LABOR LEADERS DIFFER OVER LULA GOVERNMENT, BUT MOST WORKERS

UNCLAS SECTION 01 OF 05 SAO PAULO 000280

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/BSC AND DRL/IL
NSC FOR SCRONIN
STATE PASS USTR FOR SULLIVAN/LEZNY
DEPT OF TREASURY FOR FPARODI
USDOC FOR 332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWARD
USDOC ALSO FOR 3134/USFCS/OIO/EOLSON/DDEVITO/DANDERSON
STATE PASS EXIMBANK
STATE PASS OPIC FOR DMORONESE, NRIVERA, CMERVENNE
DOL FOR ILAB MMITTELHAUSER

TAGS: ELAB ECON PGOV SOCI BR
SUBJECT: LABOR LEADERS DIFFER OVER LULA GOVERNMENT, BUT MOST WORKERS
WILL LIKELY SUPPORT HIS RE-ELECTION


SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY.

--------------
SUMMARY
--------------


1. (SBU) During his March 6-7 visit to Sao Paulo, Labor Attache met
with representatives of three major labor organizations and the
ruling Workers' Party (Partido dos Trabalhadores - PT),as well as
some academics specializing in labor issues. With the exception of
representatives of the influential United Workers' Center (CUT),
labor leaders expressed concern about workers' economic situation,
especially the problem of the large informal economy in which
workers are not protected. Some unions were prepared to support
President Lula's re-election; others expressed highly negative views
of his administration. One eminent labor consultant was pessimistic
about the prospects for labor reform. End summary.

---
CGT
---

2. (U) Labor Attache (Labatt),accompanied by Sao Paulo Poloff and
Econ Assistant, met with General Confederation of Workers (CGT)
President Antonio Carlos dos Reis, International Relations Secretary
Lourenco Ferreira do Prado, and Secretary general Caninde Pegado.
The CGT is the third largest federation of labor unions in Brazil
and is close to the centrist Brazilian Democratic Movement Party
(PMDB). It is one of six umbrella labor organizations recognized by
the Brazilian government, and is affiliated with the International
Confederation of Free Trade Unions (ICFTU). Ferreira began with a
brief overview of the CGT's history dating back to the military
dictatorship. He stressed the CGT's good relationship with the
AFL-CIO Solidarity Center, as well as its constructive relations
over many years with the United States. Lest there be any
misunderstanding, he assured Labatt that "we're not crazy leftists"
and that, in fact, the CGT had grown by attracting into its ranks
workers and organizations who found the powerful United Workers'
Center (CUT - Brazil's principal labor federation, which supports a
socialist political ideology and is closely affiliated with
President Lula and the PT) to be too far to the left. The CGT is
active in the fight against racial discrimination and child labor,
and in helping to improve conditions for women and old people.


3. (SBU) Asked about the CGT's views on the upcoming elections,
Reis replied that the Confederation has not yet defined a position.
In 2002, the group supported Ciro Gomes, who ran under the banner of
the Popular Socialist Party (PPS) in alliance with the Democratic
Labor Party (PDT) and the Brazilian Labor Party (PTB) and finished
fourth in the first round with 12 percent of the vote. (NOTE: Gomes
serves as Minister of National Integration in Lula's government and
is considered by some a possible running mate for Lula in this
year's election. He was forced to leave the PPS when it broke with
the government, and is now a member of the Brazilian Socialist Party
(PSB). END NOTE.) The CGT supported Lula in the second round, in
which he defeated Jose Serra. Though the CGT has not yet taken a
position on any candidate, none of our three interlocutors is
inclined to support Lula in this year's election. They believe he
has forgotten the workers, and point out that average worker incomes
have fallen during his administration. He has created some jobs,
but not good jobs, not jobs for skilled workers. Unemployment
remains high (over 16 percent, for example, in Sao Paulo city,
though at its lowest level in five years). The CGT is involved in
programs to try to organize workers in Brazil's large informal
sector. The CGT leaders we spoke to strongly oppose Lula's
macroeconomic policies, which are a carryover from the
administration of Fernando Henrique Cardoso, and they believe he has
brought more misery and corruption to Brazil.

SAO PAULO 00000280 002 OF 005




4. (U) In discussing a list of possible and likely presidential
candidates, the three CGT leaders acknowledged that, for the most
part, the candidates do not speak for ordinary workers or address
their concerns. One who might, they think, is Senator Heloisa
Helena of the Socialism and Liberty Party (PSOL),which she founded
after being expelled from the PT for breaking party discipline. But
Helena, while she is expected to run, will be lucky to get five
percent of the vote.

