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Cablegate: Pt Internal Dispute Foreshadows 2010 Election

VZCZCXRO8658
PP RUEHRG
DE RUEHSO #0129/01 0461041
ZNR UUUUU ZZH
P 151041Z FEB 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 6446
INFO RUEHBR/AMEMBASSY BRASILIA 7539
RUEHAC/AMEMBASSY ASUNCION 2930
RUEHBU/AMEMBASSY BUENOS AIRES 2640
RUEHMN/AMEMBASSY MONTEVIDEO 2273
RUEHLP/AMEMBASSY LA PAZ 3226
RUEHSG/AMEMBASSY SANTIAGO 1988
RUEHRG/AMCONSUL RECIFE 3379
RUEHRI/AMCONSUL RIO DE JANEIRO 7808
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2711
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 04 SAO PAULO 000129

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/FO, WHA/BSC, DRL, IL, INR/IAA, INR/R/AA
STATE PASS USTR FOR CRONIN
STATE PASS EXIMBANK
STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE
STATE ALSO PASS TDA FOR ANGULO AND MCKINNEY
NSC FOR FEARS
TREASURY FOR OASIA, DAS LEE AND JHOEK
USDOC FOR 4332/ITA/MAC/WH/OLAC
USDOC FOR 3134/ITA/USCS/OIO/WH/RD
SOUTHCOM ALSO FOR POLAD
USAID FOR LAC/AA

E.O. 12958: N/A
TAGS: PINR PGOV ELAB BR
SUBJECT: PT INTERNAL DISPUTE FORESHADOWS 2010 ELECTION

REFS: (A) BRASILIA 208; (B) BRASILIA 107;

(C) SAO 06 SAO PAULO 1264 (D) 06 SAO PAULO 1105;
(E) 06 BRASILIA 727; (F) 05 SAO PAULO 1110

SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY

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

1. (SBU) Summary: The 2010 presidential election, in which
President Lula will not be a candidate for the first time since
1985, is the apple of discord behind the current conflict between
various factions and tendencies of the ruling Workers' Party
(Partido dos Trabalhadores - PT). The different ideological groups
in the party are fighting for a better political position within the
government during Lula's second term and in the PT's governing
National Directorate (DN). The two main rivals are the Majority
Faction ("Campo Majoritario"), heavily influenced by former Minister
Jose Dirceu, and leftist tendencies represented by Tarso Genro,
Minister of Institutional Relations. In regional terms, the Campo
Majoritario is dominated by PT members from Sao Paulo, while the
leftists who oppose them are from various other states, with Rio
Grande do Sul heavily represented. The immediate occasion for the
dispute is the celebration of the 27th anniversary of the party's
founding, but it is expected to play out through the 3rd National PT
Congress, scheduled for July, and PT internal elections for
President and DN, which are scheduled for late 2008 but are expected
to be moved up to late 2007. Ultimately, this power struggle and
its outcome are likely to have a major impact on the PT's 2010
candidate and campaign. End Summary.

2. (U) The PT's performance in the 2006 national elections, when it
won 83 seats (out of a total of 513) in the Chamber of Deputies and
became the second-largest political force in the Congress, just
behind the Brazilian Democratic Movement Party (PMDB), gave the
party a new lease on life and a new perspective. Instead of being
humiliated and punished by voters for the various corruption
scandals of 2005-6, as many analysts predicted, the PT recovered
strength and optimism. With these, not surprisingly, came an
appetite for more power. In January, the party decided to put
forward its own candidate for President of the Chamber of Deputies
(Speaker of the House equivalent) in the person of Arlindo Chinaglia
of Sao Paulo, who led government forces in the last Congress (see
ref B). This decision challenged a previous agreement between the
President Lula and member parties of his governing coalition to
maintain Aldo Rebelo (Communist Party of Brazil - PCdoB) in the
presidency. When the new Congress was seated February 1 (ref A),
Chinaglia defeated Rebelo in the second round and became the new
Chamber President as a result of an alliance with the PMDB and some
unexpected support from the opposition Brazilian Social Democracy
Party (PSDB).

