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RUCPDOC/USDOC WASHDC 2260

UNCLAS SECTION 01 OF 05 SAO PAULO 000073 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
NSC FOR CRONIN 
STATE PASS USTR FOR SULLIVAN/LEZNY 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/USFCS/OIO/EOLSON/DDEVITO/DANDERSON 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON ETRD PINR BR
SUBJECT: ELECTION 2006: OPPOSITION PSDB TO DECIDE ON 
CANDIDATE BY LATE MARCH 
 
 
Sensitive but Unclassified -- Protect Accordingly 
 
------------------------ 
INTRODUCTION AND SUMMARY 
------------------------ 
 
¶1. (SBU) In a series of meetings in Sao Paulo on January 16- 
20, Charge d'Affaires (CDA), Sao Paulo Consul General, 
Embassy PolCounselor and SP Poloff discussed the coming 
presidential election with the leading PSDB candidates - Sao 
Paulo city mayor Jose Serra (who is still undeclared) and 
Sao Paulo state governor Gerald Alckmin (who has announced 
his candidacy) -- and conveyed to both USG positions on 
bilateral relations and regional issues, notably Bolivia. 
CDA and Mission Officers also met the Paulo vice mayor and 
vice governor, probable state gubernatorial candidates, and 
PT party leadership figures.    In presenting USG views to 
all interlocutors, CDA registered the following points: 
 
--The U.S. has good bilateral relations with Brazil, but not 
the strategic partnership we would like to have.  We have 
productive discussions in a number of areas, even though we 
don't always agree, but we don't accomplish as much as we 
might like.  For example, in FTAA, we don't know what we can 
accomplish because we are not truly negotiating. 
 
--On Bolivia (repeating points made by A/S Shannon during 
his January 10-11 meetings in Brasilia), the USG respects 
the choice of the Bolivian people and is prepared to have a 
dialogue with President Morales, but it would be helpful if 
he toned down his anti-U.S. rhetoric.  Moreover, if Morales 
keeps his campaign pledge to legalize all coca cultivation 
and cease eradication efforts, Brazil - especially Sao Paulo 
and other urban centers -- will see a flood of inexpensive 
cocaine. 
 
¶2. (SBU) On presidential politics, Serra told CDA he has not 
yet made up his mind concerning a presidential bid; he has 
been mayor for just over a year and believes "the people 
want me to stay."  He said he would decide by the second 
half of March.  Alckmin fully acknowledges his candidacy and 
the influential Sao Paulo business community overwhelmingly 
supports him, but he lacks name recognition in the rest of 
the country.  Mission officers were told the PSDB has no 
formal mechanism for choosing between the two candidates, 
and no plans to hold a primary or a caucus. Instead, a small 
group of party leaders - commanded by former President 
Fernando Henrique Cardoso -- will make the decision, with 
Cardoso's views having the most weight.  The most important 
factor clearly will be which candidate is more likely to 
defeat Lula.  Some in the PSDB are calling for a decision 
before the February 25-28 "Carnaval" holiday, but a decision 
may wait until mid-March.  End introduction/summary. 
 
----------------------------------- 
BACKGROUND: THE ELECTORAL LANDSCAPE 
----------------------------------- 
 
¶3. (SBU) As Brazil enters its electoral season, a defining 
question is who will be the candidate of the opposition 
Brazilian Social Democracy Party (PSDB): Sao Paulo Mayor 
Jose Serra or Sao Paulo State Governor Geraldo Alckmin.  The 
elections - for President, 513 Federal Deputies, 27 
Senators, 27 Governors, and state legislators - will take 
place October 1 (with a second round as needed October 29). 
The campaign does not formally kick off until the beginning 
of July, but the question of the PSDB candidacy is made 
pressing by the legal requirement that executive branch 
office-holders must resign six months before the elections 
to preserve their eligibility as candidates for public 
office. (The only exceptions are Presidents and Governors 
seeking re-election.)  On January 9, Alckmin announced his 
intention to step down by March 31 in order to remain 
 
SAO PAULO 00000073  002 OF 005 
 
 
eligible to run for President.  Alckmin's announcement threw 
the PSDB into turmoil, as many party leaders support Serra, 
who was the party's presidential candidate in 2002 and who 
current polls show could defeat President Lula in a runoff. 
 
