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Cablegate: Pt Expects Lula to Advance the Party's Agenda

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PP RUEHRG
DE RUEHSO #1264/01 3491429
ZNR UUUUU ZZH
P 151429Z DEC 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 6160
INFO RUEHBR/AMEMBASSY BRASILIA 7250
RUEHAC/AMEMBASSY ASUNCION 2868
RUEHBU/AMEMBASSY BUENOS AIRES 2557
RUEHMN/AMEMBASSY MONTEVIDEO 2230
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RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2651
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 06 SAO PAULO 001264

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/BSC AND WHA/EPSC
STATE PASS USTR FOR CRONIN
STATE PASS EXIMBANK
STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE
USDOC FOR 4332/ITA/MAC/WH/OLAC
USDOC FOR 3134/ITA/USCS/OIO/WH/RD
TREASURY FOR OASIA, DAS LEE AND JHOEK
NSC FOR FEARS
SOUTHCOM ALSO FOR POLAD
AID/W FOR LAC/AA

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV PINR ECON PREL BR
SUBJECT: PT EXPECTS LULA TO ADVANCE THE PARTY'S AGENDA

REF: BRASILIA 2578

SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY


SUMMARY

1. (SBU) Summary: Officials of President Lula's Workers' Party
(Partido dos Trabalhadores - PT) downplayed reports of tensions
between the President and his party. The PT considers the 2006
elections to have been a referendum on President Lula's record and
his vision for the country and believe they have a solid mandate to
expand programs for the poor. They said Lula and the PT are of one
mind on the agenda for the second term, in which the government will
seek to promote GDP growth of at least 5 percent by lowering
interest rates, while expanding social programs, and promulgating
political reform. Social security reform is not on the agenda and
labor reform is considered unlikely; the government may attempt a
limited tax reform. Foreign policy is not expected to change, as
the PT remains enamored of the "south-south" approach. The PT's
National Directorate (DN), meeting in late October, announced that
the party's third National Congress will take place in July 2007 in
Brasilia. Whether party president Ricardo Berzoini, who stepped
aside in September after being implicated in the "dossier" scandal,
will return to his post remains unclear. The National Congress is
expected to move internal elections for party president and DN from
late 2008 to late 2007. In 2008 municipal elections in Sao Paulo,
the PT is likely to nominate former Mayor Marta Suplicy and
considers it likely that her opponent will be former Governor
Geraldo Alckmin of the Brazilian Social Democracy Party, who lost
this year's presidential election to Lula. If Suplicy wins, she
would become the PT's most likely candidate to succeed Lula. We
believe PT members exaggerate the degree of their influence over
Lula and will be disappointed when they see him continue to govern
like the pragmatic centrist that he has shown himself to be. End
Summary.

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2. (U) In late November, President Lula achieved the remarkable
feat of uniting almost the entire Brazilian Democratic Movement
Party (PMDB) as the anchor of his governing coalition. The PMDB,
Brazil's largest political party, has been sharply divided for the
past 20 years; during his first term, Lula had the support of one
wing, while the other was in opposition. Lula's political success,
however, has led political commentators to question whether his own
PT will continue to fully support his government. Many PT members
reportedly harbor resentment over the way Lula campaigned for
re-election independent of his own party, often without even
mentioning it during public speeches and appearances. Some also
blame the corruption scandals of Lula's first term for creating
electoral problems for the party, though the PT ultimately did
better than expected, winning 83 seats in the Chamber of Deputies
(second highest after the PMDB's 89) and five governorships,
including in the important state of Bahia. During his first term,
Lula was often criticized by members of his own party for his
orthodox macro-economic policies. Many PT militants are also known
to be uneasy with the government's entering into alliances across
ideological lines, i.e., with non-leftist parties.

3. (U) In addition to the Socialist and Communist parties on the
left, Lula's coalition will include not only the centrist PMDB but
also several so-called "rent-a-parties" which, to the very limited
extent that they have a political identity, occupy various
center-right spaces on the political spectrum, and many of whose
members were implicated in one or more of the corruption scandals of
Lula's first term. Lula has also reportedly obtained the support of

SAO PAULO 00001264 002 OF 006


the center-left Democratic Labor Party (PDT) and the Green Party
(PV) and some smaller entities, and he appears to have a solid
working majority.

4. (U) Over the past ten days, Poloff and Political Assistant have
met separately with Valter Pomar, PT Secretary for International
Relations; Jose Americo Dias, a PT Sao Paulo City Councilman; and
Eloy Pieta, PT Mayor of Guarulhos, a city of 1.3 million on the
periphery of Sao Paulo, who helped coordinate Lula's campaign in Sao
Paulo state. Our discussions focused on the relationship between
the PT and President Lula personally and his government, as well as
PT perspectives on the Lula administration's agenda and priorities
for the second term. Pomar is the leader of a small leftist faction
within the PT who ran unsuccessfully for party president in
September 2005. Dias, who is close to former Sao Paulo Mayor Marta
Suplicy, and Pieta, who is the Mayor of Sao Paulo state's
second-largest city, are influential within the party's state and
local organizations.

