This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 04 BRASILIA 004227 

SIPDIS 

DEPT FOR WHA/BSC E.O. 12958: DECL: 11/22/2012 
TAGS: PGOV PREL ECON BR

Classified By: POLOFF RICHARD REITER FOR REASONS 1.5(b) AND (d). 

1.(C) SUMMARY. Assistant Secretary Reich had warm and productive meetings in Brasilia November 20-21 with President-elect Lula da Silva, his senior advisors in the PT, and Brazilian congressional leaders. Both Ambassador Reich and Lula expressed great interest in working together across a range of issues, particularly trade. The PT team floated the idea of concluding a bilateral trade pact with the US, but will first consult with their Mercosul partners and then likely raise some proposals during Lula's December 10 visit to Washington. Lula is eager to meet President Bush, sure that "two politicians like us will understand each other when we meet face to face." In keeping with efforts by Lula to distance himself from Castro and Hugo Chavez, PT leader Aloizio Mercadante sought to downplay his participation in the "Sao Paulo Forum" as an attempt to set a democratic example for other Latin American leftists. Ambassador Reich also met with Brazilian congressional leaders, who similarly expressed eagerness to strengthen ties with the US in order to help address pressing economic and social needs. END SUMMARY. 

RELATIONSHIP OFF ON THE RIGHT FOOT ---------------------------------- 

¶2. (C) WHA Assistant Secretary Otto Reich led a delegation to Brasilia November 20-21 that included WHA/BSC Director James Carragher, Special Advisor William Perry, and Michael Zarin of S/P. The group, accompanied by Ambassador Hrinak and Poloff (notetaker), met November 21 with President-elect Lula da Silva and his three senior advisors: Jose Dirceu, Workers' Party (PT) President and Federal Deputy from Sao Paulo; Aloizio Mercadante, PT Federal Deputy and Senator-elect from Sao Paulo; and Antonio Palocci, who resigned this week as mayor of Riberao Preto (SP) to devote full time to leading Lula's transition team. All three will have high profile positions in the new government. 

¶3. (C) The messages on both sides were extremely positive. Before Lula joined the meeting, Jose Dirceu expressed the interest of the incoming government in strengthening Brazil/US ties. He said the December 10 visit by Lula to Washington should focus on items on both countries' agendas, including FTAA and free trade, protectionism, terrorism, and the possibility of war in Iraq, which would have economic consequences for Brazil. 

LET'S GET BEYOND THE HEADLINES ------------------------------ 

¶4. (C) Assistant Secretary Reich commented that even after 9/11 the US will continue to pursue a range of interests (commercial, economic, political, security) in the hemisphere. President Bush's phone call to Lula after the Brazilian elections and invitation to the White House are strong signals of the USG's desire to strengthen ties to Brazil under Lula. The message, Reich emphasized, is that the US and the incoming Brazilian government need to get beyond any preconceptions we may have had about each other and focus on things that bring us together. The media often highlight policy differences, he added, but it is President Bush who sets the USG's direction, and he wants to strengthen the US/Brazil relationship. Reich also reviewed the US position on Iraq, noting that there would not have been the current need to force compliance if Saddam Hussein had complied with the sixteen UN resolutions since 1991. 

BILATERAL TRADE PACT ON THE HORIZON? ------------------------------------ 

¶5. (C) Commenting on Mercadante's remark to D/USTR Peter Allgeier the day before that the US seems unwilling to negotiate a bilateral trade agreement with Brazil, Reich said the US was flexible on the best approach to free trade but that his impression was that Brazil was not interested in such a bilateral pact. Mercadante noted that Mercosul partners Argentina and Uruguay are currently in crisis, which has scared foreign investors throughout South America. Thus Brazil's two highest priorities with the US are: obtaining US support in gaining increased access to commercial credit (and demonstrating that Brazil is a better risk than Argentina); and secondly, to increase foreign trade, and particularly to double trade with the US in the next four years. How, Mercadante asked, can the US/Brazilian trade total only $30 billion per year? 

