Identifier
Created
Classification
Origin
06SAOPAULO907
2006-08-18 13:24:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Sao Paulo
Cable title:  

PMDB LEADER PREDICTS NARROW LULA VICTORY, AND A

Tags:  PGOV PINR ECON BR 
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ZNR UUUUU ZZH
P 181324Z AUG 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 5643
INFO RUEHBR/AMEMBASSY BRASILIA 6717
RUEHAC/AMEMBASSY ASUNCION 2730
RUEHBU/AMEMBASSY BUENOS AIRES 2411
RUEHMN/AMEMBASSY MONTEVIDEO 2120
RUEHSG/AMEMBASSY SANTIAGO 1842
RUEHLP/AMEMBASSY LA PAZ 2974
RUEHRI/AMCONSUL RIO DE JANEIRO 7369
RUEHRG/AMCONSUL RECIFE 3090
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 2543
RUEHC/DEPT OF LABOR WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL
UNCLAS SECTION 01 OF 03 SAO PAULO 000907 

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR FOR MSULLIVAN
STATE PASS EXIMBANK
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE
NSC FOR FEARS
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/USFCS/OIO/WH/SHUPKA
TREASURY FOR OASIA, DAS LEE AND DDOUGLASS
DOL FOR ILAB MMITTELHAUSER
SOUTHCOM ALSO FOR POLAD
USAID/W FOR LAC/AA

E.O. 12958: N/A
TAGS: PGOV PINR ECON BR
SUBJECT: PMDB LEADER PREDICTS NARROW LULA VICTORY, AND A
GROWTH-BASED ECONOMIC POLICY IN THE SECOND TERM

REF: (A) 05 SAO PAULO 1372

SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY

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

UNCLAS SECTION 01 OF 03 SAO PAULO 000907

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR FOR MSULLIVAN
STATE PASS EXIMBANK
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE
NSC FOR FEARS
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/USFCS/OIO/WH/SHUPKA
TREASURY FOR OASIA, DAS LEE AND DDOUGLASS
DOL FOR ILAB MMITTELHAUSER
SOUTHCOM ALSO FOR POLAD
USAID/W FOR LAC/AA

E.O. 12958: N/A
TAGS: PGOV PINR ECON BR
SUBJECT: PMDB LEADER PREDICTS NARROW LULA VICTORY, AND A
GROWTH-BASED ECONOMIC POLICY IN THE SECOND TERM

REF: (A) 05 SAO PAULO 1372

SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY

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


1. (SBU) Federal Deputy Delfim Netto predicted President Lula will
win a "fairly close" election in the second round if he can avoid
committing too many more gaffes. Lula's Workers Party (PT),
however, will take a serious hit because of corruption scandals and
will end up with fewer than 50 Federal Deputies. However, the
centrist Brazilian Democratic Movement Party (PMDB),of which Netto
is a recent member, will hold a bloc of about 80 seats and will ally
with Lula's administration to get jobs and other favors. Lula will
be able to patch together enough support from smaller parties to get
legislation passed. In fact, Netto said, Lula was perhaps the only
one who could push critical legislation like social security reform
and labor reform through the Congress. Leftist forces would accept
such reforms if sponsored by Lula, but would oppose and ultimately
defeat them if PSDB candidate Geraldo Alckmin won the presidency and
tried to pursue such reforms. For this reason, Netto himself plans
to vote for Lula. In a second administration, Netto predicted, Lula
will continue his macro-economic orthodoxy but with more
flexibility, leaving in place Central Bank President Henrique
Meirelles while appointing other officials who will likely push down
interest rates and promote pro-growth policies. In Sao Paulo state,
Netto predicted that former Mayor Jose Serra will win the
governorship in the first round, though scenarios could yet arise
that might undermine his chances. END SUMMARY.

