American Enterprise Institute

April 17, 2008

[Edited transcript from audio tapes]

8:45a.m.	Registration
9:00	Special Remarks:	Ambassador Antonio Patriota, Embassy of Brazil
9:30	Discussants:	Michael May, Center for Strategic and International Studies
		Bill Perry, William Perry and Associates
		Paulo Sotero, Woodrow Wilson International Center for Scholars
	Moderator:	Roger F. Noriega, AEI
10:30	Adjournment

Proceedings:

Roger F. Noriega:  My research assistant Megan Davy who is not very big, but is wiry, will confiscate phones if they go off.  Megan asked me if we should be concerned about scheduling this event at the same time as the Papal Mass, and I explained that, knowing this crowd, there probably was very little overlap.  But I'm rather convinced that Ambassador Patriota probably gave up a pretty good seat at that mass as a member of the diplomatic corps to be with us here today.  So say a prayer for Brazil and for him for his contribution here.

I was in Brazil just a couple of days ago and my visit to Brasilia and Rio convinced me that Brazil is really poised to assert new leadership in South America, both on economic and security matters.  To be sure, the country has considerable work to do to retool its economy--I'm sure they say this themselves--in order to provide people from all walks of life with systemic access to opportunity.  While most Brazilians give President Lula credit for maintaining sound macroeconomic policies, some express concern that his social programs have not had the effective reducing structural poverty and they need to do more than merely treating symptoms of people living on the margins of society.

President Lula is given credit for the sustained impressive rates of economic growth.  As one of our panelists, Bill Perry, told me recently, it is amazing what an economy can do when the government merely does not do stupid things.  Lula’s real legacy will be established as he has the energy and courage to make Brazil more modern and globally competitive by adopting a host of needed economic and political reforms.

During his recent visit to Washington, Brazil’s Defense Minister Nelson Jobim previewed his initiative to assert his country’s leadership in South America on national security matters.  He announced that he would be traveling throughout the region this month to discuss his proposal for a new South American Defense Council to promote the defense of sovereignty, territorial integrity, military cooperation, including in UN peace keeping operations, as well as the development of common defense industries.  It remains to be seen whether the rest of South America are ready to be led by Brazil, and Dr. Jobim has yet to open consultations with his neighbors on these sensitive issues. 

But it is remarkable, I think, that the United States has embraced so willingly Brazil’s leadership role in the Americas.

As a strong multi-ethnic democracy with a president committed to defeating poverty through sound policies and full respect of democratic institutions, Brazil is a force for stability in the region being buffeted by irresponsible populism.  Can President Lula provide a responsible antidote to the divisive rhetoric of Venezuelan caudillo Hugo Chavez?  I'm sure he would not put it–-President Lula would not put it that way nor would any Brazilian, but I have the floor.

Can Brazil move beyond rhetoric to help fashion meaningful responses to the tension brought about by narco-activities in the Andes?  Will Brazilians move to build a modern 21st century economy that produces broad-based growth and social stability?  A lot of hard work remains to be done, but I would bet on Brazil’s success.

Our keynote speaker is the Honorable Antonio Patriota who took office as the Brazilian Ambassador to the United States in February 2007.  He began his career at Brazilian Ministry of Foreign Relations in Brasilia where he worked as an adviser to the head of the United Nations division from 1980 to 1982, as an adviser to the secretary general for political affairs from 1990 to 1992, and as the deputy diplomatic adviser to the president of Brazil from 1992 to 1994. 

In overseas assignments during the 1980s and 1990s, Ambassador Patriota served as a member of Brazil’s Permanent Mission to International Organizations in Geneva, as a political councilor at the Brazilian Embassy in Beijing, as head of the economic section of the Brazilian Embassy in Caracas, and as a political councilor at Brazil’s Permanent Mission to the United Nations where he was a member of Brazil’s delegation to the UN Security Council.  Ambassador Patriota also served as minister councilor at Brazil’s Permanent Mission to the International Organizations in Geneva from 1999 and 2003, including a stint as Brazil’s deputy permanent representative to the World Trade Organization. 

Upon his return to Brasilia, he served as secretary for diplomatic planning in the office of the Minister of Foreign Relations.  He was promoted to the rank of ambassador in December 2003 and served as chief of staff to the Minister of Foreign Relations, Ambassador Celso Amorim, from May 2004 to May 2005.  Prior to his selection as Brazilian ambassador to the United States, Ambassador Patriota served as undersecretary general for political affairs at the Ministry of Foreign Relations.

We welcome Ambassador Patriota’s observations and the opportunity to pose some questions after his address on these important issues.  Thank you very much, Ambassador.

Antonio Patriota:  Thank you, Roger, for inviting me here today, and I would like to recognize the presence of many friends and known faces; some new faces as well but some that I have known since my days as chief of staff to Minister Amorim as you were mentioning, Ambassador John Danilovich as Ambassador of the United States to Brazil at that time, many friends from the State Department, and others.

I thought that one way that I could approach the issue before us today would be to comment on two texts as a starting point and then make some comments of my own.  And the first text is one that is signed by you, Roger.  You wrote a very interesting piece early this year called “Lula can make 2008 a very good year,” and you started by saying that if Time Magazine had wanted to recognize a true democrat and reformer as the 2007 Person of the Year, they would have chosen Brazil’s President Luiz Inacio da Silva.  Now, you compare him to another leader that I will not comment here but I think that that is, from my perspective, sufficient recognition from someone who has been involved as you have with the Americas at the governmental level and continue to follow very closely, including through a recent trip that you mentioned.

So if you’ll allow me, I’ll highlight some of the points you make in your text that I find are interesting and that can also allow me to touch on some points that I would like to touch.  You start by saying that Lula is a definitive democrat.  There are indications even in very recent developments that he is a man truly devoted to democracy even when he has to go against the majority view of his own party, the Worker’s Party.  The Worker’s Party, as some of you may know, was defending the idea that Lula might envisage a third mandate as President in Brazil, which our Constitution does not allow for.  And Lula has taken a very clear and vocal attitude against a third mandate; he said, “No, this is not what my plan was.  This would take away from my credibility.  I'm here because I was elected for two terms.  That is what the Brazilian Constitution foresees.  And at the risk of alienating some of my colleagues in the Worker’s Party, I will not yield to these pressures.”  So I think you are right in stressing his democratic credentials.

Another point you make is that Lula has succeeded in proving that it is not necessary to sacrifice freedom for stability and there is no reason to surrender political liberty for economic opportunity.  Now, to be entirely fair, I think that this is an emerging consensus in Brazilian society and although this description does apply to Lula, I think it would apply also to his predecessor and even to President Itamar Franco before him. 

So, in many respects, what we are reaping today in Brazil is a relatively long period of progress socially, politically, institutionally, economically.  And as someone who worked with former President Itamar Franco who assumed the presidency under very difficult conditions in 1994, I believe that he had a role to play in bringing back stability.  And then, of course, President Cardoso and now, President Lula who was also of the same strain, a point that Governor Jacques Vagner, the governor of Bahia, made when he was here at the Woodrow Wilson Center, is that both government and opposition in Brazil, meaning the Workers Party and the Social Democrats, derive from a common struggle for a return to democracy and against the military dictatorship.

So in many respects--although if you go to Brazil and you read the papers, you have the impression that there is a degree of polarization in the political debate.  To a good extent there is also a common denominator and that common denominator has to do with not surrendering political liberty for economic opportunity among other aspects.

Another point you make that I thought was very interesting is that Brazil is among–-well, you start by saying Brazil is among the world’s most stable democracies.  I think it is becoming a very stable democracy, especially, if you look at other countries of the same size and complexity.  And you go on to say that this is a remarkable achievement given its multi-ethnic character, geographic diversity and large population still living in poverty.

Now, let’s look briefly at these three aspects that you mention.  The multi-ethnic character:  It is true that writing for an international audience–-that point would seem a very valid one.  And what I find interesting is that we take for granted in Brazil the fact that in many multi-ethnic societies, there are ethnic tensions that pit groups against each other.  You do not have to look at the Balkans to see the more acute forms of this but in other countries of similar size, you would see a similar phenomenon, whether it is China, whether it is India, Russia.

But in this respect, I think that there is a certain similarity with the United States.  The multi-ethnic character of Brazil is part of our own identity and we are not accustomed at looking at our multi-ethnic diversity as something that would threaten democracy or threaten our institutions in any way.  And in that respect, I think we may have a small advantage even with respect to the United States.

I was recently invited to make a presentation at Congress where Ambassador Chohfi, also a representative to the OAS who is here with us today, was present.  And we were able to look at some of the similarities and differences in race relations within the two countries.  Now, whereas Brazil was the last country to abolish slavery--and this is not something we take particular pride; we had slavery until 1888.  In the U.S. it ended with the end of the Civil War in 1865--subsequent to the abolishing of slavery, laws were not reinstituted that discriminated against black people in Brazil, which was a very different situation in the United States.  Of course, it took another 100 years in the United States for there to be full legal equality.

Now, what that created in Brazil, I think, is the idea that we live in a racial democracy which, it turns out, is not a completely right idea because, according to recent statistics, we have–-recent statistics and studies have made it very clear that the people at the bottom of the social spectrum are people of–-are the Afro-descendants in Brazil.  So there is a big challenge to be overcome in terms of social opportunity, education and making these people come out of their relatively unfavorable situation.