------------------------------
CAMPO MAJORITARIO VS. LEFTISTS
------------------------------

3. (SBU) Chinaglia represents the Campo Majoritario, the largest
faction in the PT, and was supported by a group of prominent
traditional representatives of the influential Sao Paulo PT. These
include Jose Dirceu, President Lula's former Chief of Civil
Household (Chief of Staff equivalent), who resigned in June 2005 at
the height of the "mensalao" (vote-buying) scandal and was later
expelled from Congress and deprived of his political rights for
eight years, and indicted by the Attorney General (AG); former Sao
Paulo Mayor Marta Suplicy, considered by some a possible successor
to Lula; former Finance Minister Antonio Palocci, another senior
administration figure who resigned due to corruption allegations;

SAO PAULO 00000129 002 OF 004


former president of the Chamber of Deputies Joao Paulo Cunha,
accused in the "mensalao" scandal of receiving dirty money but
acquitted by Congress, though he remains under indictment by the AG;
and PT National President and former Labor Minister Ricardo
Berzoini, who stepped down as Lula's campaign manager last September
at the height of the "dossier" scandal and only recently returned to
the party's presidency after a semi-voluntary leave of absence.
Marco Aurelio Garcia, Lula's foreign policy advisor and PT First
Vice President who replaced Berzoini both in the campaign and
(temporarily) in the party's top job, is also affiliated with the
Campo Majoritario, but owes his loyalty directly to Lula. Senator
Aloizio Mercadante, the PT's unsuccessful candidate for Governor of
Sao Paulo, is another prominent Campo Majoritario figure close to
Lula. His clout has been diminished, however, by both his poor
showing in the election and his centrality to the "dossier" scandal,
in which PT operatives, including Mercadante campaign staffers, are
accused of paying about USD 870,000 for a smear campaign against
Mercadante's opponent, now-Governor Jose Serra.

4. (U) Chinaglia's victory in the Chamber election demonstrated not
only that the PT as a whole is back on track, but that the Campo
Majoritario is still very powerful within the party, though somewhat
fragmented. Leftist groups and social movements within the PT hold
the Campo Majoritario responsible for the mensalao scandal and more
generally for betraying the party's history and social
responsibility. They have been particularly critical of the Lula
administration's orthodox macro-economic policies as implemented by
former Finance Minister (now Federal Deputy) Palocci; they believe
Brazil's high interest rates stifle growth and hurt the poor. More
generally, they believe President Lula has not devoted enough
attention or resources to social programs or to redistribution of
wealth. The Campo Majoritario has controlled the National
Directorate and thus the party for almost fifteen years and is
credited with developing the party apparatus that made possible
Lula's 2002 victory. The mensalao scandal, however, had given the
internal opposition the opportunity to overthrow the Campo and gain
more seats in the National Directorate; in the September 2005
internal elections for PT President and Directorate, leftist
candidates Valter Pomar (now PT Secretary for International
Relations) and Raul Pont (Rio Grande do Sul state legislator and,
until last week, PT Secretary-General - see ref D) gave Ricardo
Berzoini of the Campo Majoritario a run for the money. Berzoini won
in the second round and the Campo retained its majority, but it was
a close call. One immediate result of these elections was the
defection of several prominent leftists to Heloisa Helena's
Socialism and Liberty Party (PSOL) (ref F). The results of the 2006
presidential, gubernatorial, and legislative elections, however,
followed by Chinaglia's victory in the Chamber, made it clear that
the Campo Majoritario is still very much alive.

-----------------
TARSO'S MANIFESTO
-----------------

5. (U) The dispute between the two groups, though no secret, came
into the full glare of the public and media spotlight in early
February when leftist groups, with the support of more moderate
groups, launched the first draft of a document called "Message to
the Party." Signed by 214 party officials and orchestrated by
Minister of Institutional Relations Tarso Genro, the document is a
preliminary version of a proposal to be presented in July at the 3rd
PT National Congress. It calls for a new internal party
organization in which the Campo Majoritario would no longer be the
core element. Furthermore, it suggests that the 3rd PT Congress
should address corruption within the party and punish those involved
in the mensalao scandal as part of an effort to "recreate" or
"re-found" the party. The manifesto was clearly an attack on the
group beholden to Jose Dirceu, many of whose members have been

SAO PAULO 00000129 003 OF 004


involved in the ethical scandals of recent years. Until his
spectacular fall, Dirceu was considered the evil political genius of
the Lula administration and the PT; many believe the activities that
led to the scandals were motivated by Dirceu's desire to generate
the funds necessary to perpetuate the PT's hold on power.

6. (U) Dirceu, who is prohibited from running for or holding any
government office but not barred from behind-the-scenes activity,
reacted angrily to the document and asked Lula to weigh in on his
behalf. Tarso Genro then rewrote the document, removing provocative
words like "corruption" and "party re-creation", but the overall
message of profound dissatisfaction remained, albeit less
explicitly. An important subtext of the imbroglio is Dirceu's
ongoing effort to have the Chamber of Deputies rescind its December
2005 expulsion of him and removal of his political rights; while he
has strong support in some quarters, many in the PT believe this
would be an inappropriate, indeed scandalous, use of the party's
political resources. Dirceu may also eventually want an amnesty to
protect him from the AG's charges (ref E) that he was the mastermind
of a sophisticated criminal organization that engaged in bribery,
money-laundering, and illicit payoff schemes, but for the time being
he appears content to let the judicial process take its course; he
says he is innocent and wants his day in court.