-------------- -
LULA EXPECTED TO WIN A "FAIRLY CLOSE" ELECTION
-------------- -


2. (SBU) In a recent meeting with Poloff and Political Assistant,
Antonio Delfim Netto (reftel),an elder statesman of Brazil's

political class, shared his predictions for the electoral campaign.
Netto expects that opposition candidate Geraldo Alckmin will narrow
the gap separating him from President Lula and force the election
into a second round. Lula is probably at his ceiling right now,
whereas Alckmin has plenty of room to grow. Third-party candidate
Heloisa Helena will also rise above her current 10 percent, Netto
predicted, because her brand of radical socialism mixed with
Christianity appeals to many voters on the fringes. However, faced
with the prospect of an Alckmin victory, many such voters will opt
for Lula in the second round, and he should win a narrow victory.
Lula's greatest challenge between now and the election, in Netto's
view, will be to avoid saying things that may alienate voters (e.g.,
recent gaffe of his was interpreted by many as denigrating the
intelligence of the elderly).


3. (SBU) Netto noted that in 2002, Lula had carried his Workers
Party (PT) to power, not the other way around. The 2002 elections
represented a vote against Fernando Henrique Cardoso's (FHC) Social
Democracy Party of Brazil (PSDB) due to the economic problems he
bequeathed. In issuing his "Letter to the Brazilian People,"
pledging responsibility in economic management, Lula broke with many
PT economists and has never paid much attention to them since. He
has managed to retain his own popularity even while his party has
been seriously damaged by the political corruption scandals. The PT
may win as few as 45 seats in elections for the Chamber of Deputies,
Netto predicted.


4. (SBU) In the race for Sao Paulo Governor, Netto thought former
Mayor Jose Serra was on track for a first-round victory. This could

SAO PAULO 00000907 002 OF 003


change, however, if PMDB candidate Orestes Quercia overtakes PT
Senator Aloysio Mercadante. (NOTE: The most recent polls showed
Serra with 49 percent, Mercadante with 17 percent, and Quercia with
10 percent. END NOTE.) In that case, the well-organized PMDB could
arouse the enthusiasm of its base and run an aggressive campaign
against Serra, focusing on his somewhat controversial record, and
forcing him into a second round.

--------------
A SECOND LULA GOVERNMENT
--------------


5. (SBU) Netto believes, as do many political observers, that many
of Lula's social programs were designed to garner votes. But he
also said that Lula has genuine empathy for the poor and, if
re-elected, will devote his energies to trying to create more jobs.
He is also likely, in Netto's opinion, to keep on Central Bank
President Henrique Meirelles and to continue his orthodox
macro-economic policies, but will exercise more flexibility and will
appoint other officials more open to lowering interest rates.


6. (SBU) Netto was somewhat cynical about the Congressional
elections, noting that many deputies implicated in the "mensalao"
scandal were running for re-elections and predicting that "the ones
who stole will be re-elected." He noted that with the entry into
force of the "Barrier Clause," some four to six parties will
disappear after failing to get five percent of the vote. But many
of the members of these dying parties will join the government
coalition, as will the PMDB, which will again elect around 80
deputies.

--------------
THE NEED FOR REFORM
--------------


7. (SBU) For the duration of the campaign, Netto predicted, neither
Lula nor Alckmin will make much in the way of concrete proposals on
what programs they would undertake. Doing so would gain them no
voters and would likely cost them some. Rather, they will campaign
on generalities and platitudes, and will also expend some energy
trying to "deconstruct" one another. But whoever is in office in
January will face certain hard realities, Netto pointed out. A
Social Security reform is urgently needed; without it, he said,
Brazil will soon face a fiscal crisis. Labor reform is also
critical. However, Netto believed it would be difficult for a
President Alckmin to push such reforms through Congress, since the
PT and other leftist parties would vociferously oppose them.
However, if President Lula, coming off re-election, were to put them
forward, he could likely win leftist support (or, if not support,
acquiescence) for the measures, and even the opposition PSDB and
Liberal Front Party (PFL) would have to vote for some of the reforms
on their merits. For this reason, Netto said he himself will vote
for Lula, because he believes Lula is in a better position to have a
successful government.

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


8. (SBU) Netto's stated reason for preferring Lula over Alckmin is
novel and interesting (and likely self-serving),but begs the
question of whether a re-elected President Lula would in fact decide
to take on social security and labor reform, and other much-needed
initiatives. For many observers, Lula's first term has lacked focus
and vision, which does not augur well for a serious reform agenda in
the second term, since such an agenda would require Lula's direct
and sustained attention and involvement in order to get it through

SAO PAULO 00000907 003 OF 003


an inherently fractious Congress. END COMMENT.


9. (U) This cable was coordinated with Embassy Brasilia.

MCMULLEN