¶4.  (SBU) This year's elections take place against the 
backdrop of the scandals that dominated Brazilian politics 
in 2005.  President Lula's Workers' Party (Partido dos 
Trabalhadores - PT) has been decimated, his government 
weakened, and his personal reputation tarnished. Hence one 
of the questions in the PSDB's Serra vs. Alckmin debate has 
been whether Lula would seek re-election.  Some pundits have 
suggested he might not run, and Lula has been obtuse on the 
question -- he appears already in full campaign mode, but 
just last week cryptically told an audience, "I won't be 
here in 2007."  Should he decide not to run, the electoral 
panorama would change.  In meetings with CDA, leading PT 
personalities stressed that Lula is the one and only 
champion for the party.  Former Sao Paulo Mayor Marta 
Suplicy, a member of the PT's National Directorate, told CDA 
that if Lula doesn't run, the PT has no other viable 
candidate.  PT President Ricardo Berzoini, while confirming 
that Lula had told him "he's still thinking and will let us 
know at the opportune moment," admitted to CDA that the PT 
"has no Plan B." (Comment: Lula appears to be playing for 
time, watching for improvement in his poll numbers, or if 
further scandal revelations or other factors make his defeat 
likely, before taking a decision.  But most observers assume 
Lula will run.  End comment.) 
 
¶5.  (SBU) A wild card is a possible Brazilian Democratic 
Movement Party (PMDB) candidacy.  Populist former Rio de 
Janeiro Governor Anthony Garotinho announced last week he 
was stepping down from his position as Rio state secretary 
to devote full time to his presidential campaign, and Rio 
Grande do Sul Governor Germano Rigotto announced he will run 
against Garotinho in the PMDB's March primary.  Recent polls 
show Garotinho, who has considerable support among 
evangelicals, in third place with 16 percent of the vote if 
Alckmin is the candidate and 12 percent if Serra is the 
candidate. 
 
---------- 
JOSE SERRA 
---------- 
 
¶6.   (SBU) In the competition for the PSDB nomination, Jose 
Serra is currently considered the front-runner, in large 
part because he is perceived as more likely to defeat Lula, 
a perception buttressed by numerous polls.  There are other 
reasons to prefer Serra.  He is older (63) than Alckmin 
(53), has more varied experience in government, and is 
better known nationally. He has studied abroad in Chile, 
France, and the U.S., and earned a doctorate in economics 
from Cornell.  He was Sao Paulo State Secretary of Economy 
and Planning from 1983 to 1987.  He served two four-year 
terms (1986-94) as federal deputy. Elected to the Senate in 
1994, he left to serve as Minister of Planning (1995-96) and 
later Minister of Health (1998-2002) in Fernando Henrique 
Cardoso's government. As Health Minister, he developed 
Brazil's progressive HIV/AIDS treatment program and led the 
government's efforts to win WTO recognition of the right to 
break patents on HIV/AIDS drugs.  As the PSDB's presidential 
candidate in 2002, he lost to Lula 46.4 to 23.2 percent in 
the first round, and 61.4 to 38.6 in the second round. 
 
¶7.   (SBU) Serra was elected mayor of Sao Paulo in 2004, 
making a pledge then that he would serve his full four-year 
term.  This is the major problem he has to overcome if he 
wants to run for President.  He would be departing after 
only 15 months in office, and turning power over to Vice- 
Mayor Gilberto Kassab of the Liberal Front Party (PFL), who 
is considered by some to be inexperienced and under an 
 
SAO PAULO 00000073  003 OF 005 
 
 
ethical cloud (he served as Secretary of Planning in the 
corrupt 1997-2000 administration of Mayor Celso Pitta). 
Another weakness is that some consider Serra a leftist and 
the business community is wary of him.  As Cardoso's health 
minister, Serra demonstrated a tendency at times towards 
government intervention, and he recently indicated that, if 
elected, he would act as his own finance minister.  His 
stance on patents and on price controls for HIV/AIDS drugs 
earned him the enmity of the pharmaceutical industry and the 
suspicion of other business interests, and may account for 
the business community's strong preference for Alckmin. 
Political observers have also noted that he has high 
negative numbers, suggesting that his support may be 
constrained by the amount of opposition he arouses. 
Finally, many colleagues have found him abrasive, sometimes 
stubborn, and difficult to deal with. Despite these 
perceptions, he has earned good marks as mayor of this city 
of nearly 10.2 million with its highly complex crime, 
pollution, and traffic problems.  Indeed, he has won all but 
one of his legislative initiatives with the city council. 
 
