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 03 BRASILIA 000776 
 
SIPDIS 
 
DEPT FOR WHA/BSC 
 
E.O. 12958: DECL: 03/31/2014 
TAGS: PGOV PREL ECON BR
SUBJECT: LULA TAKING FRIENDLY FIRE FROM COALITION PARTIES 
 
REF: A. BRASILIA 0564 
 
     ¶B. BRASILIA 0572 
     ¶C. BRASILIA 0458 
 
Classified By: POLOFF RICHARD REITER, FOR 1.5B AND D. 
 
¶1. (C) SUMMARY.  The Lula administration has fumbled its 
response to February's "Waldomiro scandal", resulting in 
non-stop criticism from the Brazilian press and opposition. 
Worse for the administration, many of the parties in the 
governing coalition have responded to the crisis not by 
rallying behind the government, but by ratcheting up their 
complaints about GoB economic policies and their demands for 
special favors.  The PL, PMDB, PTB, and PP have been 
particuarly contentious allies.  As a result, the coalition 
is frayed and Lula's ability to push legislation to 
reestablish his momentum will be constrained unless he can 
rebuild the coalition's unity --a difficult task given that 
this is an election year in which the parties have individual 
agendas and added incentive to squabble.  The first step in 
the process occurred on March 30, when Lula promised to 
disburse some R$500 million to fund legislators' pet projects 
in return for their support on a key congressional vote.  END 
SUMMARY. 
 
GOVERNING COALITION SHOWS FRAYED EDGES 
-------------------------------------- 
¶2. (C) The Waldomiro Diniz scandal (in which a senior advisor 
on President Lula's staff was caught on videotape soliciting 
bribes from a numbers racketeer) broke on February 13.  Since 
then, the administration has careened from perplexity to 
difficulty, as Chief of Staff Jose Dirceu's reputation has 
plummeted, the GoB's approval numbers have slipped (ref A), 
and the parties in the ruling coalition have begun to sound 
more like opposition critics than Lula supporters.  Of note, 
a national poll released on March 25 reveals that 52% of 
respondents had never even heard of the Waldomiro scandal, 
and only 9% said it changed their opinion of the government. 
Thus, it is the perception of ineffectiveness (coupled with 
Brazil's stubborn economic problems), rather than the scandal 
itself, that has contributed to the government's slump. 
 
¶3. (C) Physiologism ("fisiologismo") is a Brazilian term 
roughly translatable as "crass opportunism", applied to 
politicians with no core beliefs who switch allegiances for 
short-term advantage.  The administration's problems have 
been amplified by the fact that some coalition members are 
hardly true-believers in the vision of Lula and the Workers' 
Party (PT).  They joined the coalition to be on the side of 
power, and they will threaten to leave just as quickly if 
they sense the coalition losing authority.  This is 
particularly true since nationwide municipal elections will 
be held in October, meaning the parties are jockeying against 
each other to win mayorships and city council seats. 
 
LIBERAL PARTY TURNS MEAN 
------------------------ 
¶4. (C) Waldemar Costa Neto, President of the Liberal Party 
(PL), gave a stinging March 14 press interview in which he 
said, "The greatest problem is that nobody at the core of the 
government understands economics".  He said that both Finance 
Minister Palocci and Central Bank President Meirelles should 
be fired and economic policy turned over to Vice President 
Jose Alencar (of the PL).  When Lula expressed his 
displeasure with Costa Neto's comments, other party leaders 
walked them back.  The PL is a right-of-center party that 
Lula wooed into the coalition to increase his appeal to both 
the business and evangelical communities.  Costa Neto is not 
the only unhappy Liberal.  When the scandal broke in 
February, PL Senator Magno Malta vainly tried to set up a 
congressional inquiry (ref B) that would have dragged out the 
scandal for months.  Meanwhile, VP Alencar has periodically 
(most recently on March 29) criticized the administration's 
fiscal austerity policies. 
 
PMDB JOINS THE FRAY 
------------------- 
¶5. (C) The PL is not the coalition's only headache.  The 
chronically-divided PMDB abruptly changed course at a party 
leadership meeting on March 14, dealing a defeat to the 
pro-Lula wing led by Senator Jose Sarney.  It was Sarney's 
parliamentary tactic that saved the GoB further angst by 
killing Magno Malta's attempt to set up a scandal inquiry in 
the Senate.  Lula was grateful, but the move left Sarney 
exposed within his own party.  At the March 14 meeting, Sao 
Paulo Federal Deputy Michel Temer, a Lula critic, was 
reelected PMDB president with the support of the first couple 
of Rio de Janeiro: Governor Rosinha and Anthony Garotinho. 
Even with Temer's resurgence, the PMDB is too "physiologist" 
to leave the coalition on principle, for that would mean 
giving up its cabinet posts and other perks (though some PMDB 
Deputies released a letter on March 24 threatening to pull 
out of the coalition if their economic advice were not 
followed).  Instead, the party will increase its criticism of 
the administration and demand more perks (and influence over 
policy) in return for its tepid support. 
 
