LULA TAKING FRIENDLY FIRE FROM COALITION PARTIES

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 000776

SIPDIS

DEPT FOR WHA/BSC

E.O. 12958: DECL: 03/31/2014
TAGS: PGOV PREL ECON BR
SUBJECT: LULA TAKING FRIENDLY FIRE FROM COALITION PARTIES

REF: A. BRASILIA 0564


B. BRASILIA 0572

C. BRASILIA 0458

Classified By: POLOFF RICHARD REITER, FOR 1.5B AND D.


1. (C) SUMMARY. The Lula administration has fumbled its
response to February's "Waldomiro scandal", resulting in
non-stop criticism from the Brazilian press and opposition.
Worse for the administration, many of the parties in the
governing coalition have responded to the crisis not by
rallying behind the government, but by ratcheting up their
complaints about GoB economic policies and their demands for
special favors. The PL, PMDB, PTB, and PP have been
particuarly contentious allies. As a result, the coalition
is frayed and Lula's ability to push legislation to
reestablish his momentum will be constrained unless he can
rebuild the coalition's unity --a difficult task given that
this is an election year in which the parties have individual
agendas and added incentive to squabble. The first step in
the process occurred on March 30, when Lula promised to
disburse some R$500 million to fund legislators' pet projects
in return for their support on a key congressional vote. END
SUMMARY.

GOVERNING COALITION SHOWS FRAYED EDGES
--------------

2. (C) The Waldomiro Diniz scandal (in which a senior advisor
on President Lula's staff was caught on videotape soliciting
bribes from a numbers racketeer) broke on February 13. Since
then, the administration has careened from perplexity to
difficulty, as Chief of Staff Jose Dirceu's reputation has
plummeted, the GoB's approval numbers have slipped (ref A),
and the parties in the ruling coalition have begun to sound
more like opposition critics than Lula supporters. Of note,
a national poll released on March 25 reveals that 52% of
respondents had never even heard of the Waldomiro scandal,
and only 9% said it changed their opinion of the government.
Thus, it is the perception of ineffectiveness (coupled with
Brazil's stubborn economic problems),rather than the scandal
itself, that has contributed to the government's slump.


3. (C) Physiologism ("fisiologismo") is a Brazilian term
roughly translatable as "crass opportunism", applied to
politicians with no core beliefs who switch allegiances for
short-term advantage. The administration's problems have
been amplified by the fact that some coalition members are
hardly true-believers in the vision of Lula and the Workers'
Party (PT). They joined the coalition to be on the side of
power, and they will threaten to leave just as quickly if
they sense the coalition losing authority. This is
particularly true since nationwide municipal elections will
be held in October, meaning the parties are jockeying against
each other to win mayorships and city council seats.

LIBERAL PARTY TURNS MEAN
--------------

4. (C) Waldemar Costa Neto, President of the Liberal Party
(PL),gave a stinging March 14 press interview in which he
said, "The greatest problem is that nobody at the core of the
government understands economics". He said that both Finance
Minister Palocci and Central Bank President Meirelles should
be fired and economic policy turned over to Vice President
Jose Alencar (of the PL). When Lula expressed his
displeasure with Costa Neto's comments, other party leaders
walked them back. The PL is a right-of-center party that
Lula wooed into the coalition to increase his appeal to both
the business and evangelical communities. Costa Neto is not
the only unhappy Liberal. When the scandal broke in
February, PL Senator Magno Malta vainly tried to set up a
congressional inquiry (ref B) that would have dragged out the
scandal for months. Meanwhile, VP Alencar has periodically
(most recently on March 29) criticized the administration's
fiscal austerity policies.

PMDB JOINS THE FRAY
--------------

5. (C) The PL is not the coalition's only headache. The
chronically-divided PMDB abruptly changed course at a party
leadership meeting on March 14, dealing a defeat to the
pro-Lula wing led by Senator Jose Sarney. It was Sarney's
parliamentary tactic that saved the GoB further angst by
killing Magno Malta's attempt to set up a scandal inquiry in
the Senate. Lula was grateful, but the move left Sarney
exposed within his own party. At the March 14 meeting, Sao
Paulo Federal Deputy Michel Temer, a Lula critic, was
reelected PMDB president with the support of the first couple
of Rio de Janeiro: Governor Rosinha and Anthony Garotinho.
Even with Temer's resurgence, the PMDB is too "physiologist"
to leave the coalition on principle, for that would mean
giving up its cabinet posts and other perks (though some PMDB
Deputies released a letter on March 24 threatening to pull
out of the coalition if their economic advice were not
followed). Instead, the party will increase its criticism of
the administration and demand more perks (and influence over
policy) in return for its tepid support.