--------------
PT AND CUT
--------------


5. (U) The view was quite different at PT headquarters, where
Labatt met with Marlene Rocha, National Secretary for Political
Orientation and a member of the National Executive Committee;
Ramatis Vacino, adviser to CUT President and PT National Union
Secretary Joao Felicio, and Angelo d'Agostini Junior, a CUT leader

SIPDIS
at the Sao Paulo state level. Rocha outlined the parallel histories
of the PT and the CUT, noting that the two organizations were
founded four years apart (1980 and 1984),but by many of the same
militants, and had grown together in the struggle against the
military regime and later in the democratic political system, though
there is no formal relation between the two. Polls show the PT has
the support of 19 percent of the electorate, she said, down from 23
percent before the political scandal. The Brazilian Democratic
Movement Party (PMDB) is second with 14 percent, followed by the
Brazilian Social Democracy Party (PSDB) with 7 percent and the
Liberal Front Party in fourth place. The rest of the numerous
parties will have trouble reaching the five percent threshold
required by the so-called "barrier clause" in balloting for federal
deputies in order to retain government funding, free TV time, and
committee chairs in the Chamber of Deputies. (NOTE: This
requirement will be in effect for the first time in the 2006
elections and is expected to lead to the disappearance of many small
parties. END NOTE.) Rocha noted that the PDT was once allied with
the PT - legendary PDT leader Leonel Brizola was Lula's running mate
in one of his unsuccessful presidential campaigns - but they had
parted ways after the PT won the presidency. Likewise, the PPS was
once part of the PT coalition but is now in opposition.


6. (U) The PT's main objectives this year are re-electing Lula and
registering new members. The party will be conducting a great deal
of outreach. The PT-affiliated Perseu Abramo Foundation will
organize a series of six seminars between March 24 and the end of
May to highlight the party's priorities. The National Directorate
will meet March 18-19 to approve position papers in preparation for
the PT's "National Encounter" in late April, at which time the party
will determine its electoral alliances. Rocha acknowledged that the
Lula government had maintained the macroeconomic principles of the
1995-2002 Fernando Henrique Cardoso administration, but with
different objectives, since Lula was trying to promote growth in
order to distribute wealth. Among the materials she handed out was
Lula's June 2002 "Letter to the Brazilian People," which, at a
critical time in the campaign, reassured voters that Lula would
manage the economy responsibly. (NOTE: According to press reports,
some senior advisers are urging Lula to issue a new letter to the
people as part of his re-election effort. END NOTE.)


7. (U) The CUT representatives indicated that although they didn't
agree with everything the Lula government had done, they were
generally satisfied and would support Lula's re-election. They
pointed to a newly promulgated law protecting domestic employees as
an example of progress on the labor front. Though the CUT had
pushed for a higher minimum wage than the government had delivered,
and has criticized the government from the left, they indicated they

SAO PAULO 00000280 003 OF 005


would work for Lula in the campaign while continuing to press for
more labor-friendly policies.

--------------
FORCA SINDICAL
--------------


8. (U) At Forca Sindical (FS),Labatt met with Secretary General
Joao Carlos Goncalves and International Relations Secretary Luis
Carlos Motta. Goncalves described Forca Sindical, founded in 1991,
as a union of various ideologies in search and defense of democracy,
and the application of new ideas to the operation and management of
labor unions through open discussions. FS developed out of an
ideological conflict among the major labor unions and has grown to
be Brazil's second-largest union, comprising 986 workers' entities
totaling 8.5 million members. Like the CGT, FS does not
discriminate against any ideology or party membership, and its
executive committee has adherents to the PSDB, PFL, PL, and other
parties across the ideological spectrum. FS has made significant
contributions towards changes in the way unions used to operate that
prejudiced and suppressed some important worker rights and job
security. As the fastest-growing labor organization in Brazil, FS
has representation in all 27 Brazilian states, representing millions
of workers, principally metalworkers and workers in such other
sectors as commerce, transportation, construction, engineering,
footwear and clothing, and services. The National Union of Retirees
is also affiliated with FS, which works closely with the Solidarity
Center, other unions, the government, the private sector and the
community at large to promote worker rights, racial equality and
social justice.


9. (U) Looking back over the 15 years since FS was founded, its
leaders believe the labor movement has brought important
improvements to the quality of life of workers and has made them an
active part of wage negotiations. They remain concerned, however,
about the economic plight
of workers. High interest rates have led to growing unemployment
throughout the country. Almost 50 percent of workers are not
registered and thus do not enjoy social benefits (minimum wage,
health insurance, overtime, pensions, etc.). They work under
informal arrangements with employers, outside the reach of labor
law. This situation exacerbates inequality and injustice.


