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UNCLAS SECTION 01 OF 06 SAO PAULO 000449 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
NSC FOR CRONIN 
STATE PASS USTR FOR SULLIVAN/LEZNY 
DEPT OF TREASURY OASIA, DAS LEE AND FPARODI 
USDOC FOR 4332/ITA/MAC/WH/OLAC/SHUPKA 
USDOC ALSO FOR 3134/USFCS/OIO/EOLSON/DANDERSON 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONESE, NRIVERA, CMERVENNE 
DOL FOR ILAB MMITTELHAUSER 
SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: PGOV PINR PHUM ELAB EAGR BR
SUBJECT: FEDERAL DEPUTY GREEHALGH SHARES VIEWS ON ELECTION CAMPAIGN, 
LULA'S PREDICAMENT, CAMPAIGN FINANCE COMPLEXITIES, CELSO DANIEL 
CASE, AND MORE 
 
REF: (A) BRASILIA 727 AND PREVIOUS; 
 
     (B) SAO PAULO 316; (C) 05 BRASILIA 387; 
     (D) 04 SAO PAULO 379;(E) 02 SAO PAULO xxx 
     (F) BRASILIA 813; (G) SAO PAULO 332 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY. 
 
------- 
SUMMARY 
------- 
 
¶1.  (SBU) In a ninety-minute breakfast meeting with Consulate 
representatives, Federal Deputy Luiz Eduardo Greenhalgh (PT-SP) 
offered his insights on a number of current political issues.  He 
said President Lula faces a tough fight for re-election and is 
concerned about his prospects in populous Sao Paulo state, which 
Greenhalgh characterized as "enemy territory." For this reason, Lula 
is promoting the Workers Party (Party dos Trabalhadores - PT) 
gubernatorial candidacy of Senator Aloisio Mercadante over that of 
former Mayor Marta Suplicy in the hope that, even if he doesn't win, 
the popular Mercadante can provide Lula with reverse coattails. 
Greenhalgh expressed concern over Lula's lack of a government 
program and especially his increasing isolation as more of his 
friends and party colleagues leave government due to either scandal 
or re-organization or both.  Lula has become dependent on several 
key advisors from Rio Grande do Sul state. 
 
¶2.  (SBU) The one piece of good news for Lula is that the opposition 
candidate, Geraldo Alckmin, has so far not resonated with voters, 
giving Lula some breathing room.  The major third party, the PMDB, 
remains hopelessly divided over whether or not to run a presidential 
candidate, and, if so, who.  Party leadership is doing everything 
possible to avoid a run by populist Rio de Janeiro former Governor 
Anthony Garotinho.  If elected to a second term, Greenhalgh 
predicted, Lula would continue his orthodox macro-economic policies 
but would increase the emphasis on education and devote more 
resources to it. 
 
¶3.  (SBU) In assessing his party's prospects, Greenhalgh estimated 
that the PT will probably win about 60 (out of a possible 513) seats 
in the federal Chamber of Deputies, down from its current 89.  The 
PT continues to struggle to recover from the ongoing political 
scandal (ref A).  END SUMMARY. 
 
------------------------ 
WHITHER LULA AND THE PT? 
------------------------ 
 
¶4.  (U) Federal Deputy Luiz Eduardo Greenhalgh, a founder and 
long-standing prominent member of President Lula's PT from Sao 
Paulo, invited Deputy Principal Officer (DPO), Poloff, and Political 
Assistant to breakfast at his apartment near downtown Sao Paulo. 
Also present was Sister (Congregation of the Holy Cross) Michael 
Mary Nolan, an AMCIT human rights advocate and partner in 
Greenhalgh's law firm who has lived and worked in Brazil since 1968, 
and the Deputy's secretary and political assistant, Miraci Astun. 
Congressman Greenhalgh, in a relaxed and talkative mood, began by 
sharing "war stories" of his days as a human rights advocate under 
the military dictatorship. 
 
¶5.   (SBU) When talk turned to the current political situation, 
Greenhalgh, an influential "petista" (PT member) who narrowly missed 
being elected in February 2005 to the Presidency of the federal 
Chamber of Deputies (see ref C), and serves as his party's deputy 
 
SAO PAULO 00000449  002 OF 006 
 
 
leader in the Chamber, provided a sober assessment of the PT's 
prospects.  The PT, he averred, will probably end up with 
approximately 60 seats (out of 513) in the Chamber of Deputies, down 
from its current 89.  The scandal has obviously alienated many 
voters.  Lula's re-election is by no means assured.  He is fighting 
hard now because he's under attack from the opposition, and he needs 
to demonstrate his legitimacy as a political leader and statesman 
and protect his legacy.  Lula loves to campaign, Greenhalgh 
observed, and relishes the opportunity to "make them swallow him," a 
reference to the elites who despise Lula (and the feeling is 
mutual).  But neither Lula nor his government has any program or any 
new ideas, Greenhalgh confided; since the scandal broke in May 2005, 
the government has been paralyzed, as, he acknowledged, the Congress 
has also, its time taken up entirely by the work of the various 
investigative committees (CPIs). 
 