LULA AND PT "INSEPARABLE"

5. (SBU) Both Valter Pomar and Jose Americo Dias began the
conversations by warning us that anyone who gets their information
from the Brazilian media will have a distorted view of the PT.
Pomar decried what he called misinformation published and broadcast
by the media and criticized those who would drive a wedge between
the President and his party by alluding to a rupture. "Nothing that
happens in the PT is alien to Lula. And he is responsible for
everything that happens in the party." Lula, he continued, is
President of the Republic, head of government, and founder/leader of
the PT. This does not mean that Lula is legally answerable for
everything that every party member does (and certainly not for
actions that led to the political corruption scandals, which most PT
members maintain were blown out of proportion by the media and the
opposition), but that Lula and the party are inseparable. The PT
views itself as autonomous from the government, but it supports the
government and mobilizes the population so that the government will
succeed. It also, Pomar added, tells the government and the
President when the party faithful think they are heading down the
wrong track. Dias, for his part, sees the PT as the "great
negotiator for the masses" with the government.

6. (SBU) It was the social movements in the leftist wing of the PT,
Pomar recalled, who issued a statement defending Lula and denouncing
"golpismo" (an alleged attempt to overthrow a democratically elected
government) on the part of the opposition and the media during the
darkest days of the "mensalao" scandal in 2005. These movements -
the Unified Labor Center (CUT), the Landless Movement (MST), and the
National Students' Union (UNE) are the most prominent - also
strongly supported Lula's re-election. That said, Pomar
acknowledged that leftist tendencies within the party have on
several occasions harshly criticized Lula's economic policies. But
the real conflicts came from the opposition. While the social
movements could be counted on to agitate for an expansion of social
programs in the second term, Pomar predicted that any conflicts of
this nature would be minor compared to those generated by the main
opposition parties, the Brazilian Social Democracy Party (PSDB) and
the Liberal Front Party (PFL).

LULA'S MANDATE

7. (SBU) All the PT officials we talked to saw the 2006 election as
conferring a strong mandate on Lula and affirming his first-term
record and his vision for Brazil. Mayor Pieta referred to low
inflation, job creation, the increase in the minimum salary, low
prices for food, and redistribution of income via such programs as

SAO PAULO 00001264 003 OF 006


Bolsa Familia as the reasons Lula won the election. Both Pomar and
Dias said that while the reasons the election went to a second round
- the "dossier" scandal in late September and Lula's decision not to
participate in the final debate - were unfortunate, the second round
itself was unequivocally good for both Lula and the PT, because it
enabled him to differentiate himself from his opponent. Lula, Dias
said, talked to the poor and about the poor; he quite consciously
used the discourse of class struggle, but in a non-radical way. The
second round highlighted the differences between the candidates.
The values articulated by Lula -- no privatizations, emphasis on
social policy -- prevailed over ex-Governor Geraldo Alckmin's.
Pieta noted that Lula had governed cautiously during the first term,
but would now be in a much stronger position to implement his
agenda.

THE COALITION

8. (SBU) Pomar noted that the governing coalition Lula has put
together is roughly the same as he had in the first term, with a few
additions. The major difference is that he now has the support of
virtually the entire PMDB (with a few Senators and Deputies holding
out as "independents") instead of just one wing. This, Pomar said,
will give the coalition more "quality." He did not believe,
however, that the PMDB would necessarily get more Ministries or
other senior appointments, as most observers expect. He also did
not expect the PMDB to try to impose an agenda on the government.
Thus, he expressed confidence that the PT's presence and influence
in Lula's second administration will not be significantly diminished
and does not believe the PT has quarrel with Lula about the way
forward, despite reports to the contrary. Pieta, on the other hand,
admitted that the PT would lose some representation in the
government but said it wouldn't matter because the main advisors
closest to Lula are all party faithful.

THE AGENDA

9. (SBU) With regard to the agenda for Lula's second term, the PT
has a party line, an official story. The mantra is "growth of 5
percent." Dias asserted that "Brazil has a vocation for growth."
The first and most important measure, according to our
interlocutors, will be a reduction of interest rates. A change in
exchange rate policy to bring down the strong Real is also possible,
though this has not yet been decided. There will be increased
emphasis on social policy and expansion of social programs; Pieta
indicated that improving the Bolsa Familia cash transfer program
will be a priority. There will also be increased investment in
infrastructure via Public-Private Partnerships (PPPs). Dias spoke
of removing legal and environmental impediments that have made it
difficult to launch PPPs. These measures are expected to stimulate
growth. Pomar said the reduction of interest rates will make a big
difference in the near term.