10. (U) FS is prepared to support Lula in his bid for re-election,
provided he accepts FS's demands in support of worker rights, labor
reform, changes to the current system of industrial relations
("reforma sindical"),which affects collective labor rights, and
replacement of the labor tax with a voluntary contribution. The
organization will also continue to speak out against high interest
rates and lack of investment in areas that can create jobs.
Although Lula says his government created 3 million new jobs, FS
insists that these jobs are in the informal economy where workers
are paid below minimum wage. The FS leaders believe Lula's
chances of winning a second term have increased considerably since
the launching of Bolsa Familia and the recent economic rebound, and
with the political scandal losing impetus. The Bolsa Familia
program gives Lula around 15-20 million "captive votes," since
impoverished recipients of government handouts are unlikely to vote
for someone who might reduce or eliminate the program.

--------------
EXPERT PESSIMISTIC ON REFORM
--------------


11. (U) Jose Pastore is a consultant, retired professor, and expert
on labor issues. He provided Labatt with a status report on labor
reform and industrial relations reform. There is a consensus within

SAO PAULO 00000280 004 OF 005


the Lula administration and union circles that of the two types of
reform to be done, the current system of industrial relations, which
affects collective labor rights, needs to be overhauled before
individual employment rights are addressed. The former determines
what kind of unions should exist, how they should be supported, and
what kinds of collective agreements they can enter into. It is upon
this framework that individual rights rest. Brazil has a form of
attenuated hybrid corporatism, created in the 1930s by the Getulio
Vargas regime, that rests on three pillars: monopoly of
representation; the obligatory union tax of one day's wage per
worker per year (imposto sindical); and the normative power of the
labor courts.


12. (U) The system is cumbersome and outdated. It has survived
several regimes, including the military dictatorship, and was
slightly modified by the 1988 Constitution which left its main
pillars intact. The result has been fragmentation, with thousands
of unions in existence. The system is clearly unsuited to
contemporary economic and social realities.


13. (U) Another problem is that 10 percent of the unemployed
(approximately 8.5 millon workers) plus the 60 percent of workers in
the informal sector combined represent nearly 50 percent of Brazil's
total workforce. These workers don't enjoy social, medical and
labor benefits, annual leave, insurance protection, or a retirement
fund. For these reasons, Professor Pastore believes that reform of
the industrial relations system and the labor law urgent, both as a
human necessity and as an economic imperative. He was disappointed
that Lula didn't push the two reforms through Congress immediately
after being inaugurated in 2003, when he had ample Congressional
support and broad popular support. Neither initiative will be
addressed by the Congress in an election year, because both are
controversial and involve reducing somebody's benefits and
privileges. However, the existing anachronistic labor structure
significantly damages Brazil's global competitiveness. Real wages
are smaller than they were ten years ago, but labor costs are high
because of benefits paid into several different funds that seldom
benefit the worker. In Brazil, these costs are 103 percent of
salary, probably the highest in the world. Pastore is concerned
that many multinational companies are moving operations to China and
other Southeast Asian countries due to high interest rates, the
strong real, and labor costs. In addition, companies operating in
Brazil are disadvantaged by the "Brazil cost," reflecting the
country's critical infrastructure limitations (bottlenecks at ports
and airports) and cumbersome bureaucracy.


13. (U) Pastore does not believe labor reforms will be passed by
the new legislature to be seated in 2007 after the elections,
because there is a strong lobby in the congress against workers
giving up any of their hard-won rights. He further opined that Lula
will be re-elected due to his popular, populist programs. However,
he asked rhetorically, "Where will he find the funding for these
programs if he's elected for four more years?"

--------------
COMMENT
--------------


14. (SBU) President Lula was a worker and a labor leader, and many
workers and labor leaders like and respect him, and may still
identify with him. It is clear, however, that many workers believe
that as President he has forgotten them and neglected their
interests in favor of more conventional economic policies. We
suspect that the CUT representatives might have voiced similar
complaints, were they not at PT headquarters in the presence of a PT
executive. On the other hand, workers have few alternatives; PSDB
pre-candidates Geraldo Alckmin and Jose Serra are unlikely to be

SAO PAULO 00000280 005 OF 005


viewed by many workers as more labor-friendly than Lula, and while
Rio de Janeiro former Governor Anthony Garotinho may have populist
appeal, many workers will not take him seriously. Hence, it appears
for now that Lula will likely end up with the labor vote, at least
in the second round. End comment.


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

MCMULLEN