DEMARCHE DELIVERED: PARTICIPATION IN INT'L COMPACT WITH

UNCLAS BRASILIA 000703 STATE FOR NEA/I-KTAECKER SENSITIVE SIPDIS E.O. 12958: N/A TAGSS: EAID, ECON, EFIN, EINV, PGOV, PREL, BR, IZ SUBJECT: DEMARCHE DELIVERED: PARTICIPATION IN INT'L COMPACT WITH IRAQ MINISTERIAL REFS: A. 08 STATE 43799 ¶B. 08 Brasilia 36 ¶1. (U) Post delivered reftel points to the Brazilian Ministry of Foreign Affairs Office (MRE) on May 2 and to the Ministry of Finance on May 8. At MRE, Minister Luis Antonio Balduino Carneiro, Coordinator-General of the Finance Affairs Office, joined by representatives of the Middle East and United Nations offices, said they would consider the issue carefully, but expressed concerns about legal, bureaucratic, and political complications that would make a debt relief agreement difficult. ¶2. (U) Ministry of Finance Deputy of Secretary for International Affairs Alvaro Vereda was receptive to Brazil attending the reftel conference, and confirmed Brazil's general commitment to Iraqi refugees, medical exchange programs and the host of other social programs outlined in reftel. Conversely, when the discussion switched to debt relief, the reluctance to commit the GOB was again apparent (see ref B). ¶3. (SBU) Vereda confirmed Brazil would like to participate in the conference, pending receipt of further logistical details. However, he cautioned that there were still unresolved commercial issues between Iraq and Brazil that made Brazilian government and private sector reticent to pursue new commercial opportunities in Iraq. Prior to the 2004 invasion of Iraq, a Brazilian construction company led by "Mendes Jr." had acquired public funds from Banco do Brasil (BB),to facilitate engineering projects in Iraq. Following the regime change in Iraq, Mendez's local Iraqi subcontractor company defaulted on payments to Mendez, which in turn defaulted on its BB loan. This situation continues to be a legal issue for the GOB, as they seek to resolve the funds in default before exploring additional Iraqi development partnerships. The Ministry of Finance has taken a proactive approach to rectify this financial impasse between the commercial sector and the GOB, with hopes of reaching a bilateral agreement before the end of 2008. ¶4. (U) Vereda concluded that he and the GOB looks forward to receiving more details on the ICI, as they plan to be in attendance. CHICOLA