group. The
Advisory Group recently prepared a well-received proposal to help
fast track critical certifications in Brazil to facilitate the entry
of U.S. firms into the market. The proposal is currently under
consideration by the Brazilian government. The Private Sector
Advisory Group is also making plans for a meeting on the margins of
Brazil's November 17-21 biofuels conference.



8. (SBU) On sustainability of ethanol, the Brazilians have agreed to
work with us to define indicators and criteria for global use via
the Global Biofuels Energy Partnership Together we are leading the
process to ensure sustainability is discussed on a scientific basis
and to avoid having the issue used as a trade barrier. Hopefully
this type of cooperation will help to ensure that Brazil will not
repeat the type of unfortunate remarks President Lula made at the
FAO meeting in Rome several months ago differentiating corn and
sugar ethanol. We are assured by MRE that this is not their plan.
Continuing to engage with the GOB is likely the best assurance that
it will not veer down that path.


9. (SBU) One area where Brazil has been seeking our engagement is
the upcoming biofuels conference November 17 -21 in Sao Paulo. GOB
participants may press you on POTUS attendance and also look for
assurances of high level participation regardless. We are told 24
countries will be represented at the Ministerial level, while the
Philippines and Australia will be represented at the Head of State
level. The GOB is using the conference as an opportunity to
establish leadership in the field but is open to our ideas on topics
and outcomes. We view the conference, in part, as an opportunity
to leverage their interest in producing conference deliverables to
carry some of our goals forward.




10. (U) The ethanol industry in Brazil continues to grow. Petrobras
just announced the formation of a new multibillion dollar biofuels
subsidiary to manage Petrobras' entry into the production side of
the ethanol market. In the coming year alone, Brazil's production
of sugarcane-based ethanol is projected to increase 14.8 percent.
On the demand side, Brazil's use of modest tax breaks have led new
car purchasers to opt overwhelmingly for "flex-fuel" cars that can

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run on either gasoline, ethanol, or any combination of the two.
This year ethanol surpassed gasoline as the major automotive fuel.
Domestic demand consumes 85 percent of all production. The other 15
percent is exported, primarily to the United States. The ethanol
private sector is increasingly partnering with international
companies in building production facilities, as well as addressing
the internal logistics problems that undermine the profitability of
ethanol exports. These include infrastructure bottlenecks in Brazil
as well as various international tariff regimes.

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Beyond Biofuels: Other Energy Cooperation Opportunities
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11. (SBU) During his visit here August 4-7, Energy Acting Deputy
Secretary Kupfer engaged in some very productive conversations with
GOB officials seeking to identify potential areas of cooperation.
He heard from the various departments of the Ministry of Mines and
Energy (MME) a laundry list of things we might do together,
including cooperating on reinvigorating our respective civil nuclear
programs, alternative energy sources such as solar and wind, clean
coal, interconnectivity, energy efficiency, and shale exploration,
as well as oil exploration. Under the 2003 MOU, we have the
mechanism for such cooperation but it is important that now DOE and
MME establish working groups to move the process forward. Post and
DOE are working to set up a DVC to further pursue this
collaboration. Brazilian Mines and Energy Minister Lobao has
expressed interest in travelling to the United States this spring to
continue to deepen this cooperation.

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An Emerging Player in the Oil Sector
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12. (SBU) The discovery of potentially massive offshore reserves of
oil and gas estimated to contain between 30-80 billion barrels of
oil equivalent could put Brazil within the top ten oil countries by
reserves. Though the possibilities have generated a great deal of
excitement, industry observers caution that the technological
challenges involved with ultra-deepwater drilling are extensive,
including a worldwide shortage of equipment such as drilling rigs,
meaning that developments will probably be slow in coming.
Petrobras appears to be overextended internationally and is
hamstrung by limited equipment resources. However, it has launched
a multi-billion dollar procurement initiative and is reexamining its
international priorities so that it can focus on domestic
opportunities. U.S. oil companies are poised and ready in many
cases to take on more exploration opportunities - a message that we
do not believe industry has adequately conveyed to the GOB. Brazil
has expressed interest in having U.S. companies involved in the
exploitation of Brazil's oil reserves as well as in receiving
high-level U.S. visitors with the intention of developing closer
bilateral ties.


