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PP RUEHRG
DE RUEHSO #0743/01 2481252
ZNR UUUUU ZZH
P 051252Z SEP 07 ZFF6
FM AMCONSUL SAO PAULO
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UNCLAS SECTION 01 OF 02 SAO PAULO 000743
SIPDIS
SENSITIVE
SIPDIS
STATE FOR WHA/FO, WHA/BSC, WHA/EPSC, INR
STATE PASS USTR FOR KATE DUCKWORTH
NSC FOR TOMASULO
TREASURY FOR JHOEK, DMCCORMICK
E.O. 12958: N/A
TAGS: ECON EFIN BR
SUBJECT: INTERNATIONAL FINANCIAL ANALYSTS BULLISH ON BRAZIL
REF: SAO PAULO 709
SAO PAULO 00000743 001.2 OF 002
1. (SBU) The Ambassador and US Treasury Attache met with
Goldman Sachs, JP Morgan, and Credit Suisse on August 22 and
23 to discuss the recent volatility in the financial markets.
The Brazilian financial markets have calmed down following
worldwide financial turmoil earlier this month (reftel), and
these leading international financial institutions remain
generally bullish on the Brazilian economy citing a much
improved public sector balance sheet as the primary reason.
In fact, financial analysts from these institutions continue
to expect strong economic performance out of Brazil. In
particular, Brazil's financial services industry appears to
be well positioned to continue to experience rapid growth.
2. (SBU) This positive assessment of the Brazilian economy
has led Goldman Sachs Brazil to expand its investments and
operations in Brazil. Goldman Co-Head Eduardo Centela told
the Ambassador and Attache that in the past 18 months,
Goldman has increased its local hires by five-fold and
expanded across a broad range of financial services.
Similarly, Ricardo Stern, Brazil Country Head for JP Morgan,
stated that JP Morgan has begun investing heavily into
Brazilian small and medium size companies to better position
itself for future initial public offerings. (Note: There
have been 54 already this year and several more pending. End
Note.)
3. (SBU) The optimistic economic assessment continued during
a meeting with Credit Suisse Brazil Country Manager Jose
Pereira. Pereira stated that Brazil has experienced
significant growth in local capital market development and is
therefore less vulnerable to financial market volatility
because it no longer depends on foreign capital flows.
Pereira further noted that the most important change taking
place in Brazil's economy is the increased breadth and
quality of business entrepreneurship. For his part, Stern
told the Ambassador he believes that the financial market
volatility will continue to decline in coming months. Stern
also expects Brazil's equity market to remain much more
robust than its bond market and anticipates strong growth in
infrastructure and agriculture.
4. (SBU) In response to the Ambassador's query of how
Washington can support efforts to maintain a robust Brazilian
economy, the three financial leaders all agreed that the key
variable is improved infrastructure. They further stated
that this area can be a major source of private sector
investment and growth, but continues to be significantly
hampered by public sector bottlenecks. Pereira underscored
that in addition to the growth barrier that poorly developed
infrastructure creates, environmental regulations create the
single most important barrier to investment. Stern also
shared the concern that project financing continues to limit
high innovation sectors such as technology, and researchers
are often reluctant to associate closely with the private
sector. They also focused on the labor market as a key
growth constraint, especially the lack of a skilled labor
force, and encouraged further expansion of English language
instruction. Despite the many challenges the private sector
faces in Brazil, Centel believes Brazil's business
environment is more navigable than China's.
5. (SBU) Comment: Despite obstacles to private investment
in Brazil, the country's economic outlook remains positive,
and the fundamental economic conditions in Brazil are better
today than at any other point in recent history.
International investors are bullish on investing in Brazil
and are expanding services and opportunities across many
industries. Further cooperation in line with the
Ambassador's efforts to create synergies between the public
and private sector would go a long way to help minimize these
SAO PAULO 00000743 002.2 OF 002
inefficiencies. End Comment.
6. (U) This cable was coordinated by US Embassy Brasilia and
the US Treasury Financial Attache.
WHITE