LULA'S ALLIANCE WITH PMDB: MORE TROUBLE THAN IT'S

C O N F I D E N T I A L BRASILIA 001127

SIPDIS

E.O. 12958: DECL: 09/10/2019
TAGS: PGOV PREL PINR BR
SUBJECT: LULA'S ALLIANCE WITH PMDB: MORE TROUBLE THAN IT'S
WORTH?

REF: A. BRASILIA 1099

B. BRASILA 931

Classified By: Charge D'Affaires Lisa Kubiske for reasons 1.4 (b) and (
d).

Summary
--------------

1. (C) The last couple of months have added new challenges
to President Lula's bid to put his Casa Civil Minister Dilma
Rousseff into the Planalto Palace as his successor in 2011.
By leveraging his support for corruption-tainted
Senate President Jose Sarney to reinforce a core electoral
alliance backing Rousseff, Lula has for the moment weakened
his party's long-term prospects by turning the upcoming
election into a referendum on the alliance between his Labor
Party (PT) and Sarney's Brazilian Democratic Movement (PMDB)
-- rather than on himself. PMDB has successfully used PT's
weakened position to extract support from them in key state
races while providing only lukewarm support for Dilma in the
presidential race. PT members (petistas) understand that a
strong alliance with PMDB will erode their identity as a
principled left-center party. There are signs that petistas
will try to take a stronger statist-nationalist line on
certain issues, such as state ownership of the recent
"Pre-Salt" offshore oil finds, in order to solidify their
center-left credibility. Despite these problems, PT has
generally maintained party unity, albeit with significant
grumbling and a couple of high-profile defections. Senator
Marina Silva's (PT-Acre) move to the Green Party has grabbed
headlines but her prospects as a national presidential
candidate are less than convincing. With the election still
over a year away, these latest developments will be overtaken
by events before most voters have formed their opinions.
Jose Serra (PSDB) remains the strong frontrunner, but Dilma
and the PT are almost certainly in a better position than
recent events suggest. End summary.

Dilma, Jose, Petrobras, and Pre-Salt
--------------


2. (C) As outlined in ref B, Lula spent much of his vast
political capital over the past two months saving the
Senate Presidency of Jose Sarney, despite opposition from the
PT leader in the Senate, Aloisio Mercadante, and much of his
party base. The conventional wisdom holds that Lula
supported Sarney primarily to maintain a base of electoral
support for Dilma. On a related note, many also point to
Lula's need to build allies to shield Petrobras from an audit
that could prove damaging to his party. As Dep. Eduardo
Cadoca (PSC-Pernambuco) told poloff on Sept. 2, "Lula didn't
save Sarney. He saved Petrobras so he could save PT from
auditing. Petrobras was always part of his election
strategy." Even members of the governing coalition
including, including Foreign Relations Committee Chairman
Dep. Severiano Alves (PDT-Bahia),have told us that the
relationship between Petrobras and PT has grown close and
politicized.


3. (C) Shortly after Sarney's mid-August clearance by the
Senate's ethics committee, the August 31 Pre-Salt oil basin
rules announcement provided a perfect photo op of power in
today's Brasilia: Lula, Dilma, Sarney, and other leading PMDB
officials standing together after days of public negotiations
(ref A). Legislators from various parties told poloff that
both the statist nature of the proposed rules and the process
of negotiation can be seen as a template for future PT-PMDB
partnership. Dep. William Woo (PSDB-Sao Paulo) called the
proposal "campaign material for Dilma and PMDB," saying it
would be impossible to vote on quickly, and, if passed, to
implement. Interestingly, he and other opposition politicans
weren't bothered by its statist nature as much as its
impracticality. Dep. Mauricio Rands (PT-Pernambuco) praised
the proposal but lamented that PMDB-affilated governors in
Rio De Janeiro and Espirito Santo had succeeded in getting
Lula to remove his plan to share proceeds evenly with non-oil
states. Division of revenues will be dealt with in Congress,
where it will be fiercely contested. Even PT politicians
have been reluctant to predict final passage with confidence,
mostly because they cannot envision a compromise on division
of royalties, including within PMDB ranks.


