Cablegate: Brazil: Views On G20 Meetings

VZCZCXRO5781
OO RUEHRG
DE RUEHBR #1463/01 3121331
ZNR UUUUU ZZH
O 071331Z NOV 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2818
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 6833
RUEHSO/AMCONSUL SAO PAULO 3018
RUEHRG/AMCONSUL RECIFE 8660

UNCLAS SECTION 01 OF 02 BRASILIA 001463

SIPDIS
SENSITIVE

STATE PASS USTR FOR KDUCKWORTH
STATE PASS EXIMBANK
STATE PASS OPIC FOR DMORONSE, NRIVERA, CMERVENNE
DEPT OF TREASURY FOR LTRAN, BONEILL
NSC FOR PAUL BROWN

E.O. 12958: N/A
TAGS: EFIN EINV ECON ETRD BR
SUBJECT: Brazil: Views on G20 meetings

REF: (A) SAO PAULO 486 (B) SAO PAULO 522 (C) BRASILIA 1299 (D)
BRASILIA 1362 (E) BRASILIA 1417 (F) ERATH/WHA-EEB OCT 28 E-MAIL (G)
SAO PAULO 593 (H) SAO PAULO 594

SENSITIVE BUT UNCLASSIFIED

1. (SBU) SUMMARY: Brazilian officials across GOB welcome the G20
approach to address the global financial crisis. External Relations
Ministry, Finance Ministry and Central Bank emphasize the G20 must
be seen as a mechanism to develop concrete proposals that take
emerging economy input into account. Brazil will resist attempts to
empower mechanisms like the Financial Stability Forum or the IMF to
develop recommendations or oversight absent an effective voice for
emerging economies in these fora. END SUMMARY.

MERCOSUL PLUS MEETING TO DISCUSS FINANCIAL CRISIS

2. (SBU) The October 27 morning discussion included Brazil,
Argentina, Paraguay, Uruguay, and Venezuela, joined in the afternoon
by Bolivia, Chile, Colombia, Ecuador, and Peru with participation by
ForMins, FinMins and Central Bank officials. According to Ministry
of External Relations (MRE) and Finance Ministry sources, the
discussion focused on impact of the crisis in each economy and what
each is doing domestically, with a view to increasing mutual
understanding. Finance contacts emphasize that this meeting was not
intended to feed directly into the Nov 8 and Nov 15 meetings. As
the first meeting of this particular grouping, concrete proposals
did not emerge. Rather, the group agreed in general on the need to
reform international organizations like the World Bank and IMF and
the need for stronger global regulation. Whether that "global
regulation" would be proposed as supranational or each country
strengthening its own domestic regulation was not discussed in depth
nor was consensus attempted. The group agreed that more trade among
themselves would help ameliorate the effects of the crisis, further
integration in their banking, capital and insurance markets should
be considered, and that a "balanced" Doha conclusion would be
welcome. (Communique sent to State Oct 28). Finance contacts noted
some participants objected to the G20 formulation as
"non-democratic" but that GOB argued the response to the crisis
needed to focus on the economies with the most weight.

VIEWS ON G20 MEETINGS NOV 8-9 AND NOV 14-15

4. (SBU) MRE and Finance contacts have commented that for Brazil,
any idea to strengthen the role of institutions such as the IMF
would be linked for Brazil to governance reform to give GOB more
voice and vote. Brazil would not support a model where a
supranational body had authority to tell Brazil what to do but
Brazil does not have enough voice in the entity to influence
decisions on the role of the institution. Similarly, Brazil would
be very concerned if, for example, a proposal emerged to give the
Financial Stability Forum (FSF) more authority to develop standards
or judge regulatory decisions in countries, since FSF does not
include Brazil or any other emerging economy. Central Bank contacts
note that Brazil may propose IMF borrowing in capital markets as IDB
and World Bank do. Central Bank would not support proposals for
tighter controls over portfolio flows, while Finance contacts
indicate the idea has received internal consideration and no final
decision. While CB and Finance agree portfolio outflows have been
significant, both note that FDI continues to increase notably into
Brazil.

5. (U) FM Amorim reiterated publicly in a press interview this week
Brazil's call to further reform the IMF. Finance Minister Mantega
in an op-ed published November 6 called for expansion of the FSF to
include emerging economies, arguing why should FSF recommendations
be universally adopted if emerging economies that are responsible
for a significant part of global growth do not participate in
designing these recommended measures (op-ed e-mailed Nov 6 to DOS,
Treas, NSC). In seven hours of testimony October 30 before the
Senate Economic Committee, Mantega asserted dynamic emerging
economies like Brazil are better placed to weather the crisis than
"richer countries" due to higher internal growth potential than
mature markets and a less exposed banking sector, while Central Bank
Governor Meirelles noted Brazil has fared better than other
developing countries in part because it is a creditor in dollars and
has large reserves.

