PSDB STATE LEADER: LESSONS LEARNED FROM ALCKMIN CAMPAIGN;

UNCLAS SECTION 01 OF 04 SAO PAULO 001192

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR FOR SULLIVAN/CRONIN
NSC FOR FEARS
TREASURY FOR OASIA, DAS LEE AND DDOUGLASS

E.O. 12958: N/A
TAGS: PGOV ECON PINR BR
SUBJECT: PSDB STATE LEADER: LESSONS LEARNED FROM ALCKMIN CAMPAIGN;
OPTIMISTIC ABOUT INCOMING STATE GOVERNMENT


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SUMMARY
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1. (SBU) Sao Paulo State Deputy Sidney Beraldo told Poloff that
state leaders of the Social Democracy Party of Brazil (PSDB) have
been conducting a "lessons learned" exercise to identify what went
wrong in ex-Governor Geraldo Alckmin's unsuccessful presidential
campaign. One conclusion is that the party erred in not making a
more forceful response to President Lula's assertion that Alckmin
would privatize all state-owned enterprises, in not touting the
benefits of privatizations to date and more generally in not
defending Fernando Henrique Cardoso's record as President. Beraldo
also thought that Alckmin and his political advisors had ceded too
much authority to media consultants, who had done a bad job of
getting Alckmin's message out to the voters. Beraldo was optimistic
about PSDB Governor-elect Jose Serra's ability to move Sao Paulo
state forward, especially in investing in major infrastructure
improvements. The PSDB and its coalition partners will control 44
out of 94 seats in the unicameral Legislative Assembly that will be
seated March 15, and the party is reaching out to small parties in
an attempt to put together a reliable working majority. End
Summary.


2. (U) Poloff and Political Assistant met November 7 with Deputy
Sidney Beraldo, a former president of the Sao Paulo State
Legislative Assembly (ALESP) and a state PSDB leader, to talk about
the elections just concluded, prospects for the newly elected
Governor and ALESP, and the future of the PSDB.

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PSDB: SOUL-SEARCHING AFTER LOSING PRESIDENTIAL ELECTION
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3. (U) From the start, Beraldo said, the PSDB knew they were facing
a tough election. President Lula's advantage of incumbency weighed
heavily throughout; unless he is extremely unpopular, an incumbent
is always difficult to defeat. In addition to the exposure he got
with the help of the campaign's large advertising budget, Lula was
able to appear on television all the time, announcing new government
accomplishments and programs. He also got a lot of propaganda
mileage out of cash transfer programs (e.g., "Bolsa Familia"),all
of which, as PSDB loyalists are always quick to point out, were
begun by Fernando Henrique Cardoso (FHC). This was Lula's fifth
national election and he was already extremely well known. He also
has genuine mass appeal; many voters feel a close connection with
him that transcends policy and politics.


4. (SBU) Beraldo also noted that the PSDB and the Alckmin campaign
had made a number of mistakes. The party's Sao Paulo State
Executive Committee (the State Executive, he stressed, not the
national Executive, which is "a disgrace") had just held a "lessons
learned" session. Party leaders concluded that the PSDB had
suffered from a lack of party unity. In some parts of the country,
the local party organizations had simply not done enough to promote
Alckmin's candidacy. Beraldo had traveled with the candidates
around Sao Paulo state and asserted that Alckmin and (successful)
gubernatorial candidate Jose Serra were in lockstep, and that Serra
had done everything possible to help Alckmin (who carried the state,
but by a disappointingly small margin). He had less direct
knowledge of how hard Minas Gerais Governor Aecio Neves had worked
for Alckmin, but noted that Lula was so far ahead in Minas that
there was ultimately little that Neves could do to help. He agreed
that Alckmin's showing in Minas had been disappointing and, combined
with his poor showing in Rio de Janeiro, fatal to his chances. But
then, Minas Gerais is a notoriously difficult state. The northern
part of the state is very similar to the northeast and follows the
northeast's voting patterns.