10. (SBU) Both Pomar and Dias were quite firm, however, in
declaring that there will not be a reform of social security in the
second term. Dias was explicit, saying that "FIESP's agenda lost
the election," a reference to the powerful Sao Paulo State
Federation of Industries, Brazil's most important business
association. He noted that at the PT National Directorate's (DN)
meeting in late November, acting party President Marco Aurelio
Garcia had stated that "the defeated are trying to impose their
losers' agenda" on the government, but that the PT would fight back.
Lula, according to Dias, had said more or less the same thing,
albeit somewhat less bluntly. Social security reform is viewed as
incompatible with the interests of the party's base. It is also
highly doubtful that the government will propose either labor union
reform ("reforma sindical") or industrial relations reform ("reforma

SAO PAULO 00001264 004 OF 006


trabalhista"). Pieta noted that it would be hard to get the unions'
consensus on these reforms, and that Lula is reluctant to risk
alienating part of his own base by asking workers to make any
concessions.

11. (SBU) Lula's priority will be political reform, Pomar said.
While this might mean different things to different members of
Congress, there are some areas of convergence, including moving to a
mixed party list and single district system for legislative
elections, requiring party fidelity (no more party-jumping), and
instituting public financing of political campaigns. Pomar said
political reform would improve the quality of political discourse
and of the legislative branch and thus would make it easier for the
government to implement pro-growth policies and to work on
de-concentrating wealth. Besides political reform, Pomar and Dias
both said the government might propose a limited tax reform.
However, while the government may attempt to make improvements in
certain targeted areas of the tax system, our interlocutors do not
believe it will attempt to significantly reduce the tax burden or
make the system more transparent and less cumbersome.

12. (SBU) Foreign policy, all three PT officials said, will not
change significantly in the second term. All praised Lula's
"south-south" orientation. If Lula plans to alter course and reach
out more to the United States, as has been reported, he apparently
has not yet told his own party.

CONGRESSIONAL LEADERSHIP

13. (SBU) Pomar confirmed reports that Lula is supporting Aldo
Rebelo of the Communist Party of Brazil (PC do B) for re-election as
President of the Chamber of Deputies, because he thinks Rebelo is
the candidate most likely to garner broad support. He acknowledged
that the PT would prefer one of its own, notably Arlindo Chinaglia
(PT-SP), but that ultimately the PT would line up behind the most
viable candidate. Dias acknowledged that the PT's failure to elect
its candidate to the National Accounting Court (reftel) suggests
Chinaglia may have trouble rounding up the necessary votes for
President, as the PT's coalition partners would prefer someone from
another party.

PARTY CONGRESS AND INTERNAL ELECTIONS

14. (SBU) The PT will hold a National Congress in Brasilia in July
2007, only the third in its 27-year history. There will be three
broad themes addressed: "The Brazil we want" (an attempt for the
party to identify its goals for the country), PT socialism, and the
conception of the PT. This last presumably refers to the question
of whether the PT needs to be "re-founded," which was much talked
about in 2005 in the wake of the corruption scandals. There remains
a divide between the moderate majority faction ("Campo Majoritario")
and the leftist tendencies and social movements. When Ricardo
Berzoini of the majority faction won the party presidency in October
2005, some leftists defected to Heloisa Helena's Socialism and
Liberty Party (PSOL), but most remained. Berzoini was forced to
step aside in September 2006 when his name was linked to the
"dossier" scandal. Pomar noted that because Berzoini had been
elected by the PT membership, he could not be removed by the
National Directorate. Rather, he had removed himself temporarily
until his role in the scandal could be clarified. Depending on the
outcome of ongoing investigations, he could decide either to return
or to resign. The National Congress is expected to move the party's
internal elections up from late 2008 to late 2007. It is not clear
whether either the Party Congress or the internal elections will
revive the conflict between the party's factions. Pomar, despite
his position as leader of the Axis of the Left, stressed unity. The

SAO PAULO 00001264 005 OF 006


PT, he said, intends to remain in power by electing a President in
2010 and therefore must remain united behind Lula to ensure the
government's success and provide the party's candidate with a strong
government record to run on.