7. (U) The division between the Campo Majoritario and the leftist
groups is an old story. The novelty in this episode is that there
is a new configuration of the Campo Majoritario itself. The 2006
election brought to the forefront new faces in the party, such as
the new Governor of Bahia, Jacques Wagner, and the new Governor of
Sergipe, Marcelo Deda. (Note: Deda signed the "Message to the
Party" but Wagner did not. End Note.) Popular in their states,
they both belong to the Campo Majoritario but are not within
Dirceu's sphere of influence. They also cannot be considered close
to the leftists from Rio Grande do Sul. They represent new forces
from the Northeast which want the region to have a larger role in
party deliberations. They also believe that the PT must face up to
its ethical shortcomings and responsibilities. With President
Lula's support, they propose the creation of a new Campo
Majoritario, which is being referred to informally as the New
Political Camp ("Novo Campo Politico). It would remain a majority
but would not leave power concentrated in the hands of the one small
group - especially not a group controlled by Dirceu.

-----------------
THE 2010 ELECTION
-----------------

8. (SBU) Gathered together for the celebration of its 27th
anniversary in Salvador (Bahia) last weekend, the PT also revealed
that its relationship with President Lula is not what it used to be
(see ref C). Lula gave a speech asking the party to avoid internal
disputes and to unite in support of his government. At the end of
the gathering, however, the PT National Directorate issued a note
saying that the party wants a larger and more substantive presence
in Lula's second-term government. They would like to control such
Ministries as Communications and Health, currently in the hands of
Lula's PMDB coalition partners. Indeed, Lula is faced with the
challenge of distributing Ministries and other important positions
to representatives of his eight-party coalition without
significantly reducing the PT presence in the government. The
Directorate also criticized the government's macroeconomic policies,
especially the high (albeit declining) interest rates maintained by
the Central Bank. The PT has often accused the Central Bank of
being too independent and out of tune with the country; the leftists
especially believe the Bank should hew more to the government and
party line.

9. (SBU) The content of the Directorate's communique reveals that

SAO PAULO 00000129 004 OF 004


the party is trying to play both government and opposition roles,
since it is seeking more power within the government while at the
same time posing as an independent government critic. In the past,
the PT, even when critical of Lula, has remained on his side and
defended him against outside criticism. Now the balance of forces
between Lula and "his" party is more delicate. The PT seems
determined to run its own candidate for president in 2010 instead of
supporting somebody from another party in the coalition, which would
be President Lula's first choice if he can't find a successor to his
liking from within the PT. On the other hand, Lula is determined to
have a strong influence over future elections. As Lula increasingly
becomes a lame duck - a process expected to accelerate after the
2008 municipal elections - his interests are likely to match the
PT's goals and priorities less and less.

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

10. (SBU) The internal dissension in the PT is not as simple as it
might appear from the description above. Following the "Message to
the Party," the Campo Majoritario put out its own message, and
various smaller groups, including Valter Pomar's Axis of the Left,
weighed in with their own perspectives. These papers may be viewed
on the PT's website, www.pt.org.br. The various "tendencies" appear
to be staking out territory. The PT is scheduled to hold internal
elections in 2008, but Pomar told us recently that the National
Congress is likely to move the date up to September 2007, before the
municipal election campaign begins.

11. (SBU) Tarso Genro, the most vocal "dissident" against Campo
Majoritario rule, is believed to be close to Lula but otherwise
unpopular in the party. A former Mayor of Porto Alegre, he served
as Education Minister until Lula asked him in 2005 to help pull the
PT back together after scandal decimated its senior ranks. He would
have run for PT President but was unwilling to do so as long as
Dirceu remained a candidate for the National Directorate. After
resisting the pressure for some time, Dirceu eventually withdrew his
name, but the hard-fought battle made it clear to Genro that even as
party president he would not be in charge, so he stepped aside to
let Ricardo Berzoini run. Genro is often spoken of as a
short-listed candidate to replace Marcio Thomaz Bastos as Minister
of Justice, but Lula has been in no hurry to implement his
long-awaited Cabinet shuffle. Now Genro may have burned too many
bridges in the party to be named to the Cabinet. For his part, the
PT's most famous founding member, President Lula, is clearly not
happy about the PT's internal conflicts, but appears to be taking
the same lackadaisical approach to party affairs as to governing:
he's essentially watching the world pass by. End Comment.

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

WOLFE

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