¶8. (SBU) Assistant Mayor for Central Sao Paulo Andrea 
Matarazzo, a key Serra advisor, told CDA that a Serra 
victory would lead to a qualitative step forward for Brazil. 
Matarazzo, a businessman who served as Secretary of Social 
Communications and Ambassador to Italy under President 
Cardoso, said Serra is not as far to the left as some think. 
He stressed Brazil's need to grow economically and maintain 
low inflation while bringing interest rates down.  Under the 
current government, Brazil is growing less than the rest of 
the world.  Lula's ministers are ill-prepared for their 
tasks, the third-world-oriented foreign policy is counter- 
productive, and the scandal has hurt Brazil's international 
image. 
 
¶9. (SBU) There is no formal party decision-making process, 
Matarazzo said.  Fernando Henrique Cardoso will hear from 
party leaders and make a decision by late February or mid- 
March.  Serra, Matarazzo continued, is the party's favorite 
in all states except Sao Paulo.  The gubernatorial and 
congressional candidates want to be on a ticket with someone 
who can win in a first round, and Serra looks stronger based 
on current polls. Alckmin announced his candidacy because he 
was trailing in the polls and lacked support among party 
leaders, and decided to force the issue with a dramatic 
gesture.  He would have been a fine candidate for the PSDB 
when Lula looked like a shoo-in, but now that Lula can be 
beaten, Serra is the one to do it, Matarazzo opined. 
Matarazzo said he will be working in the strategic area of 
Serra's campaign but will remain as Assistant Mayor in order 
to provide continuity in the municipal government. 
 
¶10. (SBU) In his January 19 meeting with the CDA, Serra 
indicated that the party's inclination was for him to be the 
candidate, and it was generally believed he would have 
better coattails than Alckmin.  He said he "has not taken 
yet a decision on running,"and was still studying the 
matter, as he took his seriously his responsibilities to Sao 
Paulo city.  Serra described some of his accomplishments as 
mayor: Cleaning up an inherited "disastrous" financial 
situation (Serra implied financial irregularities in bidding 
and contracting under his PT predecessor, Marta Suplicy), 
resurfacing streets, delivering food and health services to 
the poor, combating drugs, piracy, and crime.  (NOTE:  Sao 
Paulo police, working with state and federal authorities, 
conducted a series of raids in December on notorious centers 
for the distribution of pirated merchandise.  END NOTE.)  He 
noted that there were 200,000 Bolivians in Sao Paulo, 
working in the informal economy, using city services, 
competing with Brazilians for jobs.  On foreign policy 
issues, Serra called the Lula government's bid for a 
permanent seat on the UN Security Council a "joke."  On 
trade, he considered Mercosul a "mistake" and criticized 
 
SAO PAULO 00000073  004 OF 005 
 
 
Lula for doing nothing to reform it.  He said Brazil and the 
U.S. should negotiate FTAA, or even a bilateral free trade 
agreement.   Brazil needs to develop its domestic economy 
more, needs to import more and to attract more foreign 
investment, he said. 
 
--------------- 
GERALDO ALCKMIN 
--------------- 
 
¶11. (SBU) Alckmin has announced his candidacy and, though at 
this point he must be considered the underdog within the 
PSDB, he presents some advantages.  Term limits preclude his 
running for re-election as Governor, and his PSDB supporters 
insist this gives a "naturalness" to his bid for the 
presidency.  He is less known nationally than Serra, but 
conversely he may be seen as a fresh face who lacks Serra's 
negatives.  There may be less of a ceiling to his support, 
and while he does not have Serra's breadth of experience, he 
has an impressive record as an administrator.  Alckmin began 
his political career at age 19 while still in medical 
school, serving as a city councilman from his home town of 
Pindamonhangaba (Sao Paulo State), where he later served has 
Mayor.  He was elected to the state legislative assembly in 
1982 and to the federal Chamber of Deputies in 1986.  At 
that time he was a member of the Brazilian Democratic 
Movement, the legal opposition to the military dictatorship, 
but in 1988, he was one of the founding members of the PSDB 
and later served as Sao Paulo state party president.  Re- 
elected to the Chamber in 1990, he was elected Lieutenant 
Governor of Sao Paulo State in 1994 and re-elected in 1998. 
He became Governor upon the death of Mario Covas in 2001 and 
was re-elected in 2002, garnering 58 percent in the second 
round against PT candidate Jose Genoino. 
 
