Cablegate: Lula Suffers Twin Setbacks in Congress

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



E.O. 12958: DECL: 05/11/2014




1. (C) On May 5, two developments starkly demonstrated the
Lula administration's reduced authority in Congress and the
weakness of the coalition's Congressional leadership. The
first development was the creation of a joint congressional
committee to discuss the increase in the minimum wage that
President Lula recently announced. Had it been more adroit,
the PT could have prevented the committee from being formed
and/or prevented its leadership from being dominated by
opposition parties. The coalition parties will now have to
suffer through criticism of Lula's small increase in the
minimum wage --amplified by the fact that this is an election
year. The second setback was the revocation of Lula's
earlier ban on bingo parlors, which he issued in response to
February's Waldomiro Diniz scandal. Ultimately, neither
event is likely to have substantive effect, as the minimum
wage will likely stay at the Lula-decreed level and the bingo
parlors could well end up either banned or tightly regulated.
But the message is clear: through a combination of
incompetence and waning authority, the Lula administration's
control over Congress has been attenuated. END SUMMARY.

--------------------------------------------- ---
2. (C) On May 5, the opposition in the Brazilian Congress
succeeded in setting up a joint committee to review Lula's
recent decree (MP 182) that raised Brazil's minimum wage from
R$240 to R$260 (about USD 87) per month. That raise is
barely above inflation and is considered insufficient by some
in Lula's own PT party. It has been used by opponents to
show how Lula's fiscal austerity is hurting Brazilian
workers. (N.b., presidential decrees (MPs) must be ratified
by Congress to remain in force. Sometimes a joint committee
first reviews the MP, which then goes to the floor. However,
the preference of the government is simply to not appoint a
committee --thus avoiding messy hearings-- meaning the MP
goes straight to the floor where it generally gets easy

3. (C) The joint committee was formed when several members of
the governing coalition signed the opposition's petition
supporting it. For example, PT Senator Paulo Paim has
pressed for a larger increase in the minimum wage, and he
signed in order to register his displeasure with Lula's small
increase. On the other hand, Green Party Deputy Sarney Filho
signed without understanding what he was doing. He later
complained that the coalition leadership had failed to stay
on top of the issue and keep members advised. Opposition
members won all of the committee's key leadership posts, and
Sen. Paim was among several coalition members removed from
the committee by their party leaders as punishment for their

4. (C) For all the arcane parliamentary tactics, the
formation of a committee to review MP 182 means there will be
public hearings, a public report, and public votes, causing a
political headache for Lula and his loyalists, who will now
have to put their preference for a smaller increase on
record. The opposition will fan the debate for partisan
purposes in advance of the October municipal elections.
Ultimately, the minimum wage is unlikely to change
(especially since Lula has various ways to veto any increase
over R$260), but these events demonstrate the GoB's weakness
in Congress, the unhappiness of some members of the PT-led
coalition, and the organizational failure of the coalition's
leadership, who should have headed off this development. The
minimum wage is a fight that Lula never expected to have to
wage in Congress, and it is a poor use of his limited
political capital.

5. (C) The second May 5 blow to the administration was the
Senate rejection of another presidential decree: MP 168 that
Lula issued in February to ban bingo and slot parlors. That
MP was Lula's first and firmest response to the "Waldomiro
Diniz scandal" (ref A). MP 168 shut down the 9,000 legal
parlors around the country, and it has been fiercely opposed
by the estimated 70,000 gaming employees thrown out of work.
It is widely believed here that the parlors are linked to
organized crime, so few public officials have spoken out
against Lula's decision to close them.

6. (C) On March 30, the Chamber of Deputies ratified the MP,
although coalition squabbling forced Lula to disburse pork
spending to secure the necessary votes (ref B). The measure
should have easily passed into law when it reached the Senate
floor on May 5, but the opposition simply outsmarted the
coalition's floor leaders. In the end, the MP was defeated
by a 33-31 vote. Emblematic of their own confusion,
coalition leaders seemed shocked by the defeat, never
realizing that they had failed to count noses: the MP failed
by two votes, yet four PT members were absent, including,
amazingly, the coalition's floor leader, Sen. Aloizio
Mercadante. Six other coalition Senators were absent and
eight voted against the MP. The defeat of the bingo MP is
being called by some Lula's first real defeat in Congress
since he took office. The symbolic import of MP 168 --Lula's
response to an in-house scandal and to organized crime--
should have made it a must-win for his congressional
coalition, but they let him down.

7. (C) The bingo ban is being autopsied in the daily
newspapers, but those most responsible for its death include
the PT leaders in the Senate, Ideli Salvatti and Aloizio
Mercadante, who failed to do the necessary whip-work to line
up and count their votes. Six of the coalition's 22 PMDB
Senators voted against the MP, one more example of how the
divisions in that party are damaging Lula's agenda.
Delighted gaming operators began reopening the next day, but
their glee is likely to be short-lived. Lula is preparing a
bill that would have the same effect as the defeated MP 168,
banning bingo and slots. The opposition --not wishing to be
perceived as pro-organized crime-- is drafting its own bill
that would allow some parlors to remain open while banning
slot machines. Few in the opposition are pro-bingo, they
simply saw the opportunity to defeat Lula's disorganized
coalition on a key bill, and they took it.

--------------------------------------------- ------
8. (C) The events in Congress on May 5 highlight three
dynamics: abysmal work on the floor by the coalition's
leadership --and particularly the PT caucus in the Senate;
displeasure among many in the PT with the small increase in
the minimum wage, which is a real problem for a labor party;
and continued divisions in the coalition's large, fractious
PMDB party. Last week's events will, and will not, have
consequences. The minimum wage will probably stay at the
R$260 level that Lula decreed, and bingo parlors may well be
closed down again. But the bigger picture is that it is no
longer clear that Lula and the PT exert enough control over
their own coalition to win key Congressional votes, which
will limit the administration's ability to pursue its policy

9. (C) This is not exactly new. The coalition relied on many
opposition votes to pass the pension and tax reforms last
year and will continue to attract those votes on upcoming
issues like judicial reform and biotechnology. But in
another sense, the coalition has never been weaker. The PTB
and PP parties ceaselessly clamor for pork spending and are
not shy about obstructing the administration's agenda. The
large PMDB has never been less reliable, and in addition to
its normal fractiousness, it is now riven by a dispute
between two of its leading senators (Jose Sarney and Renan
Calheiros) over who will be the next Senate majority leader.
And as noted, the PT's floor leaders in the Senate fell down
on the job last week, while party dissidents complained about
the small minimum wage increase. This dispute will not go
away, and some PT members may defy party orders and vote
against the R$260 wage when the MP comes to the floor.

10. (C) Finally, the coalition's weakness is causing distrust
between the two houses. Last year, the Chamber defied
difficult publicity and sent tough, responsible pension and
tax reform bills to the Senate, only to see the Senate water
them down and get credit from voters. The Senate is
inherently less-disciplined than the Chamber, more subject to
grandstanding and less willing to follow party directives.
The Senate's maneuvers last week only reinforced the
perception among Deputies that Senators will steal the glory
but not share the pain on controversial issues. If this
perception is not remedied, it may make the Chamber gunshy
and unwilling to vote for tough reform bills in the future.

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