But this in an atmosphere where we have not gone through any racial hatred or hostility as, of course, has been the case in other parts of the world, including the United States.  So I think you are right to point that out; we take that for granted but maybe for foreign audiences, maybe, we should stress this more.  It is an asset for Brazil.

Then you speak of geographic diversity.  Again, I think that here there is an aspect in which we resemble the United States.  We are a large country.  If you exclude Alaska, Brazil is slightly larger than the continental United States; very diverse; of course, different types of diversity.  We are a tropical country; the United States is mostly above the tropics.  But in spite of the geographic diversity and in spite of the multi-ethnic diversity, we are also a very homogeneous country, which is something that, again, you will not in countries of similar size. 

As in the United States, there is one language in Brazil; everybody speaks Portuguese.  Of course, we have the indigenous languages, 180 of them.  This involves about 200,000 to 300,000 people but most of them also speak Portuguese and, by and large, we are a country of one language, one culture.  Everybody plays soccer; everybody listens to the same music, and most people also watch soap operas on TV.  So unity in spite of diversity.

But, maybe, the most important point that you make is that a large population is still living in poverty, and I think you are right to make that point because–-and there is an increasing awareness in Latin America and in Brazil of the linkage between democratic sustainability, political sustainability and social progress.  So when Lula was elected, it was very clear that his platform for greater emphasis on social policy was one that appealed to the majority of the electorate, which is not surprising in a country that is famous for its high degrees of inequality such as Brazil.

Now, the positive story here is that after five and a half years in office, the results are quite impressive.  We have reached one of the millennium development goals, which is halving extreme poverty, well ahead of the time span allowed for that, which would have been 2015.  More interestingly, 20 million people from the lower D and E social groups have moved into the C bracket, which is defined by people who earn between five and ten times the minimum wage.  So this has been a big social improvement but also a big boost for the economy.

And the interesting here, also–-and this is the comment that David Gordon who was in charge of policy planning at the State Department who just went to Brazil–-a comment that he made to me--is that Lula had succeeded in demonstrating to the Brazilian society as a whole, including its business sector and its elite, that social policy makes sense not only in social terms but also in economic terms and it is good for the economy.  So I think there is the beginning of a virtuous circle here that is very important.

Then, you have made two comments that have to do with Brazilian foreign policy that, of course, are music to my ears so I will quote them in all their impact.

Roger F. Noriega:  I like the way this is going so far.  You take all the time you want.

Antonio Patriota:  Yes, I can take all the time I want, yes.  And one of them has to do with the fact that Lula has taken up–-has been a driving force behind the auspicious goal of South American integration.  Now, I find this a very welcome comment because even within Brazil, there was a certain disagreement over whether the United States would fully appreciate what we were trying to accomplish when we give South American integration such a priority, which, indeed, is a priority at this point.  So when you say that, I am reassured that the spirit in which we are working at South American integration is being, in fact, well-understood and it is seen as something essentially constructive.

As you know, again, the idea of South American integration is not necessarily a Lula invention.  Under President Cardoso, we had started working on the infrastructure integration, looking at transport, energy, telecommunications in coordination with our neighbors.  But there is no question that the Lula government and Minister Celso Amorim, in particular, have placed a very high emphasis on this goal.  And I think it is a goal that has to do not only with the economic rationale that will multiply opportunities and bring about greater economic and social progress. 

South America as a region has extraordinary energy potential; it is potentially self sufficient in food production and it has water resources.  But in order for these resources to be put to maximum use, it is clear that it is necessary for the countries to discuss matters more closely and this is not something that had been taking place necessarily.  Politically, a dialogue between the leaders had not been one that went on on a regular basis as you would have in Europe, for example.  And today, you do have presidents calling each other on the phone several times a week, if necessary, visiting without much planning in, I would say, a new and, perhaps, a revolutionary dynamic, even.

So this is something important.  It will have important economic, political, I think, spin-offs.  And also from the point of view of security, you mentioned Minister Nelson Jobim’s recent trip to the United States and the announcement that within the context of South American integration, we are looking also at defense matters.  I think the need for this became very acute with the recent crisis between Colombia and Ecuador.  And again, I think that the feeling here–-you mentioned in your introduction that it remains to be seen if the neighbors will accept to be led into this exercise. 

But I think you can make a different reasoning also, which is the following: If the largest country, the country that represents half the economy, half the territory, half the population of South America does not take a leading role in this, who will?  It would not be reasonable to expect Paraguay to do it or Peru to do it or Guyana or Suriname to do it.  So, in many ways, it is not a desire to lead for the sake of leading; it is assuming one’s responsibility and realizing that we border on ten states.  Out of the three geographic areas in South America, which would be the Amazon rainforest, the river plate and the Andes, Brazil spans two of them.  We are not an Andean country but, again, we border on most of the countries. 

And today, I think, there is also a favorable climate for this because irrespective of the differences in development and democratic maturity that you might find in the region, all governments are democratically elected, all share a common desire to work on greater coordination to promote social progress and to deal with some of the important challenges that you mentioned, such as drug trafficking and others.

And then the other point that you make in terms of foreign policy is that Lula’s uncanny personal relationship with President Bush has put Brazil on the map with Washington as an equal.  Now, I welcome these remarks because I think they do reflect a trend.  Of course, we are not equals in absolute terms; there is no question that the United States has a much more powerful economy and much more powerful military.  But there is no reason why one should not have the kind of trust and confidence in order to be frank and open about divergences, which do appear once in a while but also try to maximize the convergences.  And this is happening more and more, which is something interesting in itself.  And many of us here in this room have been working toward this--State Department people and government people, my colleagues and I at the embassy, and the government in Brasilia.

Now, I would like to confront briefly your article with President Lula’s recent message to the Brazilian Congress, which is not as solemn as the State of the Union Address here in the United States but an exercise that he has undertaken for the past years as president.  He makes a shorter speech but I thought that the last one he made on February 22nd was particularly well-put together and very indicative of the current moment that Brazil is going through.  And there is no question that rarely in the past, if ever, have we–-and as a diplomat, I feel this very strongly because I have been representing my country since I entered the foreign ministry in 1980.  Rarely have we dealt with such a positive situation internally in Brazil, whether we look at the politics or the economy, at our diplomatic presence internationally.

The first point that Lula makes in his speech is about democracy.  So, again, he overlaps with the point that you made about he being a definitive democrat.  And then he goes on to highlight some of the achievements on the economic sphere, which are, I believe, truly impressive.  When you look at the fact that inflation is under control, again, something that came from the previous government but that has been consolidated today even if--I may make a very small parenthesis here–-there are inflationary pressures again.  And today, the interest rates went up by half a percentage point so that reflects a growing recognition of the need to keep a very careful eye on these pressures.

Be that as it may, inflation has been single-digit on target around 4.5 percent for the past five years.  International reserves have reached such a level that Brazil, famous for its debt problems, has now become a modest international creditor with $195 billion in reserves and these reserves are growing continuously.  A large trade surplus of around $40 billion – Brazil went from a country that exported around $60 billion in 2002 to exporting $170 billion, more or less, last year.  Two-way trade will probably compose of $300 billion this year, and this is quite an accomplishment when one considers that the currency, the real, has been appreciating continuously.  And today, I think, we have reached the point where the real is as strong as it has been against the dollar, or stronger than in the past nine or ten years.  This was something that I read in today’s headlines in Brazil.

In addition to these accomplishments, of course, President Lula is very proud of the progress on the social front, some of the aspects of which I have highlighted to you already.  There is also the fact that electricity, for example, today is--97 percent of the Brazilian population has electricity.  There is a growing–-the standard of living is increasing for many, many people who were not consumers–-100 million cell phones in Brazil, for example, which is more than half the population.  And this has led the United Nations, for example, to place Brazil for the first time within the high human development index.  Now, we are among the last in this bracket but, nevertheless, it is like a promotion of sorts to have been switched from the middle-level development index into the high development index.

He mentions the growth acceleration plan, which is a deliberate governmental effort to channel resources in partnership with the private sector into large infrastructure projects.  And this is, of course, a recognition that as the Brazilian economy grows and becomes more dynamic in terms of international trade and more globalized, we are facing certain gluts in terms infrastructure, seaports, airports, roads.  So 280 billion reais, which is a currency that is appreciating daily--so more than US$160 billion are being channeled into these projects. 

And he goes on to mention, also, some of the innovative mechanisms for the government to coordinate with the civil society, whether it is on economic progress, whether it is on racial equality.  There is a national youth council; there is a council on nutrition and food security–-all of these that, I think, have a positive social impact.

He also devotes quite a significant portion of this statement to foreign policy, which I think is perhaps something relatively new for Brazilian presidents.  Lula became very engaged in foreign policy.  Already, the president has traveled the most in Brazilian history, including to places where Brazilian presidents have never set foot before. 

I think in one month or two, for example, he will be going to El Salvador where a Brazilian president has never been before.  He has already been to several other Central American countries-–Caribbean countries--seventeen African countries, not to speak of trips to the other BRIC countries--Russia, India, China--some of them more than once, and several European countries, et cetera; well, the United States, Europe, Japan. 

But he places the expected emphasis on South American integration within that context, giving special importance to Mercosul as a building block for the trade network that we would like to establish in South America, perhaps, with a view to establishing in the foreseeable future.  This is not something that will happen overnight but, already, there is a network between Mercosul and all the other countries--the Andean Pact, Chile, even Guyana and Suriname--that will serve as the stepping point for the future free trade region or even common market at some point.