¶6.  (SBU) What's worse, Greenhalgh continued, Lula is increasingly 
isolated.  He is suffering from the "lonely at the top" syndrome. 
Most of his old party friends are gone, victims of the scandals or 
of one reshuffling or another.  Former Chief of Staff Jose Dirceu 
was never a close personal friend, but he was an effective political 
ally, confidant, and enforcer.  Former Finance Minister Antonio 
Palocci, on the other hand, was a good friend from his days as Mayor 
of Ribeirao Preto (interior of Sao Paulo state), and both his 
personal counsel and his political and financial acumen are sorely 
missed.  In the entire Executive Branch, only two close friends of 
Lula remain on the job: Luiz Dulci, Secretary General of the 
Presidency, and Gilberto Carvalho, Lula's personal secretary.  Lula 
is now the captive of the "Republic of Rio Grande do Sul," led by 
current Chief of Staff Dilma Roussef and new political coordinator 
(and former Education Minister) Tarso Genro.  If elected to a second 
term, Greenhalgh ventured, Lula would probably continue with the 
same economic policies he has pursued to date, but would try to make 
education the focus of his government's efforts to redress Brazil's 
social and economic inequality. 
 
---------------------------------------- 
CELSO DANIEL'S MURDER WAS A COMMON CRIME 
---------------------------------------- 
 
¶7. (SBU) Poloff observed that even Gilberto Carvalho's continued 
government service may be in question, as major national media 
continue to link him to an alleged cover-up of the January 2002 
kidnapping and murder of Santo Andre Mayor (and Lula presidential 
campaign coordinator) Celso Daniel (refs D-E).  Carvalho has had to 
testify before the parliamentary committee investigating 
irregularities in bingo operations and other forms of municipal 
corruption ("the Bingoes CPI").  Both Greenhalgh and Nolan were 
quick to insist that these allegations were false, that Carvalho was 
a serious, devout person innocent of wrongdoing, and that the 
media's coverage of the Daniel murder was wide of the mark. 
Greenhalgh, who in his role as Federal Deputy was intimately 
involved in the investigation, offered his ten-minute account of 
what really happened.  It was a common crime.  Yes, there were 
credible allegations of municipal corruption in Santo Andre (one of 
the "ABC" industrial suburbs south of Sao Paulo, where the PT is 
strong) involving Daniel's friend and former bodyguard, Sergio Gomes 
da Silva, aka Sombra, and yes, Daniel was dining with "Sombra" right 
before he was kidnapped, so it was inevitable that media and others 
would connect the murder with political corruption, but there was no 
factual basis for so doing.  In Greenhalgh's version, the criminal 
gang that picked Daniel up off the street panicked when they 
realized they had a VIP on their hands; some wanted to let him go, 
but others, fearing he could reveal the identity of his captors, 
 
SAO PAULO 00000449  003 OF 006 
 
 
insisted he be eliminated, and so he was.  Greenhalgh claimed to be 
one of the first to see the body, and, based on his long experience 
in human rights cases, could swear that Daniel had not/not been 
tortured, despite allegations to the contrary.  He had met many 
times with members of the Daniel family, including his brothers Juan 
Francisco and Bruno, who he said at first appeared to accept the 
police's "common crime" theory but who now insist that the murder 
and cover-up were carried out by elements of the PT at the 
instigation of Jose Dirceu. 
 
----------------- 
THE OPPOSITION... 
----------------- 
 
¶8. (SBU) Returning to the current political scene, Greenhalgh noted 
that Lula had at least one piece of good luck: the campaign of his 
opponent, Brazilian Social Democracy Party (PSDB) candidate and 
former Sao Paulo Governor Geraldo Alckmin, had not yet taken off, 
and Lula retained a considerable lead in the polls.  In fact, 
Greenhalgh opined, if Alckmin doesn't show some tangible improvement 
soon, the PSDB leadership may remove him as their candidate and 
designate former Sao Paulo Mayor (and current gubernatorial 
candidate) Jose Serra their nominee.  There is time enough: party 
conventions are held in June, and the candidate doesn't have to 
register until late June.  Unlike others we have spoken to, 
Greenhalgh believes Serra would be tougher for Lula to defeat than 
Alckmin.  (Comment: He may also hope the PSDB removes Serra from the 
gubernatorial campaign, making it more plausible for a PT candidate 
to win.  End comment.) 
 
