IRRITATED WITH PRESSURES, LULA PUTS OFF MOST OF

UNCLAS SECTION 01 OF 03 BRASILIA 000792

SIPDIS

SENSITIVE

TREASURY FOR OASIA PARODI
STATE PASS USTR

E.O. 12958: N/A
TAGS: PGOV PINR PREL ECON BR
SUBJECT: IRRITATED WITH PRESSURES, LULA PUTS OFF MOST OF
HIS CABINET SHUFFLE

REF: BRASILIA 0767


1. (SBU) SUMMARY. Irritated by incessant clamoring from his
allied parties as they jockeyed for cabinet posts, Brazilian
President Lula da Silva dug in yesterday and put most of the
cabinet shakeup on hold. The final straw for Lula was a
challenge from the new Speaker of the Chamber, Severino
Cavalcanti, who insisted that if his PP party did not get an
important ministry, he would take the party into the
opposition. Lula balked, and instead of announcing the broad
shakeup that had been expected for months, he made only two
small changes. The new cabinet ministers are Federal Deputy
Paulo BERNARDO (PT-Parana) who will take over the Planning
Ministry, and Senator Romero JUCA (PMDB-Roraima) who takes
over at Social Security (bio info at paras 6-9). Lula's
occasional fits of pique are well-known here, but this one
ultimately could serve him well. By putting at least a
temporary end to the unseemly bargaining for cabinet posts,
Lula has stood up to rebellious parties and may have
reinforced the coalition discipline that has slipped away in
recent weeks. Given that dozens of names and as many as
eight cabinet slots have been in play, Lula's abrupt decision
leaves many winners and losers waiting to see if more changes
are in the offing. END SUMMARY.

CABINET SHUFFLE - SLOW TRAIN COMIN'
--------------

2. (SBU) The cabinet shuffle began in November 2004, when
Vice-President Alencar put on a second hat and took over the
Defense Ministry while Planning Minister Guido Mantega was
moved to the national development bank, BNDES. A few weeks
later, two allied parties (PMDB and PPS) were riven by
uncertainty over whether to remain in his coalition. This
made obvious the need to change the cabinet both to swap out
weak performers and to reward loyal allies with ministerial
posts. Initially, Lula seemed determined not to drag out the
process as he did in 2004. But it did drag out,
excruciatingly. For the past four months, rumors have
swirled with names of several ministries, ministers and
parties in play, putting great pressure on the administration
and slowing the work of ministers deemed lame ducks. Last
month, Severino Cavalcanti of the coalition's PP party was
elected Speaker of the Chamber in a surprise (reftel),
forcing Lula to consider buying his loyalty by giving the PP
the Ministry of Communications.

LULA GETS TICKED
--------------

3. (SBU) Lula has a stubborn streak and can be sensitive to
outside pressure (witness his irritation with a critical NY
Times article in May 2004, when he nearly expelled the
journalist from Brazil). The final straw came on May 21 when
Cavalcanti, whose childlike glee at becoming Speaker has led
him to explore the outer limits of his authority, announced
to the press that unless Lula gave an "important ministry" to
the PP, he would carry the party into the opposition. Lula
balked. For weeks now, it has been assumed that Lula would
name Cavalcanti's PP crony, Federal Deputy Ciro Nogueira to
be Minister of Communications. Had Cavalcanti only kept his
mouth shut, the PP likely would have gotten its "important
ministry". Instead, in a curt press release on May 22, Lula
announced only two minor cabinet moves: PT Federal Deputy
Paulo Bernardo will take over the Planning Ministry, and PMDB
Senator Romero Juca will take over at Social Security. There
was no announcement on when, or if, further changes will be
made.

WINNERS AND LOSERS
--------------

4. (SBU) The biggest losers are the PP and Ciro Nogueira, who
will remain in the Chamber waiting to see if Lula thaws. The
PP holds 51 Chamber seats including the Speakership but has
no cabinet post (though Ag Minister Rodrigues is associated
with the party). This leaves the PP, which tends to be more
conservative than Lula and the Workers' Party, reluctant to
support the administration's agenda in Congress. Another
loser is Federal Deputy Joao Paulo Cunha (PT),the former
Chamber Speaker who was hoping to get a post in order to
launch his bid for Sao Paulo's governorship next year.
Similarly, Senator Roseana Sarney --who switched from the
opposition PFL to the PMDB when her father, Senator Jose
Sarney, got her a promise of a cabinet slot-- will cool her
heels in the Senate. Meanwhile, many of those predicted to
be sacked will stay in place (at least until further changes
are announced),including: Humberto Costa at Health, Aldo
Rebelo as Lula's Political Coordinator, Olivio Dutra at
Cities, and even Vice President Jose Alencar, who announced
recently that he saw himself out of place as Defense Minister.