He highlights the fact that Brazil is reaching out across the developing world but without prejudice to strong relationships with traditional partners such as the European Union, with which have established a strategic partnership as of 2007.  Mentioning, of course, the United States--the Bio-fuels Cooperation--the fact that we are working with the United States, European Union, South Africa, India and China on the establishment of common standards and codes for bio-fuels internationally. 

He does not mention this in this speech but mentioned it in a speech he made yesterday at the FAO meeting in Brazil that we’re hosting a bio-fuels conference this year that I think will be particularly important in view of some of the distortions that have appearing in the international press and the U.S. press about the relationship between ethanol and food prices.  So that should prove to be an interesting occasion.

Now, what I had left out from Roger Noriega’s article and, now, I will try to look into a little bit are the challenges facing Brazil.  And this is something that you have put into the title for our discussion today.

When you look at challenges, you mentioned–-I was amused by saying that when will Brazil take foreign trade away from the hands of Brazilian bureaucrats--from the bureaucrats?  I suppose the bureaucrats are the diplomats.  But in addition to that you mentioned corruption; you mentioned an antiquated tax system; you mentioned the need for incentives to promote high-technology industry; intellectual property worthy of a First-World economy.

I will not go into a detailed discussion of each these items that you mentioned; you could have chosen others.  But I think there is recognition, for example, that the tax system is, indeed, antiquated.  Tax reform is on the agenda; there is an effort to simplify it.  This involves a complex process not only of intergovernmental coordination at the federal level but also discussion with state governors.  But it seems that with the political capital that Lula has amassed through his macroeconomic stability progress and social policies, if he is not in position to push this forward I think we will have to wait for a very long time until someone else is in a position so that the conditions seem to be appropriate for that to advance.

And I would contrast your comments with the three final comments that he makes in his--let’s call it a national speech or state of the union address in Brazil.  And these are three other very important challenges that, indeed, deserve priority attention in Brazil.  The first one is the public security area; the urban violence situation.  It is curious that in spite of the very robust economic performance and the social progress, urban violence in Rio and Sao Paulo has not been diminishing at the rate that one might have expected. 

Now, I was encouraged to hear recently from one Brazilian sociologist who was visiting here in Washington that there are new statistics that will come out soon that will indicate a reduction in the levels of violence in Rio and Sao Paulo due a number of factors, including something that I found surprising but positive--some of the affirmative action to empower and to help the Afro-Brazilians to advance in educational terms. 

So this study that will be coming out establishes a link between that and the fact that fewer Afro-descendants in the slums and in the impoverished areas of Rio and Sao Paulo would be accepting to work for the drug traffickers, which is very encouraging and I think about time that we should see some progress on that area.  Be that as it may, it is identified at the end of Lula’s speech as one of the areas that requires urgent attention and he pledges to invest 6 billion reais by 2010 and actions to combat crime and protect citizens.

The second area that he mentions is health care.  He speaks of a health growth acceleration plan that will allocate additional 24 billion reais by 2010 with emphasis on children, public schools and widening of the social spectrum of people who get better health. 

And the third point, of course, is education where we realize increasingly that the government has to give special attention.  We benefit in this regard by having a truly excellent education minister, Mr. Haddad, who has been in close cooperation, incidentally, with his counterpart in the United States on a number of projects, including new and increased attention on vocational schools, which is something that also could have a very short-to-medium term social impact.

Now to conclude with some comments of my own, I think that there are other challenges that have not been mentioned either in your article or in Lula’s speech that will be very much at the forefront of national debates and of the perception that others have of Brazil internationally to a great extent.

First of all, how will Brazil be affected by the international financial turbulence?  Now so far, it seems that Brazil has demonstrated greater resilience and might have even been expected--it was interesting to read the front page of the Wall Street Journal not very long ago, where it said, “China, the Baltic, others affected by international financial turbulence.  Brazil shows resilience.”  It would have seemed very unlikely that we would have read this five or ten years ago, but that is an indication of the fact that--due to a number of reasons, the fact that the current economic growth is to a large extent internally-led.  Also the fact that we have diversified greatly in our foreign trade and our economic relationships; we are less vulnerable to fluctuations in the United States.  But not withstanding those reasons, I think there is also recognition that no country is entirely immune and that very great attention will have to be given to that.

Another item that I mentioned in passing is the appreciating currency, the real, which is now reaching alarming proportions.  It has also--it has already led to, I think, a high-level discussion involving the governor of the Central Bank, the Finance Minister, others in the government to see if there are specific policies that should be put into place.  One decision has already been made in terms of a tax on financial transactions; this was something that was announced last March. 

Another area where I think we will continue to face challenges internally--although we have been making progress but this progress has to become more sustained--is in terms of the environment and the deforestation issues.  Neither you nor President Lula mentioned them in your article or in his speech, but we know--and especially in my experience traveling and speaking in the United States--perhaps, the Amazon rainforest is one of the most visible features of Brazil here in the United States, since Brazil is not a big soccer enthusiast.  But we were working on that; maybe that will happen soon.

Another issue where we will be confronting challenges is on the political front.  President Lula also, I think--this is my interpretation but I would say that calculating that he enjoys significant political capital today, he has announced that he would be ready to put political reform on the agenda for next year.  Now, this is a very difficult nut to crack in any country.  I know that here in the United States after the 2000 elections, there was a debate about whether the electoral college should continue because of the fact that, once again--and it was not the first time in U.S. history that the candidate with the popular-vote win was not elected president. 

Now, if this debate did not lead to changes at that time, I think it is very unlikely that it will now.  And so these are situations that have to be tackled when the time is appropriate.  It seems that the time may be appropriate for next year.  It would not involve, as Lula has said, a review of the presidential term but it might involve other aspects, such as--there is already some movement in that direction to the supreme court decisions.  Famously in Brazil, there was a phenomenon known as physiologism [sounds like]--it does not translate very well into English--but the fact that people tended to vote more on a person than on a party.  And this, I think is a characteristic that does not lead to the kind of governance transparency and accountability that a modern democracy should have.

And finally, let me mention something that you do mention in your article and that I think is very much at the forefront of our international agenda but also with internal repercussions.  And this is the Doha Round and free trade.  You mentioned that Lula is uniquely suited to salvage a rules-based world trade accord to protect all economies and the agricultural subsidies that impact Third World farmers and generate broad prosperity. 

Well, it is true that Brazil has become one of the key actors in these negotiations and that they have acquired a new sense of urgency, given the economic slump worldwide and the difficulties in the United States in particular.  Perhaps, it is not the most--given recent developments in the United States and the way Congress reacted to the submission of the free trade agreement for Columbia recently, putting into question the fast-track procedures, this has provoked new uncertainties in Geneva among negotiators and so forth. 

But, still, I believe that the rationale for concluding Doha is very, very strong.  Yesterday at a speech that I mentioned to you before, President Lula tackled head-on this debate about food prices and ethanol; he mentioned his dismay at the fact that no one refers to the extraordinary hike in oil prices as one of the causes not only because of the transportation cost; because of the increase in the price of fertilizer and other impacts; the climate effect of draught in Australia, Ukraine and other places; the fact that new consumers from India, China, and Brazil itself who were--I was mentioning to you how millions of Brazilians are coming out of extreme poverty and rising in the social scale.  Well, of course these people consume more, better food and this has an impact also in production.

And last but not least, it is not very frequent that the distinction is made--corn ethanol and sugarcane ethanol, sugarcane of course being more energy--saving energy in--for one unit of energy used to produce ethanol, you save eight, which is more or less the calculus.  And he concludes by saying that, of course, each country will have to examine its own conditions and see if the balance is a positive one between ethanol production and food production.  But according to studies that he and FAO experts were debating yesterday in Brasilia, it appears that at least a hundred countries worldwide would have an interest and could derive benefits from ethanol production.

So let me just end by saying that I think it is a little early, perhaps, to speak of Lula’s legacy; he is only in the second year of his second term; he will rule until the end of 2010.  But it is clear that there is progress on virtually all fronts in Brazil.  Much of it has to do with his leadership qualities but quite a bit also with the fact that I think we have enjoyed what we consider as sixteen years--and by the end of his mandate we will have enjoyed eighteen years of progress socially, economically and a dynamic foreign policy also.  Thank you.

Roger Noriega:  That was a terrific presentation, Ambassador.  We thank you very much for that.  Of course the Ambassador has agreed to take questions.  I think I have pretty much had my say so I will not to ask any questions.  There is a gentleman there and a lady over here with microphones in theirs hands.  And if you would please introduce yourselves and your organization and ask a question, we welcome that.  I will get the ball rolling, then.  I am sure there are questions but people generally try to get themselves wound up.

Ambassador, this is sort of a sensitive question but I did mention the openness, acceptance, understanding of the United States for the Brazilian initiative in South America.  There are other forces at work in the region--will not mention individual former Lieutenant Colonels by name--but that have a divisive agenda in point of fact, not necessarily in South America but vis-à-vis the United States.  How does Brazil reassure skeptics that this is not sort of a zero-sum formula that integration among the South American countries can still be something positive vis-à-vis the hemispheric relations and hemispheric security?

Antonio Patriota:  Well, a fair question.  In my recent experience--and I was present when Secretary of State Condoleezza Rice came to Brasilia in March.  This item came up in her meeting with Foreign Minister Celso Amorim and with President Lula; let us say, more generally, with President Lula the situation in South America.  Those were days when the Columbia-Ecuador crisis was--maybe, just after having peaked. 