MUNICIPAL ELECTIONS

15. (SBU) Dias said the PT is already looking ahead to the 2008
municipal elections. By August 2007, candidates and parties will be
staking out their positions; thus, Lula has less than a year to move
his agenda forward before the political distractions begin. (Note:
Most observers believe that after the municipal elections, Lula will
be a lame duck. End Note.) He said Marta Suplicy is the PT's most
likely candidate for Mayor of Sao Paulo. Suplicy, who served as
Mayor from 2001 through 2004 and lost her bid for re-election to
(now Governor-elect) Jose Serra (PSDB), will run on a social
platform of reversing policies instituted by Serra and his
successor, Gilberto Kassab (PFL). She will bring back the Unified
Education Centers that were a hallmark of her administration and
will introduce a low-cost single ticket for public transportation.
The municipal elections, he noted, offer the PT a chance to regain
ground lost in Sao Paulo state.

16. (SBU) Dias predicted that Governor-elect Serra will run both
the state and the city because his successor, Kassab, is politically
weak. Many officials from Serra's time as Mayor continue to hold
high positions in City Hall. Kassab lacks a majority on the City
Council and isn't as well protected against negative press as Serra
was. Though he may want to run for re-election, the PSDB-PFL
coalition probably won't nominate him, because his management of the
city's affairs has been mediocre, according to Dias. Another PFL
leader, businessman Guilherme Afif Domingos, recently named State
Secretary of Labor, would not make a good Mayoral candidate, in

SIPDIS
Dias's view, because "he has no social discourse."

17. (SBU) The most likely candidate to run against Suplicy, Dias
said, is former Governor Alckmin. Serra may try to put obstacles in
Alckmin's path - the two were rivals for the 2006 PSDB presidential
nomination - but Alckmin can win the nomination if he wants it, and
will be a strong candidate, (Comment: If Suplicy and Alckmin are the
two major candidates for Mayor, it is reasonable to expect that
neither of them will promise voters, as Serra did in 2002, that if
elected they will serve the full four-year term and not seek
election to any other office. End Comment.) However, Dias, who
served as Municipal Secretary of Communications during Marta
Suplicy's term as Mayor, believes Alckmin is too conservative and
that Suplicy's social message will carry the day.

THE SUCCESSION

18. (SBU) If Suplicy wins, she will be in a strong position to
become the PT's presidential nominee in 2010, Dias said. He
dismissed Institutional Relations Minister Tarso Genro as a possible
candidate, claiming Genro has no support among the party's rank and
file ("he's only in the government because he's close to Lula"), and
he didn't think Dilma Rousseff, Lula's Chief of the Civil Household,
had the necessary political weight. Ciro Gomes, who served as
Minister of National Integration in Lula's first term and was just
elected Federal Deputy, remains a possibility to succeed Lula even
though he's not a PT member but rather a Socialist. Finally, Dias
thought that Jaques Wagner, just elected Governor of Bahia, could
emerge as a strong contender. He added that "we're not a party of a
single personality" and predicted that although there may not be
many obvious candidates now, the PT will be ready when the time
comes.


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COMMENT

19. (SBU) The PT exceeded expectations in this year's election, in
which they were widely expected to lose ground in the aftermath of
the scandals. Nevertheless, we believe the party officials we spoke
to are too optimistic about the degree of the party's influence over
Lula and its ability to see its agenda implemented. The PMDB almost
certainly expects more than the three Ministries it currently holds,
and also expects to have an important say in the legislative agenda.
In fact, the coalition could fall apart if Lula does not satisfy
the PMDB, which does not see eye-to-eye with the PT on many issues.
And while Lula may believe Brazil can achieve 5 percent annual
growth without addressing the threat to healthy fiscal accounts that
the burgeoning social security deficit represents, at some point he
will be disabused of this notion. (He is already reportedly backing
away from last week's endorsement of a 5 percent growth target for
2007, projecting instead that GDP will grow only 4 percent.) While
he remains loyal to the PT, the bonds are not as strong as they once
were. Lula created a stir this week when he stated publicly that
humanity tends to evolve towards the center and that anyone over 60
who remains on the left "has problems." Numerous sexagenerian (and
older) party militants and ideologues expressed outrage, and even
acting PT President Marco Aurelio Garcia, 65, reaffirmed that he is
a "man of the left." Lula then tried to pass his remark off as a
joke and accused his comrades of lacking a sense of humor.

20. (SBU) We also believe the PT is exaggerating the extent to
which voters - even those who voted for Lula - support the party and
its agenda. Nobody we talked to said anything about ethics, which
used to be a PT marketing point. The PT has not yet come to terms
with the institutional weaknesses that led to the corruption
scandals, nor the degree of alienation among the populace, and does
not appear to be trying to. Many PT members continue to talk and
act as if the scandals were a minor distraction that have little or
nothing to do with the party.

21. (SBU) We do not doubt that Lula will try to expand social
programs and devote more attention to the poor if he can, but we
think he will continue to govern more like the pragmatic centrist
that he is, whether his party likes it or not. End Comment.

22. (U) This cable was cleared/coordinated by Embassy Brasilia.

MCMULLEN

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