¶6. (C) Mercadante urged that the US and Brazil sit down to discuss a range of bilateral trade issues, for example, IPR and music piracy, ethanol sales, and aircraft exports. He added that FTAA ("ALCA" in Portuguese) will be a much more difficult project, but that the bilateral talks could start immediately. Reflecting the PT's dedication to regional partners, Mercadante urged that the US seek a trade pact with Mercosul. Ambassador Reich said he was pleased to hear of Mercadante's interest in such talks, noting that the US is open to bilateral pacts (e.g., Chile) as well as pacts with sub-regional groups (e.g. the Central American states). 

¶7. (C) Ambassador Hrinak asked Mercadante if Lula would be extending an invitation to bilateral talks during the Washington visit. Jose Dirceu answered before Mercadante could, saying that the bilateral talks were important but would have to be approached in the context of Brazil's regional commitments. Dirceu admitted that the incoming government would like to conclude a bilateral pact quickly, but as Brazil is the only stable economic force in South America, they would have to proceed cautiously and in concert with regional partners. Mercadante said that Lula will travel to Argentina on December 3, and then there will be a December 5-6 meeting of Mercosul presidents in Brasilia. Lula would use these opportunities to sound out the Mercosul partners on future negotiating mechanisms --for example a Mercosul 4 1 with the US. After these talks, Mercadante said, it is possible Lula would arrive in Washington with "some initiatives". Dirceu summed up by noting that while Brazil must consult its regional partners, it "does not want to be held hostage by them." 

LULA WANTS STRONG TIES AND TOUGH NEGOTIATING -------------------------------------------- 

¶8. (C) President-elect Lula then joined the meeting and enthusiastically stated his interest in strong bilateral relations across the range of issues. That, he said, is what is motivating him to travel to Washington on December 10. Appearing upbeat, smartly-dressed and rested, Lula expressed hope that after his visit, US officials will no longer misunderstand the PT. Looking forward to meeting President Bush, he said "I think two politicians like us will understand each other when we meet face to face." Brazil's image has suffered in recent years, he said, and the PT wants to consolidate its democracy and rescue it from the perception that Brazilian officials are a "bunch of irresponsible thieves" and "Brazil is another Colombia." 

¶9. (C) The PT has the sense that Brazil can play an important role but can only reach its potential in cooperation with the US. In a left jab at the Brazilian Foreign Ministry, Lula echoed remarks that he has made in public: "I want to do for Brazilians what you US diplomats do for your citizens --fight for their interests. But I think Brazilian diplomacy has not been tough enough, not like yours. We have sometimes made bad deals." Dirceu added that the Brazilian government is committed to abiding by all agreements that it inherits, "We do not need any more headaches" that we would get by breaking deals, he said. The PT team has emphasized its interest in negotiating FTAA with the US, but doing so by vigorously defending Brazil's interests. After the meeting, Mercadante told the press. "The Americans always played tough, and now they have a Brazilian administration that is going to play as tough as they do." 

"WE ARE NOT AFRAID OF THE PT" ----------------------------- 

¶10. (C) Ambassador Reich congratulated Lula on his election victory, adding that his own visit was designed to follow up on President Bush's post-election phone call and lay the groundwork for the December 10 visit. Ambassador Reich expressed support for Lula's social agenda ("Your commitment to three meals a day for every Brazilian is something that all Americans will want to support."), adding that democratization, human rights, economic progress, and transparency are key issues for the US public and policy makers. Reich concluded, "We are not afraid of the PT and its social agenda". 

PALOCCI'S ECONOMIC MESSAGE: CREDIT, CREDIT, CREDIT --------------------------------------------- ------ 

¶11. (C) After Lula was called away, Transition Director Antonio Palocci picked up on the economic themes. He stated unequivocally that the PT government will focus on combating inflation and working smoothly with the IFIs. Modifying Mercadante's two priorities a bit, Palocci said Lula would take two messages to Washington. First, that Brazil really has three short-term priorities: credit, credit, and credit; and second, that Brazil will seek clear understandings and strong relations with the US in order to develop and grow. 12. (C) Ambassador Reich observed that the USG does not direct banks to extend credit, but that the Brazilians themselves were doing the right things to gain access to loans. Reich noted that "since the elections you have been sending the right messages", adding that Brazilian/US cooperation will reinforce these messages by conveying to the financial markets US confidence in Brazil's economy. 