And I was present also when Minister of Defense Nelson Jobim came to Washington a few weeks ago and had high-level meetings, well, with virtually everyone in the defense security area, from Secretary of Defense Robert Gates to Chairman of the Joint Chiefs Of Staff Admiral Mullen to National Security Adviser Steven Hadley to Condoleezza Rice, again. 

When this issue came up it was very interesting to note that there was acceptance of the spirit in which Brazil was trying to move on this agenda.  The way Minister Nelson Jobim explained it, I felt, was interesting and appropriate also.  He said that for many years after the period of military dictatorship in Brazil, it was almost taboo or it was not easy to raise a national debate on defense matters in the way a modern democratic state would because, of course, of the trauma that had been created by the involvement of the military in internal repression of dissent. 

So it took several years--and I think we are reaching that point now--before internally defense matters could be seen as just one of the important issues on any country’s agenda, especially one with such a large territory bordering on 10 other countries, a large sea coast and challenges that it has to meet.  Of course, we are blessed with being in a region of relative peace and understanding among all countries, which is not to say that we do not have challenges that we must confront that have to do with inequality, poverty, drug-trafficking, some of those issues that we know well.

So I do not think there are too many skeptics at the highest political level; in fact, I was surprised to hear one  interlocutor tell Minister Jobim that, “we are increasingly prepared in the United States”--and I am quoting freely--“to look at South America in coordination with Brazil.”  Now this is not--should not be interpreted as an immediate and automatic alliance between the two countries in dealing with the challenges in the region.  But I think it may be--at least I would like to interpret it in this way, and it was presented in this way--a recognition that the United States cannot be present everywhere in the world.  It has serious challenges in the Middle East, Iraq, and Afghanistan, with the Israel-Palestine situation. 

Here is a region of increasing prosperity, democracy, relative peace.  If certain movements take place for a better coordination among the members of that region, well, we cannot be against that and we see that as a positive.  The only comment that I did hear is at some point someone said, “Well, we would not like this to be something that will isolate us from the region.”  And, of course, given the increasing political dialogue that Brazil has been developing with the United States even as recently as the past two years, I do not think that this can be said or interpreted as being the case.

Roger Noriega:  Okay, great.  There are a couple of questions.  The gentlemen here--wait for the microphone.

Bill Coleman:  I am Bill Coleman, I really appreciate your remarks [inaudible].  The questions I have are, one, are there any special relationships with Portugal?  Secondly, how do you get along with Venezuela and Cuba?  Thirdly, and finally, well, the Chinese, have they gotten to be pretty active in your country yet?

Antonio Patriota:  Well, starting with Portugal, I do not know how many of you are aware of the fact that 200 years ago, exactly, 1808, the King of Portugal moved the capital of his country to Rio de Janeiro, my home town in Brazil; this was because of the Napoleonic Wars.  And so Rio holds the distinction of being the only city in the Americas that was the capital of a European country from 1808 to 1822.  And we are celebrating 200 years of that event in a spirit of great friendship and partnership. 

Portugal has become an important partner for Brazil economically, trade-wise, in other initiatives, such as promoting coordination among countries that speak the Portuguese language.  Last year as Portugal held the presidency of the European Union, a summit was held in Lisbon where Brazil gained the status of strategic partner to the European Union. 

So in some respects the fact that Portugal was in the presidency and that a Portuguese former Prime Minister, Jose Manuel Durao Barroso, is holding the EU--well, is head of the EU Commission can be seen as happy coincidences; maybe, not entirely coincidences even though--and this is something interesting that may not have found its way into the newspaper or public media--Durao Barroso, precisely because he was of Portuguese origin, had some misgivings about granting the status to Brazil, concerned that he might be accused by some of the Spanish-speaking countries in the region of giving Brazil a special status. 

Be that as it may, I think it has been accepted in the region as something that is wholly meant to bring let us say Brazil but also the region Mercosul and others close together to our European partners and seen in a positive light.

So that is not to say that we do not have issues with Portugal.  There is a large Brazilian community that immigrated to Portugal, especially during the years of economic hardship in Brazil in the 1980s and 1990s.  And many of these--there is, especially, a problem involving Brazilian dentists in Portugal.  The Brazilian dentists are very good; anybody who has lived in Brazil knows that they are excellent.  Most Brazilians--Brazilian diplomats, for example, live abroad; they will only go to the dentist when they travel back to Brazil. 

So these dentists made a big impact in Portugal.  Not only were they very competent but they were also competitive in terms of prices and this created a difficulty to the point were there was--I do not know--public manifestations on the streets against the Brazilian dentists who were--who were taking away business from the local dentists.  But these issues and challenges have been resolved through mechanisms that have been established in a relatively friendly and constructive manner.

You also ask about Venezuela, Cuba, and there was a third point--China.  So maybe I will tackle China briefly before--China is a very important partner for Brazil.  Individually, it will be becoming our third largest trading partner if we do not take the European Union as a block.  So that is quite revolutionary in itself.  So after the United States, with whom we enjoy close to $45 billion in two-way trade, if you take 2007 figures, then Argentina would be the second and China the third.  But China may even pass Argentina soon, given the large demand in China for agricultural products and other commodities and Brazil’s increasingly competitive agricultural sector, and also wealth and minerals. 

We are not entirely satisfied with the nature of this relationship.  For example we are more satisfied with the quality of bilateral trade with the United States where more than half our exports are manufactured goods, including aircraft, machinery equipment, in addition to agriculture and other goods.  And we would like to have this greater diversity with the Chinese as well in addition to having more Chinese investment in Brazil.  In the case of the United States, again, the United States is an important investor in Brazil, has been traditionally and continuous to be so with Brazil; also, becoming increasingly an important investor in the United States.  In fact, the largest out of the BRICs if you do not consider China and Hong Kong as one.  But much ahead, way ahead of India and Russia, for example. 

So whereas we are developing some joint ventures with China, they are important.  The Embraer Aircraft Manufacturing in Brazil established a plant and Hei Long Jiang, Northern China that is now working well.  I think we would like to see some more balance and some qualitative improvements in this relationship, not to speak, of course, of the pressure that very cheap textiles, footwear, and toys imported from China have been generating in our local industry, which has had to look at ways to become more competitive or look elsewhere.  Or even in the textile sector there is a pioneer initiative which will be a seminar between Brazil and the United States that will be held at the end of April in order to look at how Brazil and the United States can partner and join forces in order, precisely, to deal with this very competitive market, given the Chinese and some other Asian presence.

Cuba and Venezuela--first of all, I do not think we see the two countries exactly in the same light.  There is one point that I was thinking of making today as I was driving here and I know that there is a former U.S. government--at least I have never seen the quote but I have been told that a former U.S. government several decades ago--so I will not mention his name--after a trip to Latin America came back to Washington and said, “You would be surprised.  They are all individual countries,” which was a recognition of the diversity and variety of the region.  You know, the fact that most of the region speaks Spanish and has a common European root should not lead one to believe that these are all identical countries.  They are different; there is a great diversity. 

And I think one positive trend in the way the U.S. is looking at the region--this is something that a political scientist--I think he is called Abraham Lowenthal from California--mentioned in a recent article that I felt was very interesting is the fact that the United States is increasingly not lumping countries in the region together but viewing its relationships with countries in Latin America as individual bilateral relations.  And that is progress because what may apply to one relationship may not necessarily be automatically applicable to the next one.

So, of course, Venezuela is a fundamental country for Brazil, a bordering country, the third largest economy in South America, which is to a certain extent surprising because it is only the fifth in population.  In terms of population, Brazil would be the largest, followed by Colombia, Argentina, then Venezuela, and Peru.  So in many ways Venezuela can be considered a very strong economy due to its oil industry, in particular, with great vulnerabilities, also, in terms of food production and not a very diversified economy. 

But it makes sense for Brazil to come closer to Venezuela economically and politically.  While we do see that there has been an unhealthy degree of polarization in the Venezuelan society, I think our main concern is not to exacerbate that polarization and to work towards strengthening democracy in Venezuela.  And we believe that that cannot be accomplished through isolating Venezuela.  It has to be accomplished by engaging, bringing it closer to other countries and other democracies in the region.

Similar reasoning applies to Cuba, a country that is more far-removed from us, although in itself a very significant political actor internationally.  I often mention this because it surprises many of our American colleagues that, until recently, Cuba was a Latin American country with the largest number of embassies in Africa, for example, by far.  And it is only now that Brazil is giving greater attention to our relationship with Africa that we have surpassed Cuba.  They have more than twenty-five embassies in Africa and we have close to thirty now.  And, likewise, Havana used to be, until very recently--two, three years ago--the capital [indiscernible] Latin America with the largest number of African embassies.  So that is an indication of how seriously Cuba takes its insertion internationally, probably due to reasons that have to do--well, I do not have to go into history that Americans know very, very well.

Be that as it may, we see increasing opportunities for cooperating economically, trade-wise, with Cuba.  President Lula recently visited Havana and spoke at great length with Raul Castro, invited Raul Castro to come to Brazil.  We hope that one of the first trips that he takes abroad will be to Brazil.  We have been following attentively some of the small reforms that he is introducing and we would like to be seen as a country that can help Cuba to make progress economically, socially, politically with full respects to the opinion of the Cuban population.