------------------------------- 
...AND THE INFERNAL THIRD PARTY 
------------------------------- 
 
¶9. (SBU) Then, of course, there remained the question of what the 
Brazilian Democratic Movement Party (PMDB) was going to do.  The 
PMDB was "our original sin," lamented Greenhalgh, referring to the 
fact that the PMDB had evolved out of the Brazilian Democratic 
Movement (MDB), the legal opposition to the 1964-85 dictatorship, 
and almost all working politicians over the age of about 40 (except 
maybe some die-hard Communists and some supporters of the military 
regime) had started out in either the MDB and PMDB.  The party 
remains hopelessly divided over whether or not to run its own 
presidential candidate, and, if so, who.  The party leadership 
remains united in its profound wish that former Rio de Janeiro 
candidate Anthony Garotinho not be their standard-bearer.  (Comment: 
One has to wonder why the PMDB accepted him into its ranks after he 
defected from the Socialist Party.  End Comment.)  Recently, Jose 
Dirceu had met with PMDB former (1992-94) President Itamar Franco, 
reportedly at Lula's behest, to offer him the Vice-Presidential 
candidacy in a PT-PMDB alliance.  But this was a Dirceu "rogue 
operation," asserted Greenhalgh, which in the end hadn't worked, 
since Franco had declared his presidential candidacy instead.  The 
purpose of a Franco run for President was to block Garotinho, a 
worthy goal in Greenhalgh's view, but the danger was that it might 
be too successful; an Itamar Franco presidential candidacy that 
showed any sign of viability would be a nightmare for the entire 
nation.  In fact, Franco is more interested in running for the 
Senate from his home state of Minas Gerais than for the Presidency, 
but if his Presidential candidacy should take off, as it might, the 
country will be in trouble. 
 
----------------------------------- 
SAO PAULO STATE GOVERNOR'S RACE HAS NATIONAL IMPLICATIONS 
 
SAO PAULO 00000449  004 OF 006 
 
 
----------------------------------- 
 
¶10. (SBU) Poloff inquired into the PT's handling of the campaign for 
Governor of Sao Paulo.  The PT has scheduled a primary for May 7. 
Two candidates - Senator Aloisio Mercadante, the government's leader 
in the Senate, and former Sao Paulo Mayor Marta Suplicy - are 
running.  There once was a third candidate, Federal Deputy Joao 
Paulo Cunha, a former President of the Chamber of Deputies, but he 
withdrew some time back due to his involvement with the "mensalao" 
(political bribery) scandal.  The Chamber recently voted (ref A) not 
to expel him and deprive him of his political rights for eight 
years, despite the evidence against him, but federal prosecutors 
have built a strong criminal case against him.  Nevertheless, he 
remains a power in the party in this state.  According to 
Greenhalgh, President Lula was initially inclined to let Marta 
Suplicy and Mercadante work out their differences.  Suplicy is very 
strong in the city of Sao Paulo; Mercadante is strong in the 
interior of the state.  The periphery of greater Sao Paulo, the 
industrial suburban belt, is up for grabs.  Then Lula recalled what 
had happened in the February 2005 election for President of the 
Chamber.  Greenhalgh should have been the easy winner, since his 
party had the largest bloc in the Chamber, and tradition favored 
letting them have their choice.  But Virgilio Guimaraes, another 
"petista," had entered the race, splitting the vote and paving the 
way to victory for Severino Cavalcanti of the Progressivist Party 
(PP).  A member of the Chamber's so-called "lower clergy," 
ineffective and not well respected, Cavalcanti had presided over a 
period of Congressional lethargy and was then forced to resign in 
September 2005 over allegations that he extorted bribes from a 
restaurateur who had a contract with the Chamber. 
 
¶11. (SBU) To avoid another fiasco involving a PT split vote, Lula 
interceded.  Aware that Marta Suplicy has high negative numbers and 
would be a divisive figure as a candidate - she would be much better 
as Vice-Governor, or as a Federal Deputy, Greenhalgh said - he put 
the word out that he favored Mercadante.  At least one peripheral 
community, Osasco, west of the city, where Cunha holds sway, 
publicly switched its support from Suplicy to Mercadante. 
Guarulhos, another city on the outskirts, remains a battleground, as 
do Santo Andre and Diadema.  Lula understands, Greenhalgh stressed, 
that no PT candidate is likely to win as long as Jose Serra is the 
PSDB candidate for Governor, but the popular, respected Mercadante 
can bring in a lot of votes for Lula in the Presidential election, 
votes badly needed in "enemy territory," as Greenhalgh characterized 
Sao Paulo state, where the PSDB has a strong base.  The state, which 
has 23 percent of Brazil's population, is absolutely critical. 
 
