JOSE DIRCEU - LULA'S WING-MAN GETS BACK ON TRACK

UNCLAS SECTION 01 OF 03 BRASILIA 000187

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: PGOV PINR ECON PREL SOCI BR
SUBJECT: JOSE DIRCEU - LULA'S WING-MAN GETS BACK ON TRACK



1. (SBU) SUMMARY. Jose Dirceu is Chief of Staff and most
trusted advisor to Brazilian President Lula da Silva.
Dirceu's legendary, if peculiar, biography is a window on
Brazil's recent history. His machiavellian political skills
and decades of fierce loyalty to Lula and the Workers' Party
(PT) have been crucial building blocks in their rise to
power. But Dirceu is no ideologue, rather he is a skilled
and sometimes cynical power-broker willing to change course
as circumstances warrant. It was he who orchestrated the
PT's move towards the center in recent years and he who has
put together the administration's broad coalition in the name
of governability. During the 2002 elections and throughout
Lula's first year in office, Dirceu was seen as a powerful
Svengali pulling strings in the shadows. But a scandal in
Dirceu's office in early 2004, coupled with a reorganization
of cabinet duties, sidelined him for months and nearly led to
his resignation. In the past six months, Dirceu has regained
his traction, and is once again involved in the
administration's key projects. If he has lost some prestige
and is less often in the spotlight, he remains heavily
engaged in day-to-day policy making. Nobody is closer to
President Lula than Jose Dirceu. END SUMMARY.

FROM HAVANA TO BRASILIA
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2. (U) The biography of Jose Dirceu, 58, is made-for-TV
material. Attending PUC University in Sao Paulo in the
1960s, he was a leader of the National Student Union until
his opposition to the military regime (including organizing
massive demonstrations) got him jailed in 1968. He was then
among fifteen political prisoners freed in September 1969 in
exchange for the release of US Ambassador Charles Elbrick,
who had been kidnapped and held for three days by an
opposition group. Freed from jail, Dirceu went into exile in
Cuba for six years, studying and training in guerilla
warfare, befriending Fidel and altering his appearance with
plastic surgery. When his enthusiasm for Cuba and armed
revolution waned, he returned to Brazil clandestinely in
1975, living underground as a shopkeeper in Parana state. A
general amnesty was declared in 1979, so Dirceu restored his
appearance and gave up his underground life and family (his
wife, whom he divorced, says she never suspected his true
identity). In 1980, Dirceu and Sao Paulo union leader Lula
da Silva founded the Workers' Party.


3. (U) In the early 1980s, Dirceu held PT leadership posts in
Sao Paulo (the PT's center of gravity) at a time when the
party was forging its identity amid the many labor,
religious, and intellectual currents under its umbrella. He
was a leader of the opposition "Diretas Ja!" movement in 1984
that pressed for direct presidential elections and led to the
regime's handover of power the next year. In 1989 he
coordinated Lula's credible but losing presidential campaign.
In 1991-1994 he served in Congress and was active in the
corruption inquiries that led to President Collor's
resignation. After losing a 1994 race for Sao Paulo
governor, he was elected president of the Workers' Party,
leading a moderate internal faction called "Articulation"
that remains in control of the party to this day. This
period marked the beginning of the PT's evolution away from
doctrinal rigidity and towards the political center, as
Dirceu aggressively formed alliances with a range of parties
--including those on the center and right-- depending on
local conditions. (Dirceu noted in a recent interview, "When
I talked about alliances in 1985, people almost threw me out
of meetings. It was me who introduced these ideas to the
PT".)

"MODERATION IS A VIRTUE ONLY IF YOU HAVE ALTERNATIVES"
-------------- --------------

4. (SBU) Since the founding of the PT, Dirceu has never been
far from Lula. They share a deep trust and complementary
styles: where Lula is an optimistic and charismatic populist
with a common touch, Dirceu is a micro-managing politico
adept at tugging the levers of power. Both are expert public
speakers and engaging in meetings. They share a worldview
that is pragmatic and moderate, so they have consciously
steered the PT away from its most radical members in the
interests of first electability and then governability. This
impulse was on display in the 2002 campaign as Lula softened
his image ("Lula Lite") and made a concerted effort to
connect with the business community.


5. (SBU) In July 2002, as the PT's strong poll numbers
frightened the financial markets, it was Dirceu who visited
Washington and New York to calm investors by committing a
Lula administration to economic orthodoxy. PT leftists
grumble that all of this is a sell-out of party traditions,
but Dirceu has observed that there is no sense in losing
elections through an insistence on clinging to outdated
positions. Dirceu has never worn his personal motivations on
his sleeve, and it is a challenge to understand what drives
him. His explanations for his actions are couched in terms
of political strategy rather than deep-felt passions: the
line between the public and private Jose Dirceu has never
been clearly-drawn.

"PRIME MINISTER" IN YEAR ONE
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6. (SBU) Before Lula's January 2003 inauguration, Dirceu took
charge of the transition team's Political Council, putting
together the coalition and the cabinet. True to form, his
behind-the-scenes dealings brought conservative parties (PP,
PL, PTB) into Lula's camp, and eventually reeled in the large
PMDB as well. The coalition is fractious but has a majority
in Congress and a decent record of delivering Lula's
priorities (in two years, the administration has passed six
constitutional amendments requiring three-fifths majorities).