6. (C) Sarney's influence within the PMDB will be reduced, at
least until he figures out a way to fight back. Anthony
Garotinho is already positioning himself to run in the 2006
presidential elections, often slamming the administration in
public statements. Garotinho appears to have forgotten that
the PMDB is in the ruling coalition, noting on March 27, "We
are not radicals. We're building a 'constructive
opposition'. This is not targeting the President, but is
designed to help him. Even though the government mistreats
us, we feel no rancor." If the anti-Lula faction retains
control over the party through 2005, it might then leave the
coalition to open more daylight for Garotinho's presidential
run. In the meantime, the PMDB will be looking to negotiate
with the PT on candidate slates in key towns for October's
municipal elections.

LULA GETS NO JOY FROM OWN PARTY
--------------

7. (C) On March 5, without consulting Lula, the Workers'
Party (PT) Executive Committee issued a statement critical of
the administration's economic policies. Lula complained to
party President Jose Genoino, who quickly walked back the
statement. But two weeks later, PT "radicals" (the leftist
wings of the party) met in Sao Paulo and also demanded
economic policy changes. While these episodes did not cause
serious damage, they underscore two phenomena: a) the
ideological differences that fester within the PT (and the
constant work Lula must do to keep his own troops in line);
and b) that many in the PT are politically tone-deaf. The
March 5 statement was issued during a particularly tough week
(Magno Malta's attempt to set up a scandal inquiry in the
Senate was a huge concern for the administration at the
time). The fact that PT leaders would publicly criticize
Lula when he most needed their unified support illustrates
the impulse by some members to behave as an opposition party
--even a year after Lula's inauguration-- when they should
have developed better governing skills.

SMALLER PARTIES ALL OVER THE BOARD
--------------

8. (C) The smaller parties in the coalition have also spoken
out, both for and against the administration. The
conservative PP and populist PTB have threatened to pull out
of the coalition, though both are highly "physiologist" and
their threats are not taken seriously, except as they are
designed to attract administration attention to their demands
for pork barrel spending and second- and third-tier
government job appointments. The week of March 22, the two
parties led a mini-rebellion that delayed voting on Lula's
Presidential Decree to ban bingo parlors (refs B, C).
Meanwhile, the left-of-center Popular Socialist Party (PPS)
--always a loyal, low-maintenance coalition member-- on March
28 reelected as party president Federal Deputy Roberto
Freire who promptly announced that the PPS will continue to
support Lula and "does not want to take advantage of the
political crisis". The socialist PSB has similarly been
quietly supportive of the administration.

COMMENT - WINNING OVER THE ALLIES
--------------

9. (C) The government's doldrums have been nourished not only
by an undisciplined coalition, but also its own poor response
to the Waldomiro scandal (exacerbated by the fact that Chief
of Staff Jose Dirceu, the administration's best tactician,
was at the center of the storm and not in a position to
provide good advice. Septel will examine Dirceu's role in
the crisis and the government.) The administration is now
appealing to coalition leaders' desire to hang together
rather than hang separately, but it is not doing so
empty-handed. Lula's new cabinet-rank Political Coordinator,
Aldo Rebelo, is putting together a "political council"
comprising leaders from all nine allied parties, and a
coalition "code of conduct" is under discussion. Rebelo is
also pledging to speed the nomination of precious federal job
appointments (the tens of thousands of positions throughout
the GoB's nationwide apparatus have always been among the
sweetest of political plums). In terms of legislation, the
administration has put on the back-burner plans for campaign
finance reform and a bill that would have allowed the Senate
and Chamber presidents to serve for four, rather than two,
years. Both bills had stirred opposition inside the
coalition.


10. (C) One legislative achievement, freighted with
symbolism, occurred at midnight on March 30, when the Chamber
of Deputies voted to ratify Lula's February 20 Presidential
Decree that banned bingo and slot parlors throughout the
country. That decree was Lula's first and strongest response
to the Waldomiro scandal, but to remain in force it needed a
congressional vote --a vote which, if Lula had lost, would
have been a clear rebellion by the coalition and a heavy blow
to his legislative authority. The PP and PTB parties managed
to put off the Chamber vote for a week (para 8). In the
hours before the vote, the administration managed to buy
coalition unity by promising to disburse a R$300 million
package of pork barrel spending already approved by Congress
in this year's budget (as well as releasing another R$200
million undisbursed from last year). The bingo ban now goes
to the Senate for a final vote. A further R$1.2 billion
remains undisbursed and presumably available to buy more
legislative victories as the end of Congress's session
approaches on June 30.
HRINAK