COMMENT - LULA GETS PRESIDENTIAL
--------------

5. (SBU) Lula faced a crossroads this week. He could have
caved into his allies' incessant clamoring for perks and
Cavalcanti's audacious challenge for an "important ministry",
all in the name of consolidating the coalition. Or he could
have done what he did: call Cavalcanti's bluff and reassert
authority --both his as President and the PT's leadership of
the coalition. After Lula's announcement, Cavalcanti
immediately backed down and said the PP would remain in the
coalition with or without a ministry. Lula scored a little
victory this week, saving face and at least temporarily
reasserting some discipline in the coalition, while putting
an end to Cavalcanti's five-week joyride. This will not be
the final word, and in short order the allied parties will
likely begin complaining again. Coalition management is a
journey in Brazil, not a destination. But for a few days at
least, Lula is back in the driver's seat.

MINISTER OF PLANNING - PAULO BERNARDO
--------------

6. (SBU) The new Minister of Planning is Paulo Bernardo, a
Federal Deputy from Lula's Workers' Party (PT). The Planning
Ministry came open last November, when Lula asked respected
Minister Guida Mantega to take over at the national
development bank, BNDES. The PT will keep Planning because
other parties shunned it, calling it a "technical" ministry,
i.e., one that requires professional competence but does not
bring a big discretionary budget.


7. (SBU) Bernardo, 53, is a Lula loyalist with a background
in banking and public finance. He spent his early career
with the Bank of Brazil before being elected to two terms in
Congress (1991-1999) from the southern state of Parana. As
chair of the Oversight Committee, he was one of the first to
utilize new accounting software to closely monitor
expenditures of the Cardoso administration. In 1999-2000, he
served as state Finance Secretary of the neighboring state of
Mato Grosso do Sul, in the administration of his PT friend,
Governor Zeca. Returning to Parana, he was elected to his
third congressional term in 2002. In 2004, he chaired the
high-profile Joint Budget Committee, which brought him to the
attention of Finance Minister Antonio Palocci who championed
his name for the Planning Ministry.

MINISTER OF SOCIAL SECURITY - ROMERO JUCA
--------------

8. (SBU) The new Minister of Social Security is Romero Juca,
a Senator from the coalition's PMDB party. He will be the
third Social Security Minister under Lula. The first was PT
stalwart Ricardo Berzoini, who was replaced by PMDB Senator
Amir Lando in the January 2004 shakeup --one of two PMDB
members given cabinet posts as that party was brought into
the coalition. Lando's tenure has been uninspired, and the
deficit in the public sector pension system has increased and
could reach US$14 billion this year. Thus Lando is being
replaced by another PMDB member for performance and not
political reasons. The second PMDB minister, Eunicio
Oliveira at Communications, will keep his post.


9. (SBU) Romero Juca, 50, is from the state of Pernambuco and
spent much of his life there, studying economics and working
in a variety of management positions in state government. In
1985, he moved to Roraima in the Amazon region when
then-President Sarney appointed him to head a development
project called the "Rondon Foundation". Sarney later named
him Director of the National Indian Foundation (FUNAI) and
then appointed him the first civilian Governor of the
then-territory (now state) of Roraima (1988-1991). (Juca has
remained close to Sarney, who is now in the Senate and
remains a skilled king-maker.) Juca, then with the PFL
party, was elected to the Senate (1995-2003) from Roraima and
served on the Social Affairs, Infrastructure, and Budget
Committees. He later switched to the PMDB and was reelected
to a second term (2003-2011). In 2004, while Deputy Paulo
Bernardo (above) chaired the Joint Budget Committee, Juca
drafted and sponsored the actual budget bill that went
through the committee. He has been the subject of several
corruption allegations over the years: that he allowed
illegal logging on Indian lands while heading FUNAI, that he
embezzled funds from a Roraima social assistance fund, and
that he skimmed off government funds earmarked for civil
construction projects in Roraima. All of the allegations
were shelved. He is married to Tereza Juca, the Mayor of
Roraima's capital, Boa Vista.
DANILOVICH