Roger Noriega:  Secretary Coleman got a very good question off.  It was one but it was very good.  Ron [phonetic] -- and this will be the last question.

Male Voice:  Let me make it quick, then, so as not to take a lot of the time from the panelists.  In your wide-ranging presentation, one area I did not hear you touch upon was oil.  And in specific, while I understand this is outside the diplomatic range, it certainly could have a potential impact far-reaching for Brazil.  And I am speaking of the potential reserves that have been found in the Carioca fields where there have been estimates that it might rival Saudi Arabia’s. 

Can you talk to, perhaps, what that impact will have as far as Brazilian diplomacy and international relations are concerned?  And then, perhaps, more in keeping with today, are there already efforts within the government to develop this and to, perhaps, develop the industry further within Brazil?

 Antonio Patriota:  Well, I’m glad you asked this question because you are right; I should have mentioned it.  I did refer to energy and the fact that South America can be self-sufficient.  In fact, Brazil has attained self-sufficiency not only because of our investment in the bio-fuels industry but also because of great advances made by Petrobras technologically that allowed Petrobras to drill at more profound waters along our seacoast, and this has been a tremendous success story. 

Recently, the Tupi Oilfield was announced with 6 to 8 billion barrels [indiscernible] was quite significant.  And now, there is some controversy in Brazil as to whether the most recent announcement this week should have been made when it was and by the person that made the announcement.  So it seems that some ministers and government officials were saving the information for them to make the announcement.  But be that as it may, it has now been written about in the Economist and all over the place and it is causing some oil companies’ shares to go--prices to go way up. 

And this new field, Carioca, would be five times as large as the Tupi, so something around 33, 35 billion barrels, which would place Brazil in a different league.  I do not think quite in the league of Saudi Arabia but, certainly, as a significant oil producer and, potentially, exporter.  Now, this oil is at very deep waters, so it involves expensive technology.  I hear that it will not be available until--actually, not so far away in terms of a time horizon but something like 2011, 2012. 

But I do not think that will diminish our enthusiasm for bio-fuels, for sustainability, for increasingly sustainable policies from the environmental perspective.  But what certainly it will make is strengthen Petrobras as a company.  Petrobras is already a very strong company internationally, with a strong presence in the United States, in fact, and plans for investing up to US$4 billion in the United States by 2012; also, technological advances which allows it to work in the Gulf of Mexico and withstand hurricanes in a very effective way.

Diplomatically, who knows?  There is speculation that Brazil could join OPEC.  I’m not sure if that is in the cards at this point.  I do not see this as having a tremendous impact in the way we position ourselves internationally, although, of course, it will be a resource to be taken advantage of with wisdom, which is not what always we see around the developing world, of course.

Roger F. Noriega:  Well, I want to thank you very much, Ambassador.  You alluded to regional leadership and contributions that Brazil is making and I want to personally acknowledge the contribution that Brazil has made in Haiti and is making in Haiti.  I hope that the Brazilian people sustain that commitment and recognize how important it is, really, to a neighbor in need and a way of demonstrating Brazil’s commitment to even the toughest tasks in the Western Hemisphere.  We thank you very much for taking questions.  You are certainly welcome to stay for the panel, but you are not--you do not have to submit to that.  But thank you very much and I want to thank you, too.

Antonio Patriota:  Thank you, Roger.

Roger F. Noriega:  We are going to move right to the next panel.  If some want to get coffee or water or stretch your legs, this would be the time to do it.  But I will immediately move to the next panel, introducing our first panelist.  Each panelist, in turn--I have asked them to make brief comments.  We have gone a little bit over but I was fascinated, for obvious reasons, with the presentation.  And so we will ask the panelists that they make, maybe, five or six minutes.  And I know that is difficult to do, but I’m sure your presentations will be fascinating and we will be patient.

Michael May leads a consulting practice focusing on matters pertaining to regulatory and congressional issues, building on nearly thirty years of working in the Americas, specializing in Brazil, Argentina and other nations in the Southern Cone.  In addition to other posts, Mr. May has served as an adviser to the secretary general of the Organization of American States, Cesar Gaviria.  Prior to starting his own business, Mr. May had spent nearly five years as vice president of Latin America with Digital Angel Corporation and spent five years as vice president of government and external relations for DIRECTV Latin America.

Previously, Mr. May directed the Mercosur-South America Project at the Center for Strategic and International Studies.  He also worked for Upjohn Company in Bogota, Colombia and managed the Western Hemisphere affairs of the Pharmaceutical Manufacturers Association and the U.S. Chamber of Commerce.  He also served on the staff of Ohio Senator John Glenn.  We have asked Mr. May to talk a bit about the political issues confronting President Lula as he cements his legacy.  Michael?

Michael May:  Thank you, Roger.  What I would like to do is just cover maybe six positive points that I see that is--of President Lula and his administration and maybe mention two or three challenges and then pass the floor to my two colleagues to my right.

My son is an athlete at Gonzaga, and he plays football and lacrosse.  And the word that the boys use when they play sports is, “Better lucky than good.”  And a very bad translation of that in Portuguese is having a mao de Deus, which is sort of the little hand of God.  And I think if you look in terms of what President Lula has done in his first term is that he has uncanny instincts to do the right things virtually all the time. 

I think when one looks in terms of--you talk to Brazilians, especially very sophisticated Brazilians in Sao Paulo and Rio and so forth, and they start thinking up what their ideal figure for a president would be [audio glitch] floats to a structure or caricature somewhat like Fernando Henrique Cardoso--very sophisticated, multilingual international type.  And although he did a remarkable job as president, I think that if you ask the average Brazilian would their view of president be somebody with Lula’s background, it probably would not be the case. 

Yet, a guy like Lula has come up and basically uses a lot of common sense and street smarts and does the right thing.  And I think that he may have established a couple of things by now which would create a legacy for him, regardless of what happens for the remainder of his term in office.  I think the most important thing that Lula has done, and whether this is a political, social or economic point, is that I think that he has changed the perception of capitalism in Brazil.  I think if you look in terms of what happened with a lot of the countries in Latin America, you had this rush to capitalism or free-market enterprise in the 1990s, which was basically crony capitalism in many areas, and it had a lot of corruption. 

I think what Lula has successfully done in Brazil is had people think in terms of--that free enterprise and capitalism really is not that bad of a thing.  This is a major mental shift because about ten, fifteen years ago when they were rewriting the constitution, there was a great fear that they would outlaw private enterprise in the constitution.  And so there has been 180-degree shift in the Brazilian mindset, and I think that is very important.

The other thing that Lula has done is that Lula has created or tried to stress an equality of opportunities and that he wants everybody to have the same opportunity.  Now, one can argue the extent of the success of some of the programs that he has done but, nonetheless, the viewpoint of Lula is to try and have equality of opportunity.  He has also put a lot of emphasis on educational programs, and they have extended that beyond the younger children to try and reach out to people who are fifteen to seventeen years of age.  I think if you look in terms of Brazil’s workforce, the way the population is growing, Brazil must create a lot of jobs in order just to maintain their current standard.  And that is a very, very big position that Lula has taken.

And Delfin Neto, who is a Brazilian political figure and columnist and so forth, a very well respected person in Brazil, basically called Lula the walking Darwin because what he has done is he has managed to come in and have this bunch of evolutionary things happen in Brazil, which has all come out quite well.  And he has created a balanced view of economic orthodoxy combined with a very strong social program.  And I think that that is, again, not perfect but, nonetheless, it is one of the things that is doing very well to address a lot of Brazil’s concern. 

They also have a program called the program of acceleration of growth pact or CAP, [indiscernible] in Portuguese.  And that has placed the issue of development front and center.  For the first time, they are really stressing a lot of development in Brazil from a federal level and that has trickled down into certain states.  And I think you have seen that with people such as Aecio Neves, who is one of the governors of Brazil.  [Indiscernible] and Jose Serra, who is the governor of Sao Paulo, have been doing a lot of similar things on a state level.  And this is through increased public investment in infrastructure, and this has resulted in a multiplier effect for the economy.

The government claims that roughly 30 million people have received financial assistance and training and that these people are now consumers.  Some critics of that may say that not all of this--the number may not be that high and that the reach may not be as broad.  But nonetheless they are making a very strong effort.  And as the ambassador says, there are structural differences.  Now, whether or not these people have gone from the favelas to the middle class, one could argue--but one could--I think there is evidence to say that they have gone from the favelas, perhaps the high low-class or maybe the lowest of middle class.  So they are in a much more advanced position than they were previously.

I think that on the economic front, the [indiscernible] has also played a hand in the fact that Brazil now has reserves of about $193 billion.  Its exports, in Lula’s first year, grew by 22 percent and they have been growing about 17, 18 percent per year.  They also have increased imports by about 45 percent.  I think this is important.  Again, Lula is a survivor and he is very evolutionary; he went from a lot of leftist ideology into a very pragmatic approach.  I think his challenge is--one challenge that has not been mentioned--and when you talk to people in Brazil, it is mentioned pretty much across the political spectrum, and that is the MST movement or the Movimento Sem Terra, the homeless or landless people.  There is some concern that this group is there that could be used perhaps very inopportunely by certain people in the far left that it may evolve into an entity in and of itself.  And I think that there is, again, concern in Brazil about this movement.

