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 SAO PAULO 001372 
 
SIPDIS 
 
NSC FOR SCRONIN 
STATE PASS USTR 
 
E.O. 12958: DECL: 12/14/2015 
TAGS: PGOV PREL ECON PINR BR
SUBJECT: ELDER STATESMAN DELFIM NETTO DISCUSSES PRESIDENT 
LULA AND ELECTION OUTLOOK 
 
Classified By: CONSUL GENERAL CHRISTOPHER MCMULLEN FOR REASONS 1.4 (B,D 
 
) 
 
¶1. (C) Summary: PMDB Congressman and elder statesman Antonio 
Delfim Netto told CG that while President Lula remains 
personally popular, he needs to start courting the PMDB and 
the smaller &left light8 parties if he hopes to get 
re-elected in next October,s elections.  Netto said the 
PSDB/PFL electoral alliance poses a formidable front that 
could defeat Lula in a likely second round, particularly if 
the PSDB chooses Sao Paulo Governor Geraldo Alckmin as its 
candidate.  In contrast to the increasingly united PSDB/PFL 
alliance, Netto noted that Lula has not taken any steps to 
forge an alliance with the large, though divided, PMDB. (He 
downplayed the possibility of the PMDB selecting a viable 
presidential candidate from its own ranks.)  Netto also 
criticized the PT,s political immaturity, pointing to the 
recent PT National Directorate,s public manifesto 
challenging Lula,s economic policy.  Netto said that while 
Lula was conservative by nature, he was unlikely to change 
his top foreign policy advisers, whom he characterized as 
instinctively anti-American.  He also ruled out any dramatic 
foreign policy changes in a second-term Lula government, 
averring that the Foreign Ministry would continue to reflect 
the PT,s antipathy towards an FTAA and a more strategic 
relationship with the United States.  End Summary. 
 
¶2. (C) CG and Poloff met December 13 with Federal Deputy 
Antonio Delfim Netto to discuss Brazil,s political and 
economic situation and the upcoming elections.  Netto, who 
served as Minister of Finance and Minister of Planning in the 
1970s and  80s, enjoys a reputation as balanced and credible 
elder statesman. While his party forms part of the governing 
coalition, Netto was surprisingly candid and critical of the 
ruling PT and some key aspects of Lula,s policies. 
 
¶3.  (C) Netto, who in recent months joined the Brazilian 
Democratic Movement Party (PMDB) after years as a member of 
the Progressivist Party (PP), characterized the PMDB as 
&two-headed.8  There is a significant pro-government 
faction, as well as an anti-government faction which is 
highly critical of the Lula government but which also depends 
on the government for favors (The independent-minded Netto 
does not fit neatly into either camp).  In the face of these 
internal divisions, the PMDB must decide whether to select 
its own presidential candidate or, if Lula appears a likely 
winner, cut a deal to support Lula. 
 
¶4. (C) Netto opined that after all the scandals it has 
suffered, Lula,s Workers, Party (Partido dos Trabalhadores 
) PT) will do well to elect 40 deputies in the October 2006 
election, he opined (it currently has 90).  He said support 
from the PMDB would be critical to Lula,s reelection bid 
because the PMDB has many strong gubernatorial candidates who 
could provide crucial coattails.  Netto faulted Lula for not 
taking any early steps to forge a strong PT-PMDB alliance. As 
a result, some PMDB leaders are pressing for the party to run 
its own presidential candidate. 
 
¶5. (C) Netto dismissed the likelihood of the PMDB fielding a 
viable presidential candidate, noting that Supreme Federal 
Tribunal (STF)President Nelson Jobim is unlikely to garner 
sufficient party support.  Similarly, Rio Grande do Sul 
Governor Germano Rigotto is &extraordinary8 but lacks the 
national exposure needed to make a successful run.  Netto 
characterized former Rio de Janeiro Governor Anthony 
Garotinho as a dangerous populist, whose main support comes 
from evangelical Christians. 
 