G20 AS FORUM TO ADDRESS CRISIS

6. (SBU) Brazil is gratified regarding the decision to hold the
November 15 conference in G20 formulation. However, GOB retains
sensitivities based on its G8 plus 5 experience. As one MRE contact
noted, Brazil would not want, and does not anticipate, the G20

BRASILIA 00001463 002 OF 002

response to the global financial crisis to turn into a "coffee chat
at the end" experience, where the G8 really decide what the response
will be and the G20 countries are informed at the end of the process
and asked to come on board. Central Bank Governor Meirelles told the
Ambassador November 6 that the main purpose of the two upcoming G20
meetings should be to make clear an intention to extend to the G20
the same kind of cooperation and coordination the G7/8 does, noting
the first action that demonstrated such an intention was the recent
Fed swap mechanism with Brazil, Korea, Singapore and Mexico.
Finance contacts have recommended highlighting the importance of
cooperation with and trust in emerging economies at the November 15
meeting, including underlining the importance of this swap. In his
November 6 op-ed, FinMin Mantega urged the G20 become a forum for
concrete policy proposals, more directly influence the work of
multilateral financial institutions, and reinforce its ability to
manage crises. His suggestions included expanding G20 meetings to
twice yearly on margins of Bank/Fund meetings, calling extraordinary
sessions, and establishing a G20 host-country-chaired virtual
"situation room" to exchange information and coordinate responses.

7. (SBU) While Mantega explicitly chose not to engage publicly on
expanding the G7/8, Meirelles indicated in the November 6 meeting
with the Ambassador that perhaps, from Brazil's perspective, a
"G-13" would be advantageous, while musing that using an existing
mechanism like G20 might be easier politically. In the context of
the upcoming Bank of International Settlements (BIS) meetings among
G20 Central Bank Governors November 10-11 in Sao Paulo, he noted
that the meetings unfortunately will stay general, without tackling
concrete substance, due to Argentina's reluctance to agree to
anything positive and concrete.

INTERNATIONAL TRANSPARENCY ALSO A GOAL

8. (SBU) While Brazil likes the idea of G20 as a decision-making
grouping, GOB also wants to advocate a transparent global process.
Following up President Lula's meeting with UNSG Ban in September,
Lula sent a letter in October asking Ban to organize an ECOSOC
meeting of Finance Ministers to discuss the crisis. MRE contacts
confirm President Lula understands this not as a decision-making
meeting or grouping, but rather as a forum where "everybody can have
their say and express their views" and receive information regarding
the consensus other fora (like the G20) are developing.

OTHER NEWS - BRIEF FINANCIAL UPDATES

9. (SBU) The Monetary Committee (COPOM) minutes indicate the Central
Bank remains disposed toward further rate hikes despite the COPOM
decision October 29 to hold the SELIC benchmark at 13.75 percent.
Contacts indicate privately that the decision to hold rates steady
was difficult, given Central Bank's legal obligation to keep
inflation with the target band (4.5 to 6.5 percent, with inflation
currently near the top of the band) combined with industry's strong
desire to hold rates steady given economic difficulties that are not
yet fully reflected in the time-lagged economic data COPOM considers
in making its rate decision.

10. (U) Meirelles stated publicly this week that the CB has provided
USD 47 billion in liquidity since mid-September. Autos sales in
October were down 11 percent relative to September, the largest
monthly decline since 2003, attributable to the lack of auto finance
and the decline in consumer confidence. In agriculture, a 3.3
percent decline in output is forecast for 2009 - the first decline
in six years. Factors include low external demand and credit
conditions. The Finance Ministry announced an additional R$ 10
billion (approximately USD 4.7 billion) in lending (via BNDES) to
large companies and an additional R$ 5 billion (via Banco do Brazil)
to SMEs. To help boost working capital, Mantega announced a ten day
extension in payment of federal business taxes due now on the 30th
vice the 20th of each month). Brazilian industry groups had
originally requested a 60 day extension.

11. (SBU) COMMENT: GOB is prepared to engage substantively at
upcoming G20 meetings in Sao Paulo and Washington and welcomes
development of this forum as a way to coordinate solutions to the
global financial crisis. Brazil is unlikely to welcome proposals to
empower other fora where it is either a non-member or has relatively
less weight to develop recommendations or impose solutions. END
COMMENT

12. (U) This cable was coordinated with Consulate Sao Paulo and the
U.S. Treasury Attache in Sao Paulo.

SOBEL

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