The other concern, I think, that should be noted is the banking sector.  Although they have undertaken some very strong banking policies, the backlash on that is that the interest rate is relatively high; it is between about 11 and a quarter to 11.5 percent.  And there is a lot of currency speculation and that is something that, I think, should be of concern.  And also the tax situation--when the ambassador mentioned that the Lula government would like to revise the tax structure, I remember back in Fernando Henrique’s administration in the first term, he was trying to do that. 

And the tax structure is very complicated.  There is a mixture of some complicated state and municipal taxes; there is a cascade tax system where if you go from one state to the other--and the tax system, as far as getting products into Brazil, basically forces one to manufacture there because it is still very expensive to get products into Brazil.  So that is an issue that would need to be dealt with.

And then, finally, I think another issue would be the issue of urban violence.  One of the points that Minister Jobim mentioned when he was in Washington was that they have to change the mentality in Brazil to equate that defense is good and that the military is involved in the defense, which means to change the mentality from the military regime.  And the other issue is that when you are talking in terms of defense, there is both Brazil’s role that it would play on a South American position regarding what Jobim was suggesting through this council, but also how they are going to handle internal issues such as Brazil being used as a trans-shipment point and the very high urban violence that is happening in places like Rio and Sao Paulo. 

But those would be the challenges, I think, that are facing Lula.  But in some, he has done a remarkable job as far as just basically using his gut instinct and seemed to be doing pretty well.

Roger F. Noriega:  Great.  Thank you very much, Michael.  We will continue.  Bill Perry is the principal at William Perry & Associates, a Washington-based firm providing consulting services to governments and the private sector throughout the Western Hemisphere.  He is also a director of the Americas Liberty Forum, a senior fellow at the Center for Strategic and International Studies and the Washington representative of the Inter-American Ethanol Commission.  From 2002 to 2005, Mr. Perry served as senior adviser to two assistant secretaries of state for Western Hemisphere affairs, one of whom is well-known for his exceptional wit and wisdom--me, that is to say--well-known to me, at least, I guess.

Previously, Mr. Perry has served as the chief of staff for Latin America on the Senate Foreign Relations Committee and the director of Latin American Affairs at the National Security Council.  He was in charge of hemispheric issues for the Bush-Quayle campaigns of 1988 and 1992 and the 2000 campaign effort of President George W. Bush.  Dr. Perry has taught or conducted research at the Foreign Policy Research Institute, the School of Advanced International Studies at Johns Hopkins and Stanford Research Institute and the Political Science and International Relations Department at the University of Brasilia.  Dr. Perry?

Bill Perry:  Thank you.  They asked me to talk mostly about politics.  Michael has a good business and knows politics, too, but he has the business advantage over me.  I just wanted to reemphasize some of the points that Michael alluded to.  We need to remember that Lula lost three previous presidential elections prior to 2002 because he and his party were regarded as very radical and, indeed, if you listened to them you had reason to believe that. 

But you definitely saw some signs of evolution even back into the late 1990s.  And by 2002, if you were paying attention, you could detect some signs of evolution, particularly when Lula emitted this letter to the Brazilian people, which had a different tone than the previous PT campaigns and reached out to a non-very leftist vice presidential candidate, indicating that there was some change in the posture, in the attitude of the PT.  And, indeed, it has proven to be the case.  He has run a fairly--a moderate and sensible government, both in political and in economic terms. 

And in addition to that, under the great leadership of various individuals in the State Department, the Bush administration did make a big effort to reach out to Lula, and that was also rewarded and benefited from this increasing moderation on the part of Lula and it has been successful.  There is some luck involved.  We have been going through a period of international expansion, which makes Brazil’s position a lot easier.  And also, some of the benefit does not come so much from the social programs; it comes as much from maintaining a sensible economic policy.  Like Roger alluded to in our previous discussion, if you just do not do foolish things for a long-enough period of time, good things start to happen, and Brazil has been in that position since at least 1994. 

And lack of ruinous inflation helps poor people more than anything else.  A strong real really increases their salary in addition to the social programs that Lula has had.  And I think this is something for those of us who have been in both the academic public policy [indiscernible] a little bit in government, it reminds us that the greatest benefit, I think, we have seen from the Lula administration is that it is very important in Latin America not only that we have governments that will undertake reforms--and the Lula government hasn’t, obviously, undertaken reforms.  It might be doing a little bit better economically if it were, but it is not. 

But when we are trying to install a democratic regime in Latin America that means we are going to have alternancia; we are going to have an opposition in another government and so on and so forth.  And it is very important that when the left government comes in, it does not tear up all the progress by the roots but rather--there is the Socialist Party in Chile, which, when I was a kid, was worse than the Communist Party.  It evolves and at least maintains the system in some reasonable way, and that is extremely important.

The Lula administration does have some challenges.  There are some areas that I would mention that repeats some of what you have heard in the past and some others that are of particular interest to me.  I would say one of the weaknesses is that it really--the Lula government has not yet really transcended the traditional political culture of Brazil.  And in fact, we have witnessed the continuing round of scandals in the Congress, some of which the Lula government has been involved in and that we have not seen as much in spite of some of the references here from the front table, as much reform as one might have thought would come from a regime with roots on the left that is strong.  And I would like to highlight two of those. 

One is political reform itself.  Here we are.  I’m glad to hear from the ambassador that he might do something in the political reform area next year; it might be possible.  And I know it is hard because, of course, the principal beneficiaries of the system that exists are the legislators themselves.  But well, obviously, a great deal of this scandal that has periodically afflicted Brazilian governmental institutions and the inefficiencies and difficulties of doing other reforms are directly related to a political system that has some serious problems--large numbers of parties, parties that do not represent anything and are really--I do not want to be nasty, but they are not modern ethical political institutions.

And I would also add--you would really be surprised.  I’m glad to see stuff in the public security sphere, but you think that, especially, from a government on the left, it would be looking for things that could agree with people in the center.  And one of those to me would obviously be judicial and penitentiary reform because you cannot just do it with the police alone.  The police needs reform; that is for sure.  But you might have expected more, and given all the things that are in Lula’s hands, it is a little--I do not want to say totally disappointing, but it is a disappointment to me that some of these things have not been addressed as they might have over the last six years now.

So my grade of the Lula government is basically good.  It has been a very good government.  There are problems that it has not been able to resolve and in some cases has not even approached.  I find when I go to Brazil right now that in socioeconomic terms it is the best shape I have ever seen Brazil in.  And as you can probably tell from my appearance, I have been doing Brazil for a long, long time.  I have been doing Brazil for thirty-five years, and so this is the best shape, socially and economically, that I have ever seen the country in.  Of course, I’m not quite old enough to remember the miracle years of 1968 to 1973, or at least not to have been a participant, but that is true.

On the other hand, I still find the politics rather circular.  And it bothers me a little bit that this is principally attributable to Lula.  I think there is a general consensus that the PT will have a hard time winning again without Lula and that it is going to be difficult to secure political reform. 

And you would really like to see more in the way of political parties that actually represent something in policy terms and are effective vehicles of turning popular opinion into public policy the way parties should be able to do and laws and regulations and practices in the Congress that would allow that to happen and reform the political parties.  Thank you.

Roger F. Noriega:  Thank you very much, Bill.  Paulo Sotero is the director of the Brazil Institute at the Woodrow Wilson Center for Scholars.  From 1989 to 2006, he was the Washington correspondent for Estado de Sao Paolo, a leading Brazilian daily newspaper.  Mr. Sotero has also been a regular commentator and an analyst for the BBC Radio Portuguese-Language Service, Radio France Internationale and Radio Eldorado in Brazil.  Since 2003, he has been an adjunct lecturer at Georgetown University, both in the Department of Spanish and Portuguese and in the Center for Latin American Studies of the Edmund A. Walsh School of Foreign Service.

Mr. Sotero is the recipient of the 1993 Distinguished Visiting Lecturer Award from the Foreign Service Institute at the U.S. Department of State.  In Brazil, he has been awarded the 1978 Premio Abril de Reportagem for his reporting for the premier publication, Veja.  Paulo?

Paulo Sotero:  Roger, thank you very much.  It is a pleasure to be here.  Good morning to you.  I have been doing Brazil for fifty-seven years plus, so I--and I do remember the miracle years.  I remember that they took my passport because myself and other journalists were in Lisbon at the time; I was a correspondent and we were doing what I’m still proud of, which was spreading lists of Brazilian officers involved in torture.  And we were doing that, and we were punished for that.  I’m very proud of what we did, and I’m very proud that we won and the military went back.  We have been building a democracy in Brazil since 1985. 

And as Ambassador said, for the last--since the economic stabilization, I think we have the two forces that really have governed our lives, which is on the one hand, democracy, a complicated, sometimes dysfunctional democracy but democracy nevertheless that improves every day; free debate, free press and stable economics.  And those have been the two factors that have really given us direction or allowed us in an open debate to find a direction.

I would like to acknowledge surprise when people talk about Lula because we in Brazil know Lula very well.  When things--people describe Lula as this leftist guy.  Well, I remember Lula from 1981.  I met Lula before that; I met Lula when Lula and Fernando Henrique Cardoso and other Brazilians were together in 1978 and 1979 fighting against the dictatorship and actually taking back national symbols in Brazil that had been usurped by the military dictatorship.