¶6. (C) Netto noted that the PSDB and PFL appear increasingly 
united and thus pose a credible challenge for Lula.  Sao 
Paulo Mayor Jose Serra (PSDB) is a tough and seasoned 
candidate who has national recognition.  Netto, however, 
considers Sao Paulo state governor Geraldo Alckmin (also 
PSDB) an even greater threat to Lula,s reelection bid. 
Alckmin is a respected and able administrator who would be a 
very strong candidate, although Netto acknowledged that Serra 
would be tough to beat for the PSDB nomination. 
 
¶7. (C) Netto offered candid opinions on Lula and the PT.  The 
party,s National Directorate,s recent manifesto criticizing 
the government,s economic policy exposed the party,s 
political immaturity.  The Directorate has always been more 
of an academic center or discussion group, creating many 
internal fissures and tensions.  Lula won the 2002 election 
based on his personal popularity and his ability to attract 
strong support from outside the PT.  He,s not a leftist at 
heart, but rather a culturally conservative Catholic labor 
leader with good political instincts.  In contrast to Lula,s 
political pragmatism, others in the PT and government are 
&revolutionaries who want to change the world.8 
 
¶8. (C) According to Netto, Lula is dealing with a difficult 
economic situation that he inherited from former President 
Fernando Henrique Cardoso:  a high tax burden, a fiscal 
deficit, and a high debt-to-GDP ratio.  The Central Bank has 
exacerbated the situation by keeping interest rates too high, 
inhibiting growth.  These problems are hard to correct in the 
short term, particularly with the continuing investigations 
surrounding the political scandals, which are a complicating 
Lula,s situation. Despite losing some support inside and 
outside of his party, Lula will benefit from the &Bolsa 
Familia8 welfare program, which should garner crucial blocs 
of votes in the impoverished north and northeastern parts of 
Brazil.  Also, Lula is a charismatic speaker who is able to 
capture the popular vote without being a populist. 
 
¶9. (C) Commenting on the Lula government,s foreign policy, 
Netto sharply criticized the Foreign Ministry (Itamaraty) for 
ideologically driven policies that do not reflect the 
country,s national interests.  He attributed these 
misdirected policies to leftist, anti-American ideologues in 
senior positions, such as MFA Secretary General Samuel 
Pinheiro Guimaraes and presidential adviser Marco Aurelio 
Garcia.  Netto said FTAA is absolutely essential to 
strengthening economic ties, stimulating investment and 
bringing in partnerships and joint ventures, but believes 
there will not be any progress on FTAA as long as Guimarees 
and Garcia are directing Lula,s foreign policies.  According 
to Netto, Garcia and Guimaraes wield tremendous influence 
over Lula even though he doesn,t share their political 
outlook or temperament.  Netto averred that both will likely 
continue in their positions should Lula win a second term, 
adding that Brazil,s foreign policy is unlikely to change 
course with respect to the United States.  (He described the 
bilateral relationship as &friendly but superficial.8) 
Despite these obstacles at the governmental level, Netto said 
much can be done in terms of outreach to strengthen 
understanding between the U.S. and Brazil, which share many 
common interests. 
 
¶10.   (C) Comment: Netto is a prominent economist by training 
who has been in public life for over 40 years.  He held a 
number of senior governmental positions under the military 
dictatorship and has been a Federal Deputy since 1987.  He is 
a well-informed, articulate and candid observer whose views 
are not infused with strong political partisanship.  However, 
he only recently joined the PMDB and does not wield strong 
influence in the party.  Thus, his (implied) preference for 
analliance between the PMDB and Lula may not reflect party 
leadership thinking.  Other PMDB representatives we have 
spoken to recently ) for example, Sao Paulo state party 
chairman Orestes Quercia ) strongly favor having the PMDB 
run its own presidential candidate, though preferably not 
Garotinho.  Given the deep divisions in the PMDB at the 
national level, it would be difficult for the party to field 
a viable presidential candidate. For this reason, Netto 
believes it would be more advantageous politically for the 
PMDB to strike a strategic deal with Lula and the PT, even if 
this means accepting some policies that do not sit well with 
the PMDB rank and file.   End comment. 
 
¶11.  (U) This message was cleared/coordinated with Embassy 
Brasilia. 
MCMULLEN