5. (SBU) This election, Beraldo continued, exposed the PSDB's
greatest weakness: its failure to make inroads in the populous
northeast. The party took a well-deserved beating due to its
failure to deliver a compelling message to voters in the northeast.
When Alckmin promised a management shock ("choque de gestao"),
Beraldo got a call from a party leader in the small northeastern
state of Paraiba, who said, "Here in Paraiba, a "choque de gestao"
is what you get when a pregnant woman sticks her finger in a light

SAO PAULO 00001192 002 OF 004


socket." (Note: This is a pun on the Portuguese word "gestacao,"
which means gestation or pregnancy. End Note.) Beraldo complained
that the "marqueteiros" - media gurus - had wielded too much
influence in shaping the message, and had done a bad job. The
candidate and his political consultants should have pushed back and
insisted on more control over the message. "Who can talk to the
people if not the politicians? But they were frozen out of
decisions by the "marqueteiros."


6. (SBU) Beraldo also noted that the PSDB's major coalition
partner, the Liberal Front Party (PFL),is strong in the northeast
but was not much help in delivering votes from there. This he
attributed to the declining influence of the "colonels" or regional
bosses who used to rule. In the second round, Lula won 77 percent
of the valid votes in the northeast, including an amazing 85 percent
in Maranhao state.


7. (SBU) The PSDB's other failure, Beraldo said, was its
unwillingness to defend privatizations when Lula began frightening
the voters with the charge that Alckmin would sell off the country's
patrimony, and, more generally, its unwillingness to defend FHC's
record as President. Privatization (of telecoms, to use just one
example) had brought many benefits to many voters, including those
of modest means. The party's state Executive Committee concluded
that not defending the accomplishments of FHC's two administrations
-- curbing inflation with the Plano Real, achieving political and
economic stability -- was a major mistake.


8. (U) Even while acknowledging the PSDB's mistakes and Alckmin's
lack of personal charisma as important factors in the campaign,
Beraldo commented that nobody in the PSDB had anticipated that Lula
would suffer so little damage in voters' eyes (and in vote totals)
from the political scandals that plagued his first term, and still
nobody can understand why this happened.

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UPBEAT ABOUT STATE GOVERNMENT
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9. (U) Beraldo was optimistic about prospects for Sao Paulo state
when former Mayor Jose Serra assumes the governorship. Serra, who
served as Health Minister and Planning Minister under FHC and ran
for President against Lula in 2002, comes to office extremely
well-prepared both technically and politically, Beraldo said.
Having a national figure running the state will be beneficial.
Furthermore, the state is in good shape economically. Certainly,
when the national economy doesn't grow -- 2.3 percent in 2005, and
about 2.8 percent projected for 2006 -- Sao Paulo state suffers as
well. But the late Governor Mario Covas (1994-2001) restored the
state's solvency, and Governors Alckmin and Lembo provided sound
financial management. The Law of Fiscal Responsibility prohibits
the state from incurring debt of more than twice its budgetary
receipts, and it is currently at 1.8 percent, so there is some small
room for more investment in infrastructure. The state is also in an
excellent position to attract new private investment. It is moving
forward with several Public Private Partnership (PPP) projects.
Priorities include construction of another subway line and the ring
road around the metropolitan area, as well as a railroad to carry
goods to the port of Santos.


10. (U) The state's PPP law allows the government to offer
guarantees to private investors that will enhance their confidence
and likelihood to invest, Beraldo said. He outlined plans for a PPP
to expand the small port of Sao Sebastiao and the roads leading to
it. (Note: Sao Sebastiao is a small town about 130 miles northeast
of Sao Paulo on the state's northern shore. End Note.) They hope
to be able to shift some freight traffic away from Santos, which is
owned and operated by the federal government and has serious
management problems. Due to inefficiencies, it costs USD 300 to
ship a container from Santos, whereas the cost in the EU is in the
USD 100-150 range. The state government also wants to build a
pipeline to transport ethanol from the sugar mills in the interior
of the state to Sao Sebastiao, Beraldo said. Several proposals from
private investors are under consideration.