¶12.  (SBU) Arnaldo Madeira, Governor Alckmin's Chief of 
Staff, told the CDA that the PSDB is engaged in internal 
conversations aimed at reaching a consensus on the 
candidate, ideally by about March 10.  Private sector 
representatives have input into these conversations but do 
not have a decisive role in the decision, which belongs to 
the major party leaders and other office-holders.  In the 
end, Fernando Henrique Cardoso's view will be decisive.  He 
could get the nomination himself if he wanted it, though 
Madeira believes he doesn't.  According to Madeira, the late 
Governor Covas was the natural candidate in 1994 but 
deferred to Cardoso; accordingly, Cardoso now owes Covas's 
protege, Alckmin.  The PSDB is assuming Lula will be the PT 
candidate, since the party has no other strong names. 
 
¶13.  (SBU) Madeira said the PSDB is still formulating its 
electoral program in consultation with economists, but that 
it will focus on the historic loss of opportunity for 
economic growth under the current government, along with its 
third-world-oriented foreign policy and mismanagement of 
social programs.  He stated that Lula would have a difficult 
time getting re-elected and that the PSDB's prospects look 
good.  Madeira himself will be departing at the same time as 
Alckmin to re-assume his Congressional 
Seat and run for re-election to the Chamber.  In all, he 
said, seven members of the Alckmin administration will 
resign to seek office.  Lieutenant Governor Claudio Lembo 
(PFL) will assume the Governorship, but only for nine 
months. 
 
¶14.  (SBU) In his meeting with the CDA on January 20, 
Governor Alckmin spoke of the important partnership between 
Sao Paulo state and the U.S. He also said Brazil needs to be 
better integrated into the international economy.  Trade is 
growing and Brazil needs more markets.  Mercosul is fine, 
but Brazil also needs to negotiate FTAA on a reciprocal 
basis. 
 
 
SAO PAULO 00000073  005 OF 005 
 
 
¶15. (SBU) Alckmin acknowledged the internal PSDB problem, 
which he hoped would soon be resolved.  He was planning to 
meet imminently with his "good partner" Minas Gerais 
Governor Aecio Neves, and then travel to the northeastern 
states of Sergipe and Pernambuco (clearly an attempt to gain 
exposure outside his home region).  Alckmin thought the 
campaign was moving forward well and that his record in 
creating jobs and generating exports stood him in good 
stead.  He spoke of the challenges state governors face in 
Brazil, including problems with a dysfunctional judicial 
system, which sometimes issues "absurd" rulings. (In 
example, he noted that labor courts had recently ordered the 
rehiring of 1750 dismissed state employees, including 1250 
who had already been indemnified.)  Asked about his 
priorities for governing Brazil, he said the first priority 
is economic development.  He also stressed the need for tax 
reform, especially simplification of the tax code; 
completing social security reform and eliminating the 
system's high deficit; and passing labor reform and 
political reform.  He said he would strive to cut the cost 
of government and invest the savings in national 
infrastructure development. 
 
------- 
COMMENT 
------- 
 
¶16.  (SBU) Serra and Alckmin both appear highly qualified to 
be President of Brazil, and either should be able to mount a 
strong campaign against Lula.  Both of them clearly want the 
job, though Serra still faces the challenge of finding a 
graceful way out of his commitment to remain as Mayor. 
Neither candidate is particularly charismatic, but both have 
strong track records as administrators and reputations for 
personal integrity.  Both men appear favorably disposed 
toward the United States and supportive of FTAA.  Lula is 
reported to prefer Serra as an opponent, perhaps because he 
defeated him four years ago and knows what to expect from 
him, whereas Alckmin could present surprises.  However, that 
may be misdirection, especially in light of the polls that 
show Serra so much stronger against Lula.  PT President 
Berzoini expressed the view that Alckmin comes across well 
on TV, calmly and soberly explaining his positions, whereas 
Serra has gotten a reputation as possibly an adventurer in a 
financial sense, which, if true, would be worrisome to 
business people and investors. 
 
¶17.  (SBU) Alckmin is right when he claims that the polls 
offer only a snapshot and that the numbers are subject to 
change drastically once the campaign is under way.  But the 
polls nevertheless offer one of the few concrete indicators 
to guide the preferences of the politicians who must decide 
between the two, and on that level, Serra appears to have 
the edge within the PSDB at this time. 
 
¶18.  (SBU) So far, the rivalry does not appear to have 
damaged the PSDB, despite some sniping back and forth 
between the two camps.  Most observers expect the PSDB to 
close ranks behind the eventual nominee and to wage a strong 
campaign against a vulnerable Lula.  But if the issue is not 
resolved in the near term (by the end of March), or if the 
loser does not gracefully accept the party's decision, there 
could be negative consequences for the PSDB.  End comment. 
 
¶19. (U) This cable was cleared/coordinated with Embassy 
Brasilia. 
 
McMullen