13. (SBU) President Lula and Brazil's National Energy Policy Council
are expected to announce a regulatory reform plan later this year,
likely proposing a small, new non-operational state-owned oil
company to manage the new pre-salt reserves. Such a company would
maintain the ownership rights for oil reserves and partner with
private oil companies through production sharing agreements to
explore and produce oil in the pre-salt area, possibly following the
Norwegian model. Other possible models include increasing the
government's share in Petrobras, or increasing the government's take
through higher concessions. In response to criticisms that the
process to rewrite the current Petroleum law would be too time
consuming, Energy Minister Lobao has told us that the Executive has
fast track legislative measures available to it that should enable
the legislation to be enacted early in 2009, though Ministry
contacts have told us that looks increasingly unlikely due to
concerns over how to handle distributions to states and
municipalities. The national oil regulatory agency, industry, and
analysts believe such a change of legislation would be much more
complicated, possibly lasting years, thus their interest in
maintaining the current concession contract model with increased
royalties.


14. (U) Meanwhile, further leasing of all offshore exploration
blocks has been suspended pending the National Energy Policy
Council's deliberations; an auction of on-shore blocks is planned
for December 2008. According to Minister Lobao, there will be no new
development of offshore reserves for the near future as the GOB
defines its approach to the presalt finds, focusing instead on
on-shore and shallow water exploration. This is a very sensitive
sovereignty issue for the government, featuring minefields of
bureaucratic infighting. We have tended to approach the topic by
offering the observations of our industry and willingness to share
our experiences in this field, if so desired.


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Trade
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15. (SBU) The Brazilians have made a valiant effort to resurrect the
Doha negotiations and at least publicly have not given up hope that
the round can still be salvaged. This is an optimal time to discuss
the future of trade, regardless of the results of Doha. Brazil has
traditionally cited the need to maintain coherence with its Mercosul
partners and its role as a leader of the G-20 as constraining its
flexibility in trade negotiations. Mercosul is an economic
mechanism created for political reasons. However, during what looks
now to have likely been the end-game of the Doha Round, Brazil
calculated that the benefits to Brazil of agreeing to compromise in
an attempt to achieve a carefully balanced agreement of industrial
and agricultural liberalization outweighed the political cost of
moving beyond Argentina's preferred negotiating position. This
decision drew the praise of industry as well as the think
tank/academic community, which has generally assessed that Brazil's
move will not have a long-term negative effect on Brazil's position
within the G-20 or Mercosul. It has however drawn criticism from
India which in recent days blamed Brazil's position in Doha on
efforts to try to curry favor with the U.S. The Lula government has
continued to try to bring about a resolution to the round, while
still cultivating its bonds with longtime allies such as Argentina
through trade missions and development of a currency exchange
mechanism for bilateral trade.


16. (SBU) Although Brazil has made clear it will negotiate FTAs or
other trade agreements only together with its Mercosul partners, its
leadership in Mercosul is key to concluding any agreement (REFTELS F
and G). Brazil's continuing emergence as a country willing to
engage on trade and other economic issues in its national interest
may indicate further potential for expanded interest in economic
cooperation with the United States. GOB has made clear its
continued interest in concluding a Doha agreement in the near term.

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Bilateral Tax Treaty
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17. (SBU) Treasury's Michael Mundanca and Tom Ralph concluded a
round of talks September 30-October 2 with the Brazilian Receita
Federal toward an eventual Bilateral Tax Treaty. Participants made
good progress in gaining mutual understanding of each others'
systems regarding limitation of benefits, capital gains, permanent
establishment, and withholding taxes and agreed compromises can be
found on these issues. Receita was able to accept Treasury's
proposed language on information exchange, and briefed that the TIEA
is unlikely to move forward before the end of the year. Regarding
transfer pricing, all US treaties incorporate the arm's length
standard and all US treaties provide for competent authority
resolution of transfer pricing (and other) disputes. Due to
Brazilian legislative constraints unlikely to change in the
foreseeable future, a treaty with Brazil would not provide for
either. Similarly, it would not be possible for Receita to include
an arbitration clause in a treaty. We can explore with the CEO
Forum whether there is industry interest in concluding a Bilateral
Tax Treaty that would not include arms length transfer pricing or
dispute resolution.