4. (C) PMDB, recognizing its internal conflicts,
successfully pushed Lula to remove the "Provisional Measures"
(PM) status of the legislation. Lula announced the change
after a September 9 meeting with Chamber of Deputies
President Michael Temer (PMDB). According to PM rules, the
Chamber and Senate would have been forced to approve the
legislation and bring it to a final vote within 90 work days,
with virtually no space for amendments. Speaking with the
press after the meeting, Temer emphasized that Congress would
still stick closely to the schedule envisioned by the PM
rules, with the Chamber vote scheduled for November and the

final vote scheduled for early 2010. Earlier in the day,
Senator Valdir Raupp (PMDB-Rondonia) told poloff that Lula
would recognize the political wisdom of removing PM status,
arguing that the legislation in itself is popular but the PM
rules are not. "Without the (PM rules),PSDB has no angle to
oppose this except defending Sao Paulo," he said. Raupp also
said PMDB is working internally to develop a proposal by
which producing states would get a larger share of royalties,
but in which non-producing states like Rondonia would also
get a significant share.

Marina: The Next Big Thing?
--------------


5. (C) The Lula-Sarney alliance has provoked such a strongly
negative public response that it provided the perfect
environment for Marina Silva to disaffiliate with PT (Aug 18)
and affiliate with the Green Party (PV)(Aug 31) as a
prospective presidential candidate. Marina cited as reasons
for departing a lack of support during her tenure
as Minister of Environment and specific disagreements with
Dilma about economic development policy. Most leading
politicians and political analysts see Marina as a serious
presidential candidate, but probably with limited electoral
impact. Senator Romero Juca (PMDB),leader of the governing
coalition, told poloff that Marina could pull "about ten
percent of the vote, but it would come equally from PT and
PSDB." A top PSDB political advisor grudgingly agreed
that Marina pulls from both sides, but emphasized that
Marina's departure hurts Dilma more because Marina,s life
story
closely resembles that of Lula -- a reminder to voters of how
PT has strayed from its roots. Juca, among others, said
that Marina is better served as a national candidate
promoting environmental issues, which are popular among
educated voters in major cities, than as a senator from her
Amazonian province of Acre, where her stands are not always
popular. Several Marina sympathizers have told us that they
like her but question whether she is really presidential
material or really wants to be -- the same questions Lula
faced 20 years ago.

PT Chronicles
--------------


6. (SBU) Despite the departure of Marina and disaffected PT
Senator Flavio Arns, Lula has been largely successful in
keeping a united front in a party that was deeply divided on
protecting Sarney. As PT Senator Paulo Paim told poloff, "No
one is happy to make a compromise like that; I was with
(Mercadante) in voting against him." He emphasized, however,
that Dilma embodies the mainline thinking of PT and that
party enthusiasm for her is high. Dilma herself has become a
subject of controversy in the Sarney affair given the
accusations by former Internal Revenue Service (RF) chief
Lina Vieira that Dilma pressured her into dropping an RF
investigation into Sarney's son. While neither Lina's
version nor Dilma's is provable at this point, public opinion
surveys indicate that the vast majority believes the former.
Meanwhile, several rounds of early September polling indicate
that Dilma's negatives are rising quickly and she still
trails PSDB prospective candidate Jose Serra by a solid 20
points or more. Even Lula's sky-high numbers have dipped.


7. (SBU) Meanwhile, PT also faces the question of how to
proceed in the aftermath of the August 29 dismissal by the
Supremo Tribunal Federal (STF),by a 5-4 margin, of 21
criminal charges against former Finance Minister Antonio
Palocci. Palocci had been accused of breaking the bank
account privacy of a witness against him in a corruption
case. On the following day, Palocci -- still considered the
primary PT backup choice for President if Dilma's health
condition worsens -- was nominated as one of a list of
"pre-candidates" for Governor of Sao Paulo. The public
response to the STF Palocci decision has been muted,
suggesting that his political rehabilitation may well be
possible -- even though winning in Sao Paulo probably is not.