I remember Lula in 1981.  When I was already here, Lula came as a union leader after meeting Lech Walesa in Poland, came here for his first visit to the United States.  He was then a former union leader then had started to organize the Workers’ Party.  And Lula comes from the Catholic movement in Brazil.  Many people in Brazil come from the Catholic left in Brazil.  He acquired the leftist language over time, and once he realized that he governed, basically, a society of--he was basically part of a society of pragmatists and rather conservative people,  he finally found a way to become president, which was precisely when he proclaimed--he published a letter to the Brazilian people in May of 2002 where he indicated that he would not rock the boat, that he would maintain the policies of economic stability, understanding those were conquistas; those were things that we as a people had done together.

 So I think to understand what is going on in Brazil today, you have to understand this history.  If you are in Brazil, as the ambassador mentioned, sometimes you may not have that impression because we fight a lot.  We fight about everything.  But it is precisely the fight that gives us the strength because when we come to a conclusion, it is something that is there for good.  It is stable.  It is something that has come from, I think, consent from a mature debate. 

I absolutely agree with observations about the challenges.  We have made a lot of progress, but the progress has created new challenges.  And the new challenges now after have maintained macroeconomic stability.  We have to get serious about the microeconomic reforms in Brazil because those are the reforms that are really going to free the economic energies of the country and to allow the people that have been beneficiaries of the Bolsa Familia, of the recent economic growth to move higher, to acquire more and better education.

 For instance, there are tens of thousands of jobs open in Brazil today for qualified manpower; they have not been filled.  Why?  We do not have the qualified labor we need to have.  Therefore, CVRD the mining company is opening positions for foreigners who come to Brazil because we need the expertise.  This is, for instance--a key indicator of what needs to be done is quality; higher quality in the way we educate people.  So those are the types of reforms. 

If you talk to governors of state, it is very interesting.  We had at the Wilson Center Governor Jacques Vagner, PT Bayer [phonetic].  He is the most important governor for the Workers’ Party, the president’s party.  We had also recently the governor of Rio Grande do Sul, the southernmost state in Brazil, third largest economy in Brazil from the Cardoso party.  The day before yesterday, I watched Governor Aecio Neves, a potential presidential candidate, governor of the state of Minas Gerais, also from the Social Democratic Party of President Cardoso--well, second largest state in Brazil--talking about what they are doing. 

It is very interesting because they are not talking politics in the old sense.  They are really talking about managerial challenges--how do you tackle the problems of education, of pensions for state workers.  We are very practical in Brazil about those issues, and those are the issues that are being debated all the time in the media in Brazil.  We have, I think, nowadays, as many seminars in Rio and Sao Paulo and Brasilia as you have here in Washington and New York and Chicago and other places because there is a search for solutions that are difficult.

There is progress in certain areas; sometimes we are surprised by that.  Surprised, for instance, that recently the Congress of Brazil approved a law forbidding congressmen to switch parties because it had become, really, a festival.  The thing was it was amazing; it was most obscene.  There was one guy that, I think, switched parties four times in a week.  Now, they switch parties; that person loses, is out.  The seat reverts to the party. 

So the Supreme Court in Brazil is also reforming--or well, the legislative has approved some things we are creating the precedence, the principle of precedent.  And the Supreme Court is able now to select.  They do not have to hear everything; they can hear only things of constitutional relevance.  So small reforms.

And this area, I think, is one of the main challenges we have.  We, as many countries in the area, have a culture of impunity.  I think this is very important to be tackled.  I would say that the recent scandals--the scandals now in Brazil involve [indiscernible] politics.  You do not--it is much more difficult nowadays in Brazil to have the traditional scandals of zillions of dollars being funneled to companies; it is much more difficult now.  There are lots of petty scandals like, for instance, the misuse of corporate credit cards by officials.  One minister was let go recently.  You know that we are not alone in this.  I just read recently there have been some similar situations here. 

But what we do not have--and these people are punished.  They are punished politically; they lose their jobs.  What we have not done yet and we need to do is move to the criminal part and have our courts, have our prosecutors denounce them, have trial, have a sentence and have the demonstration of people in penitentiaries, preferably white, rich, nice people; not forever, for eighteen months, let’s say.  But we have to start--I think we are getting closer to that.  To me the moment you hear that we are starting that phase, I think democracy in Brazil will have reached a higher level.

And finally, one thing that I wanted to tell you that I--it is very interesting hearing today; I have been following this forever.  When people from different sides of the Brazilian government, especially from this government, recognizing that part of the secret has been continuity in Brazil.  Actually, the ambassador talked about what--in terms of inter-American, Latin American integration, South American integration, President Cardoso actually, starts before that; starts with President Sarney.  And if you go even back, it starts with Governor Franco Montoro of Sao Paulo that to many of us is a hero, who was a Christian Democrat, thanks to his connections with the elder President Frei.  The ideas come from there.

And so it is very interesting now that we all are recognizing that we are benefiting from continuity.  I am one of the few Brazilians--a lot of Brazilians have signed pictures of both President Cardoso and President Lula, but I think I am one of the few that display both together on the wall because I’m very proud of the two of them together.  This idea, this continuity, one would not have existed without the other.  Lula would not have become president without Cardoso preparing the way.  And I believe we are going to owe a lot to these two people.

I think that what you see that is important for us -- we are much more comfortable with ourselves than we have ever been in part, and this is due to President Lula because we have for the first time a man of the people as president.  This is new to Brazil.  And the fact that we were able to do that is very important.  I do not know what happens next.  I agree that the PT does not have a candidate.  Their two best options--self-destroy and corruption scandals.  And there are other candidates there, but I think we have found the groove now. 

We have to keep pedaling and keep working on things like education, like opening our economy more in rational and intelligent ways, recovering some managerial capacity in government that we have lost recently.  And this is a weakness of the Lula government; the managerial capacity of the government in certain areas has deteriorated.  And tackle the new things.  This oil discovery--it is very interesting to debate about this.

The man who had made the announcement is really in a bad situation right now because it was not his role to make the announcement.  He had nothing to do with that.  He is member of a regulatory agency.  And then, he said, “But I am part of the government, and the press had no--” no, sir, you are not.  You are representative of the state.  You are not part of the government.  Your mandate does not coincide with the president.  You should--and as you see, in Brazil, is looking into this case to see if maybe--we do not know--the man bought some things before he made the announcement.  If he did, there will be a problem.  He says he did not, but it is just me--the enthusiasm of announcing this thing.

But this, again, poses a challenge to us.  We are going to revisit the regulatory framework in the energy sector because we need a zillion, gazillion dollars of investments to get that oil out of there.  We do not have it.  We still have very low saving rates and relatively low saving rates in Brazilian economy.  Why?  The state costs a lot of money.  We have not made progress in controlling the current expenditures of the government. 

That is why the Central Bank had yesterday to increase interest rates.  If we would make a better effort in controlling expenditures, probably the Central Bank would not need to go as high as half a percentage point in increasing interest rates, which will have some negative impact on growth.  But we are okay.  We are doing well because we are a democracy.  We are debating.  The things that we do, they reflect one thing; that the recognition in Brazil and the recognition in the United States that our interests are convergent.  And I think that is what makes it easier.

And one final thing:  Please tell your friends that Brazil uses only one percent of our arable land, or two-and-a-half percent of all land in use in Brazil, for agriculture.  Two-and-a-half percent of that is used to produce 50 percent of our needs on light fuels.  And in the process of producing that, we produce a bunch of electricity.  While we were building that, we became one of the largest producers of food and one of the largest exporters of food on earth.  It is true that bio-fuels can have detrimental impact on food supplies. 

I will not mention the country.  You may know a country that has a public policy that provokes precisely that impact.  In Brazil, it does not.  Production of sugarcane ethanol has zero impact of food production; it is done in old coffee fields.  We are not destroying forests to do that.  It will expand into pastures.  It is as close to the Amazon as Iowa is to the Everglades so that is more or less the distance. 

Yes, there are threats to forests, et cetera.  It could come even from bio-fuels.  If, as a consequence of your subsidization of corn in order to produce ethanol from corn, you continue to provoke this impact--people are planting less soybean here; the demand for soybean continues to grow and people go to Brazil and there is encroachment in the Amazon.  That may be; I do not know if that is a fact but this process may be bad.

Other things that may affect the Amazon are related to lack of enforcement of law and zoning in the Amazon.  Eighty percent of all deforestation in the Amazon happens in public lands; it has nothing to do with bio-fuels.  So let’s separate things because some of the comments that we have been hearing or reading are pretty silly.  People mix together all the bio-fuels in the world and we would want people to start as they are now distinguishing countries as individual countries with their own characteristics that they also think about this because we are not going to stop producing ethanol in Brazil.  And we produce ethanol primarily for our own need. 

It is not--and, actually, I was in Congress testifying recently, and some congressmen asked me about this: “What if we suddenly lift the protections?”  And I said, “Sir, do not do it.  No, you are going to disorganize our market if you do it.  Now, let’s --” that is what cooperation is for.  There are ways that you could change your tariff in a more intelligent way and use the tariff as a factor to stabilize prices of bio-fuels.  And those are American professors from Indiana, from Iowa, that have already proposed, and Senator Lugar has even a bill that includes some of those ideas.  But that is it.  I think we are in a promising moment but at a moment of new challenges and more complicated challenges.  Thank you very much.

Roger F. Noriega:  That applause was for all the speakers.  We thank you very much.  We have time for a couple of questions, and we have a gentleman here who has a question.  Please identify yourself, your organization.