18. (SBU) Regarding the TIEA, within the business community,
congress, and even among ministries' officials, ambivalence exists
on the issue. Distrust in Receita Federal's (the Brazilian IRS)
ability to safeguard information and suspicions among some that tax
authorities mis-collect and mis-use information (fueled by long
memories here of scandals past) may impact willingness to press for
further information exchange, depending on the types of information
requested. This ambivalence regarding information exchange is
currently playing out in the Congressional ratification process for
the TIEA. This more limited "down payment" on the BTT which
provides for information exchange subject to domestic law
constraints, has drawn opposition from congressional
representatives, legal experts and some in the business community as
allegedly violating the Brazilian constitution. Prospects for
passage are uncertain.

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Bilateral Investment Treaty
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19. (SBU) It remains unlikely that Brazil would be willing to commit
to binding arbitration at the federal, state or municipal level for
investor-state disputes. Casa Civil (Dilma Rousseff) to date
believes contract provisions can govern dispute resolution and that
an international arbitration mechanism is unnecessary. Discussions
with Casa Civil, MRE, Finance, MDIC (Commerce) and CAMEX (roughly
TPRG) consistently indicate that, for strategic reasons to increase

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GoB and Congressional confidence in negotiating investment
agreements, Brazil prefers to start discussions first with
Argentina, where Brazilian companies have major investments and have
experienced significant investment problems, according to our
interlocutors.
While ministries confirm that the CAMEX-agreed framework that Brazil
will use to start its conversation with Argentina does not currently
contain any reference to investor-state dispute settlement, some
interlocutors are hopeful this element could be introduced over time
into this dialogue. We view willingness to engage with Argentina as
a positive sign that GoB is beginning to tackle investment agreement
conversations; however, we believe both Brazilian and US business as
well as USG will need to continue to press in order to convince GoB
to engage substantively with us on the provisions of a bilateral
investment treaty in the near term. We plan a side meeting to
discuss investments on the margins of the October 30 State/MRE led
Economic Partnership Dialogue.

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Infrastructure Cooperation
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20. (U) The USTDA Regional Director for Latin America and the
Caribbean had an excellent series of meetings in Brasilia, Sao Paulo
and Rio with Casa Civil, BNDES (Brazil's National Development Bank),
state governments, and other interlocutors this spring. USTDA
developed a preliminary list of possible projects with potential for
American investment and/or participation (ideas include areas like
port dredging, oil platform water discharge, urban waste management,
transportation projects). USTDA led seven definitional missions to
Brazil (aviation, oil and gas, surface transportation - rail and
intermodal, environment - wastewater and solid waste treatment, and
information technology). The head of USTDA visited Brazil September
15-17 to further pursue these projects and signed three grant
agreements. USTDA Director Walthers has expressed his readiness to
add a permanent USTDA person in Brazil in FY09. In addition, the
Treasury DAS for Latin America recently visited Brazil to continue
dialogue with Casa Civil, Planning Ministry and BNDES officials on
how best to structure infrastructure cooperation.