"THE PT IS A MODEL FOR LATIN AMERICAN LEFTISTS" --------------------------------------------- -- 

¶13. (C) Ambassador Reich asked Mercadante about the "Sao Paulo Forum", which Mercadante has addressed and which has included FARC and Cuban participants, among others. Mercadante downplayed the PT's work in the Forum, explaining that his primary interest is in developing the left in Latin America, and that many of the participants in the Forum are unreconstructed "outdated" leftists who can learn a lot from the PT's democratic model and emphasis on economic development. He added that the Forum had issued a declaration after 9/11 condemning the terrorist attacks and defending the right of the US to respond in self-defense. "We are democratic," Mercadante assured us, "Washington needs to hear our ideas and our arguments." 14. (C) On Colombia, Dirceu said that the FARC needs to understand that if they cross into Brazilian territory, Lula's government will use the military and "treat them as enemies." He added that groups such as the FARC that operate outside of democratic processes "do not interest us". After Ambassador Reich outlined the range of human rights concerns in Cuba, Dirceu responded that "the strongest force in the world for changing Cuba is US trade", but he concluded that "we will simply have to agree to disagree" on Cuba policy. 

WASHINGTON AGENDA ----------------- 

¶15. (C) Mercadante said that he will accompany Lula to Washington. The rest of the travel team has not been decided, and the agenda will be finalized only after consultations with the Brazilian embassy in Washington, though Ambassador Barbosa has been consulting in Brasilia this week. 

INAUGURATION LIKELY JANUARY 1 ----------------------------- 

¶16. (C) In response to a question from Ambassador Reich, Dirceu stated that the inauguration will be on January 1. (N.b., Dirceu himself was a big proponent of moving the date to January 6 and had been urging his congressional colleagues to take quick action on the required constitutional amendment, so his statement on the January 1 date may well be the last word.) Minister Pedro Parente, head of the outgoing administration's transition team, also told us November 21 that the inauguration would be January 1. 

CONGRESSIONAL MEETINGS ---------------------- 

¶17. (C) Earlier, Ambassador Reich's group met with outgoing Chamber Speaker and PSDB leader Aecio Neves and separately with PT Senate leader Eduardo Suplicy from Sao Paulo and PT Deputy Waldir Pires from Bahia. Neves, who will take over as Governor of Minas Gerais in January, focused his remarks on Brazil's economic plight. He noted that he had supported the economic plan of President Cardoso, which had prevented Brazil from suffering the same fate as Argentina. He also stressed that the PSDB and other opposition parties expect to support many of Lula's initiatives. Suplicy stressed the importance of President Bush's understanding the Brazilian democratic process and the fact that Lula's 61% electoral support demonstrated that he has overwhelming legitimacy to address social and economic issues. Both Suplicy and Pires spoke at length on the importance of addressing Brazil's deep social inequities. Suplicy added that Lula may be a useful bridge in improving US relations with Cuba, to which Ambassador Reich replied that relations will improve as soon as Castro holds free elections. 

COMMENT ------- 

¶18. (C) Lula and the senior PT officials are clearly eager to get down to work with us, and this visit went a long way toward reassuring them that the feeling is mutual. Though they have not yet thought through their floater for bilateral trade talks, we can expect some sort of proposal in Washington, after they have consulted more deeply with their Mercosul partners as well as internally. 

¶19. (C) The PT leaders have contrasting and complementary personalities. Mercadante's former radicalism lies not far from the surface. He speaks to convince rather than explain, often pointing a finger at his listeners. Yet he is courteous and clearly focused on specific bilateral projects. Dirceu is much smoother. He never corrected Mercadante but sometimes stepped in to qualify his remarks. Dirceu seems to be the first among equals and is rumored to become Lula's Chief-of-Staff if he does not stay in Congress to become the Speaker of the Chamber. Palocci, whose star has risen rapidly in recent months, is perhaps the most pragmatic of the group. He speaks slowly and calmly --often about economic issues-- clearly aware of the effect of his words. His is a voice seemingly designed to reassure the markets. In a November 21 meeting with U/S Larson (septel), Cardoso administration minister Parente expressed great admiration for Palocci and hoped that we would become Minister of Finance. END COMMENT. 

¶20. (U) AMBASSADOR REICH CLEARED THIS CABLE.