¶6. (C) Sarney's influence within the PMDB will be reduced, at 
least until he figures out a way to fight back.  Anthony 
Garotinho is already positioning himself to run in the 2006 
presidential elections, often slamming the administration in 
public statements.  Garotinho appears to have forgotten that 
the PMDB is in the ruling coalition, noting on March 27, "We 
are not radicals.  We're building a 'constructive 
opposition'.  This is not targeting the President, but is 
designed to help him.  Even though the government mistreats 
us, we feel no rancor."  If the anti-Lula faction retains 
control over the party through 2005, it might then leave the 
coalition to open more daylight for Garotinho's presidential 
run.  In the meantime, the PMDB will be looking to negotiate 
with the PT on candidate slates in key towns for October's 
municipal elections. 
 
LULA GETS NO JOY FROM OWN PARTY 
------------------------------- 
¶7. (C) On March 5, without consulting Lula, the Workers' 
Party (PT) Executive Committee issued a statement critical of 
the administration's economic policies.  Lula complained to 
party President Jose Genoino, who quickly walked back the 
statement.  But two weeks later, PT "radicals" (the leftist 
wings of the party) met in Sao Paulo and also demanded 
economic policy changes.  While these episodes did not cause 
serious damage, they underscore two phenomena:  a) the 
ideological differences that fester within the PT (and the 
constant work Lula must do to keep his own troops in line); 
and b) that many in the PT are politically tone-deaf.  The 
March 5 statement was issued during a particularly tough week 
(Magno Malta's attempt to set up a scandal inquiry in the 
Senate was a huge concern for the administration at the 
time).  The fact that PT leaders would publicly criticize 
Lula when he most needed their unified support illustrates 
the impulse by some members to behave as an opposition party 
--even a year after Lula's inauguration-- when they should 
have developed better governing skills. 
 
SMALLER PARTIES ALL OVER THE BOARD 
---------------------------------- 
¶8. (C) The smaller parties in the coalition have also spoken 
out, both for and against the administration.  The 
conservative PP and populist PTB have threatened to pull out 
of the coalition, though both are highly "physiologist" and 
their threats are not taken seriously, except as they are 
designed to attract administration attention to their demands 
for pork barrel spending and second- and third-tier 
government job appointments.  The week of March 22, the two 
parties led a mini-rebellion that delayed voting on Lula's 
Presidential Decree to ban bingo parlors (refs B, C). 
Meanwhile, the left-of-center Popular Socialist Party (PPS) 
--always a loyal, low-maintenance coalition member-- on March 
28 reelected as party president Federal Deputy  Roberto 
Freire who promptly announced that the PPS will continue to 
support Lula and "does not want to take advantage of the 
political crisis".  The socialist PSB has similarly been 
quietly supportive of the administration. 
 
COMMENT - WINNING OVER THE ALLIES 
--------------------------------- 
¶9. (C) The government's doldrums have been nourished not only 
by an undisciplined coalition, but also its own poor response 
to the Waldomiro scandal (exacerbated by the fact that Chief 
of Staff Jose Dirceu, the administration's best tactician, 
was at the center of the storm and not in a position to 
provide good advice.  Septel will examine Dirceu's role in 
the crisis and the government.)  The administration is now 
appealing to coalition leaders' desire to hang together 
rather than hang separately, but it is not doing so 
empty-handed.  Lula's new cabinet-rank Political Coordinator, 
Aldo Rebelo, is putting together a "political council" 
comprising leaders from all nine allied parties, and a 
coalition "code of conduct" is under discussion.  Rebelo is 
also pledging to speed the nomination of precious federal job 
appointments (the tens of thousands of positions throughout 
the GoB's nationwide apparatus have always been among the 
sweetest of political plums).  In terms of legislation, the 
administration has put on the back-burner plans for campaign 
finance reform and a bill that would have allowed the Senate 
and Chamber presidents to serve for four, rather than two, 
years.  Both bills had stirred opposition inside the 
coalition. 
 
¶10. (C) One legislative achievement, freighted with 
symbolism, occurred at midnight on March 30, when the Chamber 
of Deputies voted to ratify Lula's February 20 Presidential 
Decree that banned bingo and slot parlors throughout the 
country.  That decree was Lula's first and strongest response 
to the Waldomiro scandal, but to remain in force it needed a 
congressional vote --a vote which, if Lula had lost, would 
have been a clear rebellion by the coalition and a heavy blow 
to his legislative authority.  The PP and PTB parties managed 
to put off the Chamber vote for a week (para 8).  In the 
hours before the vote, the administration managed to buy 
coalition unity by promising to disburse a R$300 million 
package of pork barrel spending already approved by Congress 
in this year's budget (as well as releasing another R$200 
million undisbursed from last year).  The bingo ban now goes 
to the Senate for a final vote.  A further R$1.2 billion 
remains undisbursed and presumably available to buy more 
legislative victories as the end of Congress's session 
approaches on June 30. 
HRINAK