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Civil Aviation
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21. (U) We recently succeeded in significantly expanding civil
aviation opportunities. Negotiations in Washington in June
(following the first round of civair negotiations in ten years in
December 2007) yielded a June 26 agreement on a package of
significant liberalization measures. The agreement, phased in over
four years, will permit weekly flights to be expanded from 105 to
154 for each country. The agreement will, for the first time,
permit carriers to provide some services on a codeshare basis with
third-country partner airlines. Under the agreement, U.S. carriers
are permitted to serve five new cities in Brazil. The June
agreement will expand weekly cargo flights from 24 to 35 immediately
and to 42 in 2010. Cargo charter flights will increase from 700 to
1000, and to 1250 by 2010. Airlines are already moving to take
advantage of expanded access. On August 8, Delta and American's
applications to begin using 21 new frequencies to north/northeast
destinations were approved. This agreement represents a significant
new area of cooperation between the US and the recently re-organized
Brazilian civil aviation authority and lays the foundation for
increased tourism and investment links between our countries,
including to the previously underserved north and northeast of
Brazil. The agreement provides for further negotiations by 2010,
and we understand CEOs may press for further liberalization
negotiations in the near-term.

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Development and Corporate Social Responsibility (CSR)
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22. (U) Despite progress toward consolidating democracy and
stabilizing the economy, Brazil remains unequal in income
distribution, with over 50 percent of the nation's wealth
concentrated in 10 percent of the population. Brazil is home to 50
percent of the people who live in extreme poverty in Latin America.
In this context, microenterprise development and increased corporate
social responsibility can serve as important mechanisms to improve
Brazil's economic development, social stability and equity. In
2006, U.S. companies in Brazil employed 321,477 people and invested
a total of 205 million reais (approximately $128 million) in
corporate social responsibility projects in Brazil. The companies
supported more than 800 projects and engaged 15,513 individuals in
volunteer programs. Ambassador Sobel was instrumental in founding
the Mais Unidos (More United) a partnership of the U.S. Embassy,
USAID, and a group of 105 U.S. companies operating in Brazil,
joining forces in promoting social partnerships to develop

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innovative solutions to reach underserved populations, to fight
poverty and inequality, and to promote sustainable social and
economic development. USAID Administrator Fore made a successful
trip in August through which she greatly expanded the visibility of
public-private partnerships and U.S. efforts in Brazil. Mais Unidos
has now established a private sector Board that includes several CEO
Forum members (Cummins, Intel and Citibank) as well as Microsoft,
Dow and Bedmon Dickinson.


23. (U) Microenterprises account for 99 percent of all formal
business, employ up to 60 percent of the formal workforce, and
account for 20 percent of the country's GDP. Brazil's extremely
complex business regulatory environment, however, has contributed to
a high rate of business failure, inhibiting the development and
sustainability of microenterprises. USAID-funded economic
development assistance is focused primarily on strengthening
microenterprise development and productivity, while challenging
large corporations operating in Brazil to assume even greater
corporate social responsibility.

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BASIC ECONOMIC BACKGROUND
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24. (U) Brazil is the tenth largest economy in the world, and
received investment grade from Standard and Poor's and Fitch this
year. While Brazil is major producer and exporter, exports make up
only 14 percent of this domestic services-led economy. Agriculture
makes up 36 percent of exports and 13 percent of GDP. Brazil also
distinguishes itself as a major exporter of civilian aircraft,
steel, and petrochemicals. The United States is Brazil's top
trading partner and China has just moved in position as number two.
Brazil is both an overseas investor and an FDI destination point, as
well as being both an assistance donor and recipient. Having
recently become technically self-sufficient in oil production (they
export some but also have to import due to the type of crude Brazil
currently produces),Brazil boasts a diverse energy matrix and they
look to become a net oil exporter in coming years. For all the
economic progress of recent years (stemming from the stabilizing
Plan Real implemented in 1994),Brazil remains a relatively closed
economy encumbered by many
structural obstacles, and one in which some 40 percent still live in
poverty, though the expanding middle class has been the largest
economic story here in the past year.