Dealing with the PMDB Devil
--------------


8. (SBU) Weakened and needing support for Dilma, PT
leadership finds itself forced to concede support for PMDB in
gubernatorial and senatorial races in 2010. Without a viable
presidential candidate, PMDB still maintains the majority of
Governor, Senate, Deputy, and state legislative slots -- and
intends to maintain or even expand that majority. Lula is
making the most visible concessions to PMDB in the big-state
governor races, such as supporting re-election of Sergio
Cabral in Rio and, more contentiously, backing Geddel Lima
Vieira, currently Minister of National Integration, in Bahia.
In some provinces -- generally smaller ones -- PT and PMDB

have reached an informal agreement for one party to target
the governorship and the other the senate seat(s).
Prospective PT candidates, naturally, are not happy about
this and are often running anyway despite what national
leadership requests. In several provinces, including
Pernambuco and much of the south, there is no agreement
between PT-PMDB and likely never will be, adding to the
instability of the national alliance.


9. (C) The big question is what, if anything, do the
petistas get out of this arrangement? Senator Juca,
responding for PMDB, told poloff that PT and PMDB will
cooperate at the national level for Dilma even if agreements
are not reached at the state level on other races. He then
spent five minutes complaining about Dilma's weakness as a
candidate. Senator Juca admitted more frankly that his party
was split in loyalty between Dilma, Serra, and his personal
favorite, Aecio Neves of PSDB, who he would like to woo to
PMDB as a presidential candidate. Senator Paim of PT also
spoke confidently cooperation in the presidential race,
waiving off the historical animosity in his home province of
Rio Grande do Sul, where PMDB is expected to support Serra.
Dep. Cadoca, a long-time member of PMDB before defecting to
PSC in 2007, said there is no way that PMDB will actually
work to support any presidential candidate. He emphasized
that PMDB backed Serra in 2002 against Lula and delivered
nothing for him while winning many new seats for themselves.
Dep. Alves, commenting on cooperation in Bahia, said PMDB
will stick with PT in this presidential race (rather than
jump back to Serra),but will only really work with PT's
alliance after the election.

Petista Worries
--------------


10. (C) PT has been pilloried in the press for aligning
itself so closely to a party known for representing nothing
much more than the desire to stay in power. They are
sensitive to the criticism. PT Dep. Rands spoke to poloff of
the need to get a few more initiatives in public view that
will reinforce his party's identity as a competent,
progressive, center-left party with a vision for the future.
The Pre-Salt announcement he viewed as a positive first step,
showcasing that Brazilian government and business had
developed over recent years to a point that they can now
manage oil exploration and distribution. He also expected an
increased PT emphasis on public education and health in
upcoming months. Leading PSDB Senate leadership staff told
us that they expected a slew of leftish social program
proposals forthcoming from PT, and that they would be ready
with their own very similar proposals.


11. (C) Other opposition figures, including Sen. Heraclito
Fortes (DEM-Piaui) believe that PT's need to distinguish
itself also extends into foreign policy. He specified,
however, that Lula and Dilma would only be taking strong
left-of-center stands on issues of limited true impact. Sen.
Fortes said that he expected PT and PMDB to oppose
U.S. use of Colombian bases, which puts them in line with
public opinion and has little practical downside for the
government. It would not, however, take a significantly
different tone -- for or against -- in regard
to relations with Hugo Chavez.

Comment
--------------


12. (C) Unfortunately for PT, their reliance on PMDB has
reached such an unprecedentedly high level that they are in
danger of being trapped by their much larger coalition
partner's foibles. Next year's election now looks like a
referendum on Lula's support for the PMDB at the cost of PT
principles, rather than the hoped-for referendum on Lula's
popular government. And with the PMDB looking out for its
own interests, its continuous presence in the campaign may
prevent the taint of the Sarney scandal from fading.
Nonetheless, Dilma and PT are almost certainly in a much
stronger position than recent events suggest. Few here doubt
the political genius of Lula, and the lack of loyalty among
the Brazilian electorate means Serra is vulnerable to falling
from favor again. PMDB-PT cooperation within
Congress appears stronger than ever, which might allow for
passage of legislation that strengthens Dilma -- although the
paralysis in the Senate caused by its recent Sarney-centered
crisis could give way to elections-related paralysis.
Despite Dilma's continued lag in the polls, PMDB does not yet
appear to be seriously looking for new partners, perhaps
realizing that PT offers the most favorable pre-election
deal. End comment.
KUBISKE