Cablegate: Lula Reaches Halfway Point with Rising Approval

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




E.O. 12958: N/A


1. (SBU) SUMMARY. After a two-year roller coaster ride,
Brazilian President Lula da Silva has reached the halfway
point of his term with his approval rating back up to 63%.
His first year was marked by high approval numbers and
unrealistic expectations, both by his administration and the
public at large. The second year opened with a dose of
reality including economic pessimism, a scandal, and growing
public impatience with the GoB's inability to deliver on its
social agenda. But as the economy has strengthened, Lula is
regaining traction and early projections show him ahead of
his likely challengers in the 2006 presidential race. Lula's
largest headache now is maintaining the governing coalition
so that his administration can pass key bills and reforms
through congress, and specifically to achieve greater results
on the social agenda. END SUMMARY.

2. (SBU) According to a just-released November 29 IBOPE
survey, President Lula's approval numbers continue to tick
upward after bottoming out in midyear. Lula's personal
approval rating now stands at 63%. (By contrast, Lula was
elected with 61% of the votes in October 2002, his approval
briefly topped 80% in early 2003, and then fell to a nadir of
54% in June 2004.) The approval ratings for Lula's
government are also improving, though they have always run
lower than his personal numbers. The government approval
rating now stands at 41%, up from 29% in June. The
improvement is seen as primarily linked to Brazil's
strengthening economy. To the extent that Lula's problems in
early 2004 were caused by a series of black eyes --from the
"Waldomiro Scandal" to a brutal fight in Congress over the
minimum wage to the "Red April" of land occupations by the
Landless Movement (MST)-- Lula has benefited both from the
fact that the worst of the bad news seems to have run its
course, and from the fact that the municipal elections in
October kept Congress out of session for months, leaving him
free to legislate by decree and keeping opposition party
leaders too distracted to attack him in floor speeches.

3. (SBU) The same IBOPE survey shows that Lula has a strong
lead in early projections for the 2006 presidential race. If
the election were held today, Lula would beat newly-elected
Sao Paulo mayor Jose Serra (PSDB) by 42-33%. During this
year's mayoral campaign, Serra pledged to complete his term
through 2008, but his 33% showing in this poll is ten points
better than he did in the first round of the 2002
presidential race. According to the IBOPE poll, Lula would
easily beat the other two PSDB stars: Sao Paulo Governor
Geraldo Alckmin (47-15%) and Minas Gerais Governor Aecio
Neves (49-9%). PMDB gadfly Anthony Garotinho polls between
8% and 16% in the various projections --about how he fared in
the 2002 race.

4. (SBU) Lula's popularity has recovered mostly on the
strength of an improving economy, as GDP growth and
employment have showed significant strength in recent months.
2004 GDP growth will likely be about 5% (ref B). One way
the president may be looking to consolidate both economic
optimism and greater popularity is by deciding sooner rather
than later on the size of the annual increase in the minimum
wage. Lula reportedly hopes this week to approve a hike from
the current 260 to possibly as much as 300 reals per month.
(Comment: While still a long way from Lula's unrealistic
campaign promise to double the real minimum wage during his
first term, the increase would be a significant 8% above
inflation.) Proposing a healthy increase before Congress
comes back in mid-February could avert a repeat of last
April's political blood-letting when the opposition and many
in Lula's own Workers' Party (PT) bitterly opposed his
minimum wage adjustment proposal, which was only 1.2% above
inflation (ref C). Strong 2004 fiscal results make a bigger
adjustment possible.

5. (SBU) In the past three days, two parties have pulled out
of Lula's coalition --the large PMDB and the medium-sized
PPS-- to better position themselves in opposition to Lula's
PT in advance of the 2006 elections (ref A). Either or both
of these parties may fracture in the coming weeks, meaning
that it is too soon to assess how many Congressional votes
Lula will lose by their defections. But the early math
suggests the administration should be able to cobble together
narrow majorities on most, but perhaps not all, votes. The
two parties hold three cabinet posts (Communications, Social
Security, and National Integration), and by January or
February, Lula will have to decide whether to swap out those
three ministers and whether that becomes part of a larger
cabinet shuffle.

6. (SBU) Congress had a subpar year, failing to pass or make
much progress on most key bills and reforms on its agenda.
Congress spent the first half of the year in bitter partisan
fights over how to handle the "Waldomiro Scandal" and the
minimum wage. In July, legislators returned to their states
to stump for their parties' candidates in the October
municipal elections. And after the elections, the PMDB
--caught up in its internal disputes-- blocked committee and
floor votes for weeks. By year's end, the Joint Budget
Committee will have passed its mandatory budget, while key
sections of the Judicial Reform passed in early December.
But left undone and on next year's agenda are: labor
reforms, final pieces of the 2003 tax and pension reforms,
Public-Private Partnerships (to fund infrastructure
projects), the Biosafety Law (to regulate biotechnology), and
the Bankruptcy Law.

7. (SBU) Last week, Lula held the final full cabinet meeting
of the year, a strategy session to close the book on the
first half of his term and look forward to the next two
years. He set the tone in his opening remarks: "After
decades of stagnation, this country needs development". When
Congress returns in February, it will choose new leadership
in both the Senate and Chamber and in all the committees.
These changes will be closely watched for clues to evolving
dynamics in the administration and congress and to see if the
new cabinet lineup and congressional leaders are able to
improve the administration's efficiency and its congressional
floor tactics, which ranged from fair to poor over the past
two years. Beyond the hike in the minimum wage, Lula is
clearly animated to turn greater attention to the social
agenda --everything from road and port improvements to
strengthening the Zero Hunger program-- and economic growth
may give him a bit more maneuvering room to do so. He told
the cabinet meeting that "We have two years to go. It's time
to reap what we sowed (i.e., after two years of fiscal
austerity). Today, everything starts to change."

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