25. (U) Annual GDP growth was 5.4 percent for 2007, and inflation
approximately 4 percent. GOB's inflation target for 2008 is 4.5
percent (current estimated inflation is 6.54 percent-the high end of
the target band) and the government has taken a hawkish approach to
managing interest rates. The SELIC benchrate now stands at 13.75
percent and market forecasts expect the SELIC could go as high as 15
percent by early 2009. The currency, the real, has appreciated
strongly, though the financial crisis has caused it to lose ground
in just the past two months. The global slowdown has had an impact
on Brazil's trade surplus - for the first seven months of 2008,
Brazil posted a surplus of 14.65 billion USD, down from 23.92
billion the same period in 2007. While the export sector has been
dampened, the strong currency has permitted Brazilian companies to
ramp up investment in capital equipment. Though Brazil has
maintained an optimistic attitude about its prospects throughout the
economic downturn and now crisis, President Lula has recently begun
to strongly criticize the U.S. for a lack of financial regulation,
which he blames for the problems.


26. (U) Foreign direct investment in Brazil is increasing, with a
net flow of USD 34.6 billion in 2007 (nearly double the USD 18.8
billion in 2006). Of total gross inflow of USD 34.3 billion in
2007, USD 6.1 billion came from the United States, the second most
from any one source country, number one being the Netherlands.
Brazilian investment in the United States has almost tripled between
2001 (USD 1.4 billion) and 2006 (USD 3.9 billion). The three key
pillars of Lula's Growth Acceleration Program (PAC) to enhance
infrastructure investment in Brazil are energy, transportation, and
sanitation/housing. GOB recently announced that federal government
investment spending from January 2008-May 2008 was 7.43 billion
reais (approximately 14 billion USD),representing a 24 percent
increase from the same period one year ago. However, Brazil's
investment to GDP ratio (17.6 percent in 2007) remains well below
investment ratios in Russia (21 percent),India (34.6 percent) and
China (40.4 percent).


27. (SBU) There are other major structural challenges to long-term
growth. Real interest rates remain the highest in the world at 8.7
percent, but much lower than 13.5 in 2005. To attempt to improve the
structural climate, the Central Bank has recently approved new
Foreign Exchange regulations to reduce costs and paperwork for
cross-border transactions, which will eliminate 30 day reporting
requirements as well as reduce taxes on up to 500 million USD.

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However, growth-limiting distortions in the economy, including a net
debt to GDP ratio of 42.7 percent (2007),a burdensome tax and
fiscal structure, and onerous labor and business regulations
continue to constrain growth. The informal sector constitutes an
estimated 40 percent of the economy, in part due to the tax burden
(36 percent of GDP in 2007 and currently estimated at 37.3 percent),
one of the highest among large developing economies. Brazil is
ranked 125 in the Doing Business report (with 152 days to start a
business) and ranks 92 out of 125 countries for trade protectionism
according to the World Bank. Lula's social programs, combined with
formal sector job growth and real increases in the minimum wage,
have reduced income inequalities each year since 2004
(2007/08 GINI is 56.7, compared to approximately 40 in the United
States).

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Political Atmospherics
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28. (SBU) Brazil's democratic institutions are generally strong and
stable. President Luiz Inacio Lula da Silva remains a popular
president as a result of his orthodox economic policies and expanded
social programs. In the Congress, ongoing public scandals involving
the leadership of the Senate and various members of congress have
led to low ratings for the institution among the Brazilian public.
Increasingly, the court system has taken steps to curb impunity
among public officials. These steps have been well received by a
public accustomed to abuses by authorities.


29. (SBU) The United States and Brazil share the basic goals of
fostering hemispheric stability, promoting democracy, preventing
terrorist and drug transit activity, supporting international
non-proliferation regimes, and have been working to try to achieve a
conclusion to the Doha round of WTO negotiations. The attainment of
a permanent seat on the UN Security Council has been a central goal
of Brazil's foreign policy under President Lula da Silva's
government. Regionally, Lula has maintained Brazil's historic focus
on stability, seeing dialogue and good relations with all parties as
the best way to achieve this goal. As a result, Brazil maintains an
active dialogue with Venezuela and Cuba, has worked hard to restore
relations with Bolivia, and has stood firmly on the principle of
respect for sovereignty in responding to the dispute between
Colombia and Ecuador, preferring to work through the Organization of
American States.

SOBEL