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Cablegate: Lula Gets Started - Fighting Hunger On a Tight

This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 BRASILIA 000043

SIPDIS

DEPT FOR WHA/BSC

E.O. 12958: DECL: 01/06/2008
TAGS: PGOV PREL ECON EAID BR
SUBJECT: LULA GETS STARTED - FIGHTING HUNGER ON A TIGHT
BUDGET

REF: 02 BRASILIA 4561

Classified By: POLOFF RICHARD REITER FOR REASONS 1.5(b) AND (D).

1.(C) SUMMARY. President Lula,s administration is
underway. At his first cabinet meeting on January 3, Lula
emphatically focused his ministers both on combating hunger
and on fiscal austerity. While the government's maneuvering
room is circumscribed by the lack of a congressional majority
and its financial limitations, Lula seems determined to chart
a course that will address hunger, maintain fiscal
discipline, and either build a stronger congressional
coalition or find ways to do without it. END SUMMARY.

FIGHT AGAINST HUNGER IS JOB NUMBER ONE
--------------------------------------
2. (C) President Lula da Silva has never made a secret of his
desire to attack hunger. He promised it during the campaign
and in his election-night speech. His first post-electoral
act in November was to set up the &Zero Fome8 (Zero Hunger)
program headed by Jose Graziano, who now holds the title
&Extraordinary (Ad hoc) Minister for Food Security and
Combating Hunger.8 Graziano told us he intends to implement
his nascent program in phases, beginning in the poorest areas
of the northeast. He will not work alone. At the January 3
cabinet meeting, Lula directed each of his thirty-four
cabinet-level officials to draft an anti-hunger strategy
within thirty days.

3. (SBU) Even those ministries not normally associated with a
social agenda are jumping aboard: Defense Minister Viega has
pledged an anti-illiteracy program, Justice Minister Bastos
will combat child prostitution, and Finance Minister Palocci
will look to expand credit cooperatives. In fact, Lula
announced that on January 10-11, he will take the entire
cabinet to the poor backlands of the northeast to launch the
Zero Fome program. With Congress out of session until
mid-February, Lula carried out his first act by Presidential
Decree (MP). MP 103, the first of this administration,
formalizes a number of bodies in the President's Office,
including a Food Security Council (CONSEA) to develop
anti-hunger policies.

A CAP ON SPENDING - DESPITE PLEAS FROM THE STATES
--------------------------------------------- ----
4. (SBU) Combating hunger takes money, but the GoB does not
appear inclined to deviate from its austerity program. The
Ministries, anti-hunger projects will have to come from
reprogramming existing funds, not new resources. Since
November, Lula has been inundated by pleas for financial help
from cash-strapped states, many of them politically-critical
to his coalition, yet he has stayed the course. The richest
states tend to be the squeakiest wheels: Rio Grande do Sul
will be forced to slash its budget by 18%, while Minas Gerais
faces a deficit of R$700 million.

5. (SBU) But the biggest headache may be the state of Rio de
Janeiro (septel), which is now behind both on its debts to
the federal government and the salaries of its state
employees. After Rio missed several scheduled debt payments
to the federal treasury in recent weeks, the GoB first froze
financial transfers from Brasilia to the state and then
withdrew R$ 86 million from the state's bank accounts (per a
clause in the loan contract). This prompted
newly-inaugurated Rio Governor Rosinha Garotinho to go to the
Supreme Court to try to unblock the financial transfers while
calling the GoB,s actions &a declaration of war on Rio8.
The episode is significant because Garotinho,s Brazilian
Socialist Party (PSB) is a member of the PT's congressional
coalition. Rio gave Lula 79% of votes in October's
presidential runoff, his greatest support from any state --in
part due to Garotinho's support. Rosinha has attributed this
episode to a long-running PSB/PT feud in the state, as
Rosinha,s husband, Anthony Garotinho, ran against Lula for
the presidency at the same time as Rosinha defeated the PT,s
Benedita da Silva for the Rio statehouse. The PSB/PT dispute
will likely be patched up, but it provides a telling example
of how financial scarcity and local political antagonisms can
weaken the PT,s coalition. It is also a measure of Lula,s
resolve to limit spending, even to key allies.

FIGHTER PLANES IN A HOLDING PATTERN
-----------------------------------
6. (SBU) Another example of the GoB,s early commitment to
austerity is the decision to delay purchase of twelve fighter
planes for the Brazilian Air Force to replace its aging
Mirage jets. Instead of choosing a vendor for the roughly
$800 million contract, new Defense Minister Viegas has
announced that the purchase will be postponed for a year,
cutting it close for the Mirages, scheduled to go out of
service in 2005. As the planes were to be purchased through
financing, the postponement will not free up funds, but it
will avoid locking the administration into a huge commitment
in its first weeks in office. Viegas may now consider
purchasing used aircraft, which could improve the chances for
the package of used F-16s that is among the bidders.

IN CONGRESS, &THE CLASSES COME LATER8
-------------------------------------
7. (SBU) The new Congress will not get down to work until
February 17, giving the administration six weeks to try to
secure a majority in both houses by bringing the PMDB party
into the coalition. While talks with the PMDB fell apart
before Christmas (reftel), both sides seem willing to keep
trying and say they are committed to abiding by a side deal
by which the PT will support the candidacy of a PMDB member
for Senate President if the PMDB supports the PT candidate
for Chamber President. The PMDB is a difficult party to
negotiate with because of its internal rifts, so any deal
will likely have to wait until its leadership elections on
January 30.

8. (SBU) Lula is working on a &Plan B8 if the PMDB talks
fall through. Like Presidents Sarney and Collor before him,
Lula may try to mitigate his lack of a congressional majority
by relying on public pressure and his own popularity to
short-circuit congressional opposition. The PT has always
used &assemblyist8 fora to bring different sectors and
players to a common table. From this impulse sprang the
Economic and Social Development Council (CDES) --also
legalized by MP 103 (above). CDES brings together 82
business, labor, and civic leaders in a sort of Brazilian
&social pact8. The GoB hopes to use it as a mechanism for
the public to ratify its policies and thus force Congress to
support its agenda. Tarso Genro, former PT Mayor of Porto
Alegre, will be Lula,s Special Secretary for CDES; and Luiz
Dulci, the Secretary-General of the President's Office, will
work closely with him and with civil society. CDES will
reportedly focus first on pension reform.

9. (SBU) But mindful that neither President Sarney nor Collor
maintained his congressional support after the flush of
electoral victory dissipated, Lula surely would prefer a real
congressional majority to an evanescent social pact.
Congress can be a tough place for a president without a
majority. Or, as one wit noted while Lula received his
Presidential certificate at the Congressional inauguration
ceremony, &Lula needs to remember that the presidential
diploma comes first, but the classes come later.8

COMMENT
-------
10. (C) Lula must be doing something right. This week the
Brazilian real strengthened to below R$3.40 to the dollar for
the first time since mid-September --before the first round
of elections. The GoB,s reassuring economic team and steady
drumbeat of austerity rhetoric appear to have calmed the
markets. While the political and financial dragons still lie
before him, Lula appears to have the sound instinct and
steady nerves it will take to tame them.
HRINAK

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