¶12. (SBU) The electoral campaign at state level also remains hostage 
to the whims of PMDB state chairman (and former Governor) Orestes 
Quercia.  Often touted as a gubernatorial candidate, one who was 
leading in the polls until Serra entered the race, Quercia would 
actually prefer to be a Senator.  He wants to make an alliance with 
the PT, but the negotiations are not going well.  He may end up in 
an alliance with the Communist Party of Brazil (PCdoB) in which the 
President of the Chamber of Deputies, Aldo Rebelo (PCdoB-SP), would 
run for Governor.  But the incumbent Senator, Eduardo Suplicy (PT), 
Marta Suplicy's ex-husband, remains a formidable opponent. 
 
¶13. (U) Greenhalgh said he expected that the PT's "National 
Encounter," which is taking place in Sao Paulo April 28-30, would 
be, as always, somewhat contentious as militants argues over the 
platform, but he believes that the party will nevertheless remain 
united, and even the disaffected leftist will strongly support 
Lula's re-election.  They remain disappointed with his orthodox 
 
SAO PAULO 00000449  005 OF 006 
 
 
macroeconomic policy, but they recognize that a Lula second term 
offer the best hope for combating inequality and advancing social 
justice.  (NOTE: Post was invited to send representatives to observe 
the Encounter, and had planned to do so, but was advised April 26 by 
the PT Secretariat for International Relations (SRI) that the party 
had decided to hold a closed, "Members only" encounter, and that 
there was no room for observers.  END NOTE.) 
 
------------------------------------ 
"CAIXA DOIS" - ETHICAL AND UNETHICAL 
------------------------------------ 
 
¶14. (SBU) DPO inquired into the mechanics of campaign financing. 
Greenhalgh replied that in his last race for Deputy, he had formally 
declared expenditures of 600,000 reais (about USD 250,000).  This 
had come from individual contributions and from businesses.  But 
many businesses were reluctant to appear on contributor lists, so 
they make their donations in kind, in the form of various services 
(e.g., transportation, printing flyers, etc.) to the campaign. 
Thus, Greenhalgh estimated that his actual campaign expenditures 
were closer to 720,000 reais.  When he declared the 600,000, he 
said, people commented on how high it was, but that only lasted a 
day or two.  By making such a plausible declaration, so close to the 
truth, he had effectively immunized himself against accusations of 
campaign finance irregularities.  In short, it was true, as Lula and 
other defenders of the PT had asserted during the scandal, that 
"everyone practices Caixa Dois," the collection and use of 
unreported, off-the-books campaign funds.  But there are ethical and 
unethical ways of doing it, Greenhalgh insisted, fiction and 
non-fiction.  Some Federal Deputies from Sao Paulo report, with a 
straight face, total campaign expenditures of 150,000 reais (USD 
70,000), a sum of money that "could not get you elected city 
councilman in Itagui," as Greenhalgh put it, when they no doubt 
raised and spent three times that amount. 
 
--- 
MST 
--- 
 
¶15. (SBU) DPO inquired into the PT position on recent activity by 
the Landless Movement (Movimento dos Trabalhadores Sem Terra - MST), 
which has been engaged recently in increasingly confrontational land 
invasions and property destruction (refs F-G).  Greenhalgh noted 
that his law firm represents MST (as well as various other social 
movements and leftist publications), including leaders Joao Pedro 
Stedile and Jose Rainha, and he has a long relationship with the 
group and a policy of never criticizing them publicly.  However, he 
had departed from that policy after MST's March 8 assault on the 
Aracruz cellulose plant in Rio Grande do Sul, which resulted in a 
reported USD 400,000 worth of damage.  He said he had issued a 
statement to the effect that such disrespect for the rule of law was 
unacceptable, and that MST needed to reassess its tactics. 
Greenhalgh's view is that although MST generally operates under the 
influence of the PT, in some places and circumstances Senator 
Heloisa Helena's breakaway Socialism and Liberty Party (PSOL) 
controls the movement.  He suggested that PSOL rather than the PT 
was to blame for MST's recent confrontational and violent actions. 
 
------- 
COMMENT 
------- 
 
¶16. (SBU) Greenhalgh is a serious politician with strong human 
rights credentials, but he is not universally admired.  He has 
 
SAO PAULO 00000449  006 OF 006 
 
 
himself been accused of corruption while serving as Vice-Mayor of 
Sao Paulo in the administration of PT Mayor Luiza Erundina 
(1989-92).  He has also been widely criticized by both the PSDB and 
some Sao Paulo state investigators for leading what some have called 
a white-wash effort by the PT in the Celso Daniel murder case.  That 
said, his insights into the problems of his party, and Lula's 
problems, are especially penetrating and relevant as the campaign 
draws nearer.  End Comment. 
 
¶17. (U) This cable has been coordinated/cleared with Embassy 
Brasilia. 
 
MCMULLEN