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

UNCLAS SECTION 01 OF 02 SAO PAULO 001376 
 
SIPDIS 
 
SENSITIVE 
 
NSC FOR CRONIN 
STATE PASS USTR FOR SULLIVAN/LEZNY 
 
E.O. 12958: N/A 
TAGS: PGOV ECON PINR ELAB BR
SUBJECT: PT Criticism Creates Dilemma for President Lula 
 
REF: (A) Sao Paulo 1110; (B) Sao Paulo 1071 
 
¶1. Sensitive But Unclassified. Protect Accordingly. 
 
¶2. (SBU) Summary: A senior PT advisor told CG that the party 
leadership made a mistake in issuing a recent resolution 
publicly criticizing President Lula's economic policies. 
The advisor attributed this political blunder to long- 
standing internal divisions in the party and the demise of 
pragmatic leaders who were able to keep the PT's militant 
factions in check.  With the PT's new left-leaning 
leadership taking public potshots at his economic policies, 
Lula faces a serious dilemma of how to craft a coherent 
campaign strategy in the face of an increasingly united 
opposition. End Summary. 
 
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New PT Directorate Flexes Muscle 
-------------------------------- 
 
¶3. (U) On December 10, the National Directorate (DN) of 
President Lula's Workers' Party (Partido dos Trabalhadores - 
PT) issued a resolution expressing strong criticism of the 
Lula government's economic policies.  The resolution was 
issued following the first meeting of the new National 
Directorate (DN) elected in September (reftels).  It 
contained a list of the government's accomplishments, a 
defense of the party in the face of political scandal, 
attacks on the opposition, and a call for Lula's re- 
election.  But what generated the most attention was its 
criticism of the primary surplus and high interest rates, 
and its call for stronger growth, more public investment and 
social spending, and better distribution of wealth. 
 
¶4. (SBU) For Lula's own party to criticize his government so 
directly and publicly caught many observers by surprise, and 
caused unease among more moderate elements of the PT who 
fear that this could play into the hands of the opposition. 
This incident adds fuel to existing tensions created by the 
public sniping between Finance Minister Palocci and 
Presidential Chief of Staff Dilma Rousseff over the 
direction of economic policy. 
 
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PT Advisor Bemoans Divisions 
---------------------------- 
 
¶5. (SBU) The PT's Senior Advisor for International Affairs, 
Ana Maria Stuart, told CG during a December 12 meeting that 
she thought the party leadership had made a mistake in 
publishing this resolution.  Noting that the resolution 
passed by a single vote, Stuart attributed this political 
blunder to PT internal contradictions that have plagued the 
party since its founding in 1980.  Stuart, a protge of 
Lula's international affairs advisor, Marco Aurelio Garcia, 
described how the PT evolved over time from a collection of 
disparate autonomous social and labor organizations, some of 
them quite militant.  These groups still jealously guard 
their independence and do not accept the notion that they 
must follow the party line in order to support Lula and his 
PT-led government.  They have been particularly critical of 
the PT's alliances with centrist parties.  Many of these 
leftist groupings within the PT structure stridently oppose 
FTAA, and some explicitly want to establish a socialist 
society.  A few leftist dissidents defected after the 
Sepember elections, but most have remained, trying to 
change the party from within. 
 
¶6. (SBU) Stuartpointed out that the Lula government came 
into ofice committed to the idea of redistributing wealth 
and helping the poor - as evidenced by programs like Fome 
e 
Zero and Bolsa Familia - but it must govern a wide spectrum 
of social sectors, not just the workers and marginalized 
groups that are championed by the PT's militant base 
organizations.  Stuart underscored that while Lula won 54 
percent of the vote, the PT has only about 18 percent of the 
votes in Congress, so the government has to negotiate with 
other parties in order to pass legislation. She added that 
the debt burden and the ghost of inflation have required 
Lula and Finance Minister Palocci to follow an orthodox 
macroeconomic policy, placing the government at odds with 
the PT's leftist base. 
 
¶7. (SBU) According to Stuart, these tensions play out in the 
party's National Directorate, where all factions are 
represented proportionally based on the vote in the party 
internal elections held in September.  The Campo 
Majoritario, tarnished by the political scandal, garnered 
slightly more than 40 percent of that vote and has lost the 
grip that it once held over the party leadership.  Several 
major pro-government leaders, like former party presidents 
Jose Genoino and Jose Dirceu, have been disgraced.  Lacking 
a majority, the moderates now must seek compromises with the 
leftist elements.  Stuart observed that Lula's supporters in 
the party were disadvantaged by the recently released 
disappointing economic growth figures, which gave the 
party's leftists and militants more ammunition. 
¶8. (SBU) Stuart acknowledged that it is problematic for Lula 
to enter an electoral campaign with his party so divided. 
She said the media's constant criticism of the government 
created an additional problem, making it much more difficult 
for Lula to regain the middle-class support he enjoyed in 
the 2002 election, and which he will need again. In this 
context, she expressed the view that Sao Paulo Mayor Jose 
Serra would be a more competitive opponent for Lula than Sao 
Paulo State Governor Geraldo Alckmin. Stuart added that the 
PSDB/PFL alliance would pose a formidable challenge to Lula. 
 
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COMMENT 
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¶9. (SBU) The controversial PT resolution demonstrates that 
the party's moderate "Campo Majoritario" (CM) faction, which 
forged the successful strategy for Lula's election campaign 
in 2002, is no longer able to control the party's fractious 
ideological groups.  The PT has always been an eclectic 
collection of leftist intellectuals, trade unionists, social 
movements, and some hard-core radicals.  However, until the 
September party elections, these fractious groups were kept 
in check by the moderate-based Campo Majoritario. With the 
demise of Jose Dirceu and his pragmatic leadership group, 
the PT's inherent divisions have resurfaced.  This new 
reality requires Lula to walk a very fine line.  While he 
needs the organizing skills of the leftist social movements 
to mobilize his election campaign, these groups do not have 
sufficient strength to get him re-elected.  The populist 
policies advocated by the PT's left wing, if adopted by Lula 
(which appears unlikely), would make the markets nervous and 
thus alienate the centrist voters he needs to attract.  In 
the face of public bickering between his ministers, Lula has 
tried to appease supporters on both sides of the debate, 
creating concerns about his own credibility.  With the PT's 
new left-leaning leadership now taking public potshots at 
his economic policies, Lula faces a serious dilemma of how 
to craft a coherent campaign strategy in the face of an 
increasingly united opposition.  End comment. 
 
¶10. (U) This cable was cleared/coordinated with Embassy 
Brasilia. 
 
McMullen