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SEEKING A MAJORITY IN THE LEGISLATIVE ASSEMBLY

SAO PAULO 00001192 003 OF 004


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11. (U) The PSDB did well in the state elections, Beraldo said.
The party won 24 seats in the Legislative Assembly, compared to 18
in 2002. Its coalition partners, the Liberal Front Party (PFL) and
the Popular Socialist Party (PPS),won 11 and 5 seats respectively.
The PSDB is also allied on the state level with the Brazilian Labor
Party (PTB),which won four seats, giving the governing coalition 44
seats out of a total of 94. Talks are under way with the Democratic
Labor Party (PDT) and the Green Party (PV) in the hopes of
constructing a solid majority. (Note: The PTB, PPS, and PV are all
merging with smaller parties to avoid losing their privileges under
the "Barrier Clause" after failing to meet the 5 percent threshold
in elections for the federal Chamber of Deputies. End Note.) On
the other side of the aisle, President Lula's Workers Party (PT) won
twenty seats (down from 22 in 2002),its Socialist allies 4, and
Heloisa Helena's Socialism and Liberty Party (PSOL) - which, though
comprised of PT defectors, is unlikely to support the PSDB state
government -- won 2. Beraldo said candidacies to succeed Rodrigo
Garcia (PFL) as the President of the Legislative Assembly had not
been announced, and he declined to speculate on likely candidates.
If Governor-elect Serra has a preferred candidate, he has not
publicly announced it. (Note: Though he did not say so, Beraldo
himself may be a candidate, as he is close to Serra. End Note.)
Beraldo pointed out that in Sao Paulo, unlike in other states, the
new Assembly will not be seated until March 15.

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ALCKMIN'S UNCERTAIN FUTURE
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12. (SBU) Beraldo did not know what Geraldo Alckmin plans to do
next. Alckmin has stated publicly that he does not plan to seek the
PSDB Presidency next year and also is not interested in running for
Mayor of Sao Paulo in 2008, though there is time for him to change
his mind. For the time being, he seems happy at the prospect of
running the Teotonio Vilela Institute, the PSDB's policy shop.
Beraldo speculated that Alckmin could always return to the practice
of medicine (he is an anesthesiologist),though after years as a
state and federal deputy, Lieutenant Governor and Governor, this
would seem a difficult transition to make.


13. (U) Beraldo agreed with Poloff's observation that the PSDB
needs to be reformed. He said the perception that the presidential
nomination had been decided by three party leaders -- FHC, Neves,
and Senator Tasso Jereissati -- was a media distortion; in fact, the
three had consulted extensively with the party's base prior to
making their decision. However, he acknowledged that the public
perception of so small a group deciding such an important matter
among themselves had damaged the party's image, and the PSDB would
have to change its way of doing business in the future.


14. (U) When asked about the rivalry between Jose Serra and Aecio
Neves (both of whom are expected to seek the 2010 PSDB presidential
nomination),Beraldo noted that he was a Serra supporter. While
Neves's landslide re-election in Minas Gerais was impressive, he
said, it came about in large part because Neves faced no serious
opposition. Furthermore, even while running under the PSDB banner,
he somehow managed to be aligned with the Brazilian Democratic
Movement Party (PMDB) and the PT at the same time.

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COMMENT
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15. (SBU) The PSDB is still feeling its way after Lula's decisive
victory over Alckmin. It needs to decide whether to mount a strong
opposition to Lula as the second term gets underway or take a more
conciliatory approach. Though 2010 is a long way off, many
observers are already watching to see whether Serra or Neves emerges
as the more likely presidential candidate, and what role Alckmin
finds for himself. Some observers have noted that the PSDB and PT,
the two major poles in Brazilian politics, have come more and more
to resemble each other ideologically as the PT has begun to look
less like a leftist party and more like a moderate social democratic
party. The PSDB wants to win back some of that space. End Comment.


SAO PAULO 00001192 004 OF 004




16. (U) This cable was cleared/coordinated with Embassy Brasilia.

MCMULLEN