7. (SBU) As "Minister-Chief of the Civilian Household" (i.e.,
Chief of Staff) and first among equals in the cabinet, Dirceu
spent the administration's first year with a broad mandate to
push legislation through Congress, lead the GoB's innumerable
policy councils (many of which have mercifully faded away),
sort out turf battles between cabinet ministers, negotiate
with mayors and governors, and whisper advice into Lula's
ear. His portfolio was so broad that by late 2003, the press
was calling him "Prime Minister", a profile that left him
vulnerable to jealousies within the government, though the
only GoB official to rival his stature is Finance Minister
Palocci. Dirceu's heavy responsibilities, coupled with his
tendency to micro-manage, left him overburdened. So as part
of a wider cabinet shuffle in January 2004, Lula farmed out
some of his duties, bringing in a second cabinet-level
official, Aldo Rebelo, to be "Political Coordinator" (i.e.,
Lula's chief liaison with congress).

WALDOMIRO CHANGES EVERYTHING
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8. (SBU) The new arrangement lasted only a few weeks.
Dirceu's world was rocked on 13 February 2004 when a scandal
broke revealing that a longtime friend and senior advisor on
his staff, Waldomiro Diniz, had been soliciting bribes from a
numbers racketeer and possibly funneling cash into PT slush
funds. Waldomiro was fired and is still under police
investigation. While apparently not involved in the
misdeeds, Dirceu suffered grievously --both personally and
politically. Some pundits pointed out that even if he was
not implicated, they would not be surprised to find Dirceu
involved in illicit campaign funding. (N.b., In a separate
case, there are still unanswered questions about Dirceu's
possible knowledge of a corruption scheme in the city of
Santo Andre, Sao Paulo that led to the murder of Mayor Celso
Daniel in 2002. Allegedly, some of the money skimmed off
city contracts found its way into PT campaigns.) For seven
weeks the Waldomiro scandal was front-page news, leaving
Dirceu anguished. Lula reportedly turned down his offers to
resign several times. Everyone from opposition politicians
to the Chief Justice of the Supreme Court urged him to step
down, and the scandal echoed for months, contributing to a
steep dive in Lula's approval ratings and a series of defeats
in Congress.

BACK IN THE GAME
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9. (SBU) By July, Dirceu got back to work as attention turned
to the October municipal elections. He actively stumped for
PT mayoral candidates (including the son from his first
marriage, Zeca Dirceu, who was elected mayor of the town
where Dirceu lived clandestinely until 1979). His political
recovery is an ongoing project, but over the past six months
he has regained influence by a combination of hard work,
attention to detail, and avoiding the limelight. As Chief of
Staff, there are few policy areas in which he is not
involved. For example, in late 2004, Dirceu could be found
meeting with Goldman Sachs officials about Brazil's
investment climate, assessing the Mideast peace process at
Arafat's funeral, previewing the restructuring of Varig
airline debt, and describing plans to create a unified GoB
tax and collections agency. For next year, he is already
pushing for a boost in the minimum wage and heading up a
working group on agrarian reform (both hot topics here).
Dirceu will address foreign investors at Davos.


10. (SBU) December found Dirceu back on top, taking charge of
the administration's two key end-of-year political projects:
negotiations about the schizophrenic PMDB's place in the
coalition and piecing together the cabinet shuffle expected
in late January. IstoE magazine came to the same conclusion
in naming Dirceu its 2004 Man of the Year, as did journalists
and pundits with whom we talked. And Lula --with his love
for soccer metaphors-- recently called him "Captain of the
Team". Despite the New York Times' view in December that
Palocci has surpassed Dirceu in influence, the two Ministers
inhabit different spheres that are not really comparable.
Palocci, the technocrat, steers the macro-economy, including
controversial issues such as interest rate policy, while Lula
looks to Dirceu for guidance on everything else. The
President's daily agendas reveal that when Dirceu and Lula
are both in town, Dirceu has up to an hour alone with the
boss nearly every day, as well as joining in most of his
meetings. And he is no shrinking violet. Though his public
profile is lower than in the past, Dirceu and PT party
president Jose Genoino are the two people whom Lula sends out
to engage in partisan battles and volley opposition barbs.

COMMENT - "TAKING FORTUNE BY THE ARM"
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11. (SBU) Jose Dirceu is a key, though controversial, figure
in modern Brazilian history. Perhaps best viewed in the
oblique half-light rather than head-on, somewhere behind
Lula's surprising trajectory and the unseen machinations of
party politics. Dirceu is not personally corrupt, but as
questions about the Waldomiro and Celso Daniel cases
illustrate, there is a lingering sense that he will stoop as
low as necessary to achieve his goals --and the success of
Lula and the Workers' Party have been his life's work. One
observer commented that Dirceu seems blessed by fortune, as
his choices invariably prove successful. But this
oversimplifies: Dirceu often forces fate by simply outworking
his opponents. An obsessive planner (he reportedly knew with
uncanny accuracy which departments in which universities
supported his 1969 bid to head the National Student Union);
unsentimental (he jettisoned his first wife and child along
with the rest of his clandestine identity when he was
amnestied in 1979); and unafraid of change (Dirceu himself
says that he has started his life over many times and can do
it again if necessary). His success is no accident of fate.



12. (SBU) Jose Dirceu is clearly happy to be back in the mix.
In a December 28 interview, he pronounced himself satisfied
doing the administration's policy coordination. In the next
two years he plans to focus on Lula's national development
goals. There is little doubt that he will also be a key
advisor in Lula's 2006 reelection campaign and in a possible
second administration. Longer-term, some who know him say
that Dirceu harbors presidential ambitions, though at age 58
and assuming Lula remains in office through 2010, he may be
squeezed out by the PT's next generation. Yet nobody would
count him out: if he is not President, perhaps when Lula's
era is over, Dirceu will settle into a Congressional seat or
try another run at Sao Paulo's governorship.
DANILOVICH