Viewing cable 04BRASILIA2513, AMBASSADOR'S CALL ON PRESIDENCY CHIEF OF STAFF

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C O N F I D E N T I A L SECTION 01 OF 02 BRASILIA 002513 
 
SIPDIS 
 
E.O. 12958: DECL: 10/04/2014 
TAGS: PREL PGOV BR US
SUBJECT: AMBASSADOR'S CALL ON PRESIDENCY CHIEF OF STAFF 
DIRCEU, 1 OCTOBER 2004 
 
 
Classified By: AMBASSADOR JOHN J. DANILOVICH. REASONS: 1.4 
(B)(D). 
 
 ¶1. (C) Summary. In an affable and candid first meeting with 
Ambassador, Presidential Chief of Staff and Lula right-hand 
man Jose Dirceu expressed optimism about bilateral relations, 
Brazil's economy and the potential for American investment in 
major new infrastructure projects. At the same time, he 
acknowledged "grave problems" and challenges to sustained 
development -- including educational inadequacies, 
unemployment, heavy debt and severe crime -- but stressed the 
GOB's efforts to attack all of these. He assured Ambassador 
that the GOB appreciates the current high sensitivity of 
nuclear non-proliferation issues and is "95 percent there" on 
conclusion of an agreement with the IAEA to facilitate agency 
inspections of Brazil's Rezende nuclear facility. End 
summary. 
 
Bilateral and Regional Affairs 
 
¶2. (C) Dirceu opined that the U.S. and Brazil are "enjoying 
their best bilateral relationship in 30 years." Both 
governments, he said, know how to separate out points of 
disagreement from the many other areas in which cooperation 
is robust and fluid. The excellent personal relationship 
between Presidents Bush and Lula da Silva augments the close 
ties between Brazilians and Americans in commerce, 
technology, sports, culture and other areas, Dirceu said. In 
regional affairs, Dirceu said that the U.S. and Brazil share 
a common interest in stability. He said Lula had made a 
decision that placing Brazil in the lead PKO role in Haiti 
was "important and worthwhile," and Brazil plans to continue 
its efforts to ameliorate tensions in Venezuela. He added 
that Brazil will also continue to strengthen democratic 
institutions and economies in Bolivia and Paraguay. 
 
Internal Challenges 
 
¶3. (C) Internally, Dirceu expressed optimism about prospects 
for development, even as he recognized "grave problems and 
challenges" that Brazil must address over the next two to 
three decades. These include the need: to expand educational 
opportunity throughout the population while adjusting 
priorities to address critical shortfalls Brazil faces in 
technical and medical disciplines; to use education and 
technical training to create conditions to absorb into the 
workforce "millions of unemployed" who are trapped in 
poverty; to attract financing for investment in 
infrastructure; and to address comprehensively the critical 
problem of Brazil's heavy internal and external debt burdens. 
 On debt, Dirceu noted that the GOB had succeeded in reducing 
the "dollarized" portion of Brazil's internal debt from 40 
percent to about 15 percent, with efforts underway to bring 
the percentage down to 10 percent. This is an important 
structural step to increase Brazil's defenses against 
external economic shocks, Dirceu added. 
 
¶4. (C) Ambassador observed that Brazil is, indeed, in an 
excellent position, with the GOB's fiscal policies applauded 
in financial centers worldwide, and Brazil's regional and 
international leadership recognized. But Ambassador observed 
that many potential investors still register concerns about 
the investment climate in Brazil, citing taxes, excessive 
regulation and other issues as impediments. 
 
¶5. (C) Dirceu agreed and repeatedly stressed the GOB's 
interest in attracting foreign investment in the 
infrastructure, including North American investment. Dirceu 
said that the GOB is striving to award contracts in a 
completely transparent and objective manner. He said the GOB 
is currently pursuing legislation to deal with lowering 
taxes, diminishing long-term capital investment costs, 
restructuring the mortgage real estate sector and adjusting 
bankruptcy laws. The GOB is especially keen to bring 
investment back into the energy sector, Dirceu said, where 
Brazil has construction or planning underway for a total of 
57 hydroelectric plants. Dirceu also stressed that he was 
personally responsible for some of the new iniatiatives 
Brazil's Public-Private Partnerships drive, with focus on 
attracting investment and stimulating construction activity 
(and employment opportunities) that will expand and improve 
Brazil's ports, railroads and highways. 
 
¶6. (C) Responding to Ambassador's observation that 
international perceptions that Brazil suffers a severe crime 
problem (e.g.,reference recent highly-publicized incidents on 
Ipanema/Leblon beaches in Rio) inhibit investment and 
tourism, Dirceu agreed and said the GOB is addressing public 
security as a top priority. The GOB's recent announcement 
that Brazil would implement its 1998 law permitting lethal 
force interdiction of suspected narcotrafficking aircraft 
had, Dirceu claimed, already resulted in 40 to 50 percent 
reduction of suspect flights in the Amazon region (although 
there has also been a small increase in such activity along 
the Bolivia-Peru borders). He said the GOB is also working 
to increase control along its frontiers, especially in the 
triborder and Amazon areas, and striving to enhance its 
intelligence capabilities. Brazil's flawed state police 
system, in which patrol and investigative functions are 
awkwardly divided between competing uniformed and civil 
police services, needs reform and the GOB is taking the lead 
in encouraging integration of key functions. Observing that 
corruption and infiltration of criminal elements into the 
police and justice systems of many states is endemic, Dirceu 
claimed that it is necessary for the federal government to 
lead on improving law enforcement against organized crime and 
trafficking in Brazil. Federal Police operations against 
organized crime and money laundering over the past 20 months 
are indicative of the current administration's assumption of 
this responsibility, which is a first in Brazil's history, 
Dirceu said. 
 
Non-Proliferation 
 
¶7. (C) Ambassador raised the issue of Brazil's cooperation 
with the IAEA in negotiating inspections at the Rezende 
nuclear facility and with regard to the Additional Protocol 
to the NPT. Ambassador stressed that the USG fully 
understands that Brazil's credential in non-proliferation are 
superb, and there is no suspicion that Brazil's nuclear 
program is directed toward weapons activities. Nonetheless, 
Ambassador stressed that the highly-charged question of 
mobilizing international pressure against nuclear weapons 
development in North Korea and Iran make Brazil's reluctance 
on inspections and the AP extremely awkward. Dirceu 
immediately acknowledged that he and President Lula 
understand the political sensitivity of the issue, have been 
meeting weekly with the Defense and Science Ministers to 
discuss resolutions, and Dirceu opined that he felt the IAEA 
and GOB are "95 percent there" in coming to an agreement for 
Rezende inspections in the near future. 
 
¶8. (C) Comment: Dirceu was affable, candid and thoughtful in 
his observations, and clearly interested in maintaining 
continued contact with Ambassador. He indicated he would 
encourage President Lula to make a stop in California (en 
route perhaps to the Orient of a future trip) to see Silicon 
Valley, talk to investors and firms with presence in Brazil, 
and speak at Stanford University (Dirceu's interest seemed 
fueled partly by his expression of a life-long desire to 
visit San Francisco). While some of his comments may have 
been boilerplate, Dirceu was quite energetically engaged in 
appealing for American interest in new infrastructure 
investment opportunities, and extremely alert and reactive in 
discussing the IAEA issues. 
 
Danilovich