Tom Omestad:  Good morning.  I’m Tom Omestad with U.S. News & World Report.  Agriculture has only been mentioned in passing this morning, so I wanted to ask anyone on the panel who would care to comment to comment on the degree to which Brazil’s overall agricultural boom has been a factor in Lula’s overall success.  To what degree--either through political alliances, through general strengthening of the economy, through creations of pockets of wealth or through whatever mechanism--has his success story been linked to the wider success story of Brazil’s agricultural economy?

Paulo Sotero:  Well, it is certainly linked.  President Lula used to be as a union leader as a president of the party and enemy of the [indiscernible].  The [indiscernible] are the sugar producers that are also the farmers of the sugar plantations that is the first economic organized production in Brazil that we brought--they were brought to Brazil because of that industry.  And Lula, being from the northeast and this activity having started in the northeast--historically, there has been a very negative image about this.  And Lula has recently declared that the [indiscernible] are heroes because of the bio-fuels, because now while even in the northeast, they are--well, having to learn new tricks.  They are more integrated; they are becoming more globalized, et cetera.

I think that in that sense, it has helped.  The country has helped Lula.  The fact that Brazil is a growing powerhouse in agricultural production, in agricultural trade, obviously has strengthened our position, et cetera.  But, again, this [audio glitch] doing better what something that we have always done.  But this is a typical traditional economy, a third-world economy activity, to produce food and export commodities. 

The part that I think is more interesting, more important is the industrial part, is the service sector in Brazil that represents much more in terms of economic output, in terms of trade.  But again, the president is reaping the political benefits of an activity absolutely controlled by the private sector in Brazil.  And I think he has done some--there are some good policies on this.  We are much less subsidized than we used to be, maybe not because of our own virtues, more because of lack of resources to subsidize to use for this activity.  But yes, I think it is part of the picture, although I would not exaggerate the importance of that in terms of the success of President Lula.  Remember, he is a former blue-collar worker; he comes from the industrial side from the biggest city.

Roger F. Noriega:  Michael?

Michael May:  Yes.  One thing that Brazil has had for years is a quasi-independent government agency called Embrapa.  And what Embrapa does is it focuses a lot of scientific research on different agricultural centers and they send their scientists to study in universities throughout the world and there are a lot of Brazilian scientists studying in the States.  And they have, for example, targeted certain industries that they wanted to develop. 

For example, in the case of cattle their goal is to be the number one cattle exporter in the world, and they have the Embrapa center for cattle in the cattle growing area in Campo Grange in the south.  So combined with the policies of the respective governments, you still have this entity that is producing a lot of the technical and scientific research or analysis or whatever that can be used by policymakers towards developing the Brazilian agricultural sector.

Roger F. Noriega:  I was going to comment that it is interesting that the high commodity prices and the ability of Brazil to produce and meet this demand, particularly in China, is going to help it write out the financial problems that are emanating from the U.S. problem.  Having said that, over-dependence as I have referred to this is not wanting to merely be a warehouse for China is important because you do not want to have an economy running in place, producing to meet this commodity demand and not have the value-added--the technology transfer that comes from real investment.  So I was glad to hear several other speakers refer to that because that is in the longer term interest of the country’s integrated development.  And that goes hand in hand with the microeconomic reforms; getting--training managerial class and having the right kind of policies that will actually encourage investment by protecting intellectual property and all that.

Let’s see.  We have two questions and then we will take one here in front and then the gentleman in the back and then we will be finished.  Thank you for your patience.  This has been fascinating.

Barbara Whitman:  Barbara Whitman with Forest Consulting.  There has been a lot of talk about convergence on a lot of things.  Now in the area of trade, either bilateral, world or regional, some of the differences between the United States and Brazil dealt with areas we have touched on briefly, not just agriculture.  I do not think we need to go into that.  We understand, most of us do, what those arguments had been.

But the other two areas we have talked about this morning are investment and services and, briefly, intellectual property.  We came to loggerheads about considering those things in the form of the FTAA.  I just wonder as Brazil becomes a net investor in the rest of the world and develops more of a service economy if we may have a better convergence of use on some of those areas.  We do not know how we are going to treat them in agreements yet, but do we have the potential for converging on some of those areas?

Roger F. Noriega:  I think this calls for short answers so we can get to this last question.

Paulo Sotero Marques:  Let me just--I think, yes.  I think there is convergence in this area, precisely because of what you mentioned.  There are more and more Brazilian investment here and outside.  The companies that are doing that--and I know for a fact because I have a very good relation with Embraer and they were--whose market is basically here and abroad--actually took a Brazilian American to buy the first--to start an airline company in Brazil that will use Brazilian-made planes to fly in Brazil domestically.  It is the founder JetBlue that is now going to Brazil, and he was born in--he is an American born in Sao Paulo, David Neeleman.

But yes, those--the [indiscernible], the Petrobras, the Embraers--and there are seventy Brazilian companies today invested abroad.  They have created the new pressures over the government to--because we need to go there.  But, again, it is not ideological; it is necessity.  And the debate is very much in the open right now.  And if and when we reopen the rounds or even we open bilateral things, explore bilateral possibilities of negotiations I think that we will have a richer picture.

Roger F. Noriega:  Great.  Thank you.  One last question.

Male Voice:  Yes.  On intellectual property, could any of the panelists comment on recent concrete steps to either improve respect for intellectual property or lack of progress?  A couple of years ago at a conference in Brazil, I heard about many of the problems that are well-known and some of the low-quality drugs and some of the copying.  Yes, at the same time there are very terrific pharmaceutical firms.  I would be curious about that.  And then, when the Brazilians talk about South American integration, do you all see that as one that would eventually include the United States or would it be more hermetic and just be South America and exclude North America?  Thank you.

Michael May:  I think when it comes to the area of pharmaceutical patent protection Brazil has made some big strides in that area.  But there are a lot of domestic pressures as far as providing certain medicines to poorer sectors of the society.  And, for example, a couple years back, the AIDS drug was--they were talking about basically using compulsory licensing to take away the patent protection for the AIDS drug.  And I think that what happens, especially, on pharmaceutical issues is that there is a dichotomy between the more traditional types who understand international covenants and patent protection, et cetera.  And then there are people who are dealing with social issues who really do not care; they just want to make sure that the most amount of pharmaceutical products are available to the most amount of people at the lowest cost.  And that would include a lot of people than the government who really are not involved in social issues but are just basically numbers crunchers in the budget because they do not want to see their budget busted by doing this on the drugs.

So again, I think there are still issues there.  You could talk about the piracy in the streets as far as videos and records and so forth.  I think that Brazil has taken, perhaps, a tougher stance on that simply because the Brazilian industry, both visual production, primarily through global and the like, as well as the MPB, the Brazilian music pop stars and so forth are losing a lot of money on that.  So you are starting to see a lot of efforts that are being done to clean that up.

Roger F. Noriega:  Any other comment?

Bill Perry:  Well, the last part of your question about South American integration--you saw two ambassadors tiptoeing around that issue earlier at the beginning of the program, and they did not choose to grapple with it or one another because I think it is a work in progress.  Of course, right from way back when, there were different schools of thought about whether Mercosur was a building block toward the Free Trade Association or an Argentine-Brazilian effort to obviate it in some fashion or--and I think that is going to be a work in progress.

To the extent that you see greater U.S.-Brazilian cooperation, the salience of that issue diminishes a little bit. And I think that is a stage wherein right at the present time the cooperation between these two governments has been quite remarkable, considering their ideological antecedents.  And that is because there is a tremendous community of interest between the two countries.  And it is just sort of you can see them sniffing each other but the United States in its present circumstances, given the positive tenor of Brazilian cooperation with the United States, is not disposed to object very much to integration and Brazilian-led efforts in South America, which is one of their primary areas of compatibility.

Paulo Sotero:  Just briefly on intellectual property, my hunch is that if the United States would just move a little bit more on the subsidy, [indiscernible], which is the old issue, I think you would see Brazil responding big time in services and industry and everything because not only we need that for economic reasons; we need that political success.  This administration does need it. 

And still on this issue, I think there are efforts.  What is important, what happened in the relationship, is that there were people, very mature and very good on both sides, that saw the wisdom of creating spaces for dialogue.  There will be next week here, the second or third [audio glitch] the CEO Forum; something that Ambassador [indiscernible] started.  CEOs of varied major companies from Brazil and the United States will have dinner with President Bush. 

And part of one of the people there, Gerdal [phonetic], is the champion of the debate on innovation in Brazil and innovation is directly linked with intellectual property, with openness, et cetera.  We are making our modest contribution at the Wilson Center next Friday.  I will be in Sao Paulo hosting a debate, an afternoon seminar at the University of Sao Paulo about--it is the publication of a comparative study.  It is on public policies on innovation; Brazil and six other countries--the United States, Finland, others.  This is a study that was commissioned by the Brazilian Federal Agency on Industrial Development.  There have been some controversy about releasing the studies because not all conclusions are to the liking of certain, more statist people in the administration.

But again, another example:  The debate has been joined; it is there on South America.  There was a difference of style and quality on the way Cardoso and Lula did it initially.  Cardoso understood that you would use infrastructure integration as a way of promoting things that would be in our interest and the interest of the neighbors.  And Brazil would, by doing things that would benefit us and them, naturally be recognized in terms of leadership, that our leadership would be asserted naturally without proclamations.  President Lula comes inexperienced and goes to Ecuador and proclaims Brazilian leadership.  Actually, there is a majo