VZCZCXRO4867
RR RUEHRG
DE RUEHBR #1960/01 2581816
ZNR UUUUU ZZH
R 151816Z SEP 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 6665
INFO RHEHNSC/NSC WASHDC
RUEHRG/AMCONSUL RECIFE 5445
RUEHSO/AMCONSUL SAO PAULO 8045
RUEHRI/AMCONSUL RIO DE JANEIRO 2874
RUEHBU/AMEMBASSY BUENOS AIRES 4261
RUEHMN/AMEMBASSY MONTEVIDEO 6457
RUEHAC/AMEMBASSY ASUNCION 5656
RUEHSG/AMEMBASSY SANTIAGO 5773

UNCLAS SECTION 01 OF 02 BRASILIA 001960 
 
SIPDIS 
 
SENSITIVE 
NOT FOR INTERNET 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON BR
SUBJECT:  NORTHEAST BRAZIL SOCIALIST LEADER SAYS LULA MUST IMPROVE 
ECONOMY 
 
 
¶1.  (SBU) Summary.  The success or failure of President Luiz Inacio 
Lula da Silva's second term will depend on Lula's determination to 
appoint good people and to achieve a higher economic growth rate, 
according to Eduardo Campos (protect), national president of the 
Brazilian Socialist Party (PSB) and candidate for governor of 
Pernambuco.  Campos said Lula's re-election is a sure thing, and the 
Lula camp is already looking beyond it.  He said after this fall's 
election only six or seven parties will survive because of the new 
threshold law, under which parties failing to get a certain 
percentage of votes the will lose legal status as parties.  Campos 
expects that the PT (Workers Party) block in Congress will be only 
slightly reduced from its current 92 seats.  Campos also said he did 
not expect Lula to have any trouble governing during his second 
term.  This report was prepared by visiting Embassy Poloff in Recife 
and cleared with AmConsul Recife.  End summary. 
 
Lula's Challenges: Increase GDP and Get Good People 
------------------------------------------ 
 
¶2.  (SBU) The success or failure of President Luiz Inacio Lula da 
Silva's second term will depend on Lula's determination to appoint 
good people and to achieve a higher economic growth rate, according 
to PSB president Eduardo Campos.  Campos, currently a federal 
deputy, and Minister of Science and Technology (2004-2006) in the 
Lula government, met with Recife Principal Officer and visiting 
Embassy Poloff on September 6 at Consulate Recife.  Campos said the 
growth rate in Brazil at present is so low that it is not only bad 
for Brazil but for the region and the world. 
 
¶3.  (SBU) The other major challenge Campos sees facing Lula at the 
beginning of his second term is to ensure that he appoints the right 
people to top jobs.  This will require Lula to resist pressure from 
allied parties to appoint unqualified cronies in exchange for 
political support.  He said Lula is aware of the problem and has 
been discussing it with his staff.  Lula will look for good people 
he can rely on to help him reach his second term goals, he said, and 
they will not be from the PT. 
 
Lula Transcends the PT But Is Still the People's Choice 
--------------------------------------------- ---------- 
 
¶4. (SBU) When asked about the widespread perception that Lula is 
trying to distance himself from the PT, Campos offered the 
alternative explanation that Lula has now transcended his party.  It 
is not so much a deliberate distancing as a rising above the 
identification of a single party label. Still, the PT remains 
popular enough, he said, that it will win 75 to 80 seats in the next 
congress, only slightly fewer than its current 92 seats, Campos 
predicted.  He said his own PSB would get about 40 seats, up from 
¶27.  He added that after this fall's election only six or seven 
parties will survive because of the new threshold law, under which 
parties failing to get a certain percentage of votes the will lose 
legal status as parties.  Campos said he did not expect Lula to have 
any trouble governing during his second term.  (Note: Some observers 
predict that the opposition will have a majority in the Senate, and 
that an anticipated reduction in government coalition seats in the 
Chamber of Deputies will make governing difficult for Lula in his 
second term. End note.) 
 
¶5. (SBU) Campos also said that many voters believe Lula is honest, 
in spite of the corruption scandals that have abounded in his first 
term.  Other things are more important than corruption -- voters 
identify with Lula, he speaks their language, and has a personal 
appeal, Campos said.  These are the reasons for Lula's popularity. 
In comparison, Alckmin does not speak the language of the people, 
and doesn't know Brazil, he said. 
 
Ethical Questions About Campos 
------------------------------ 
 
¶6. (SBU) Campos is running for governor in a three-way race against 
Jose Mendonca Filho of the PFL (Party of the Liberal Front) and 
Humberto Costa, of the PT.  Mendonca is currently polling in the 
high thirties, and the election is expected to go to a second round, 
in which case Campos is counting on receiving enough support from 
Lula to ensure his victory.  Campos is the grandson of Miguel 
Arraes, who was three times governor of Pernambuco.  Arraes, 
although identified with the left, won by forming alliances with the 
far right.  Campos is doing something similar: he has formed an 
alliance with federal deputy Inocencio Oliveira of the centrist PL 
(Liberal Party), who exercises influence over as many as fifty 
mayors in the interior of Pernambuco. 
 
BRASILIA 00001960  002 OF 002 
 
 
 
¶7.  (SBU) But Campos has taken on some ethical baggage: Oliveira has 
been convicted of using slave labor practices on his properties, 
although the conviction was overturned on appeal.  In addition, 
Campos has an ethical cloud over him from the 1990s when he managed 
a disastrous state bond default and ensured payments only to 
political cronies, while others lost their investments.  Campos was 
an official in his grandfather's state government at the time. 
Moreover, four members of the PSB, the party Campos heads, were 
among the accused in a recent national scandal involving rigged 
ambulance sales and kickbacks for congressmen. 
 
¶8. (SBU) Campos and Costa are both candidates of parties in Lula's 
ruling coalition, and Campos admitted that he and Humberto had made 
a sort of "non-aggression" pact for the gubernatorial campaign. 
They are aiming their political fire at Mendonca of the PFL. 
 
¶9. (SBU) Comment: Eduardo Campos's diagnosis of what Lula needs to 
do may be sensible, but in our conversation he seemed all too 
willing to underestimate the damage the corruption scandals have 
done to institutional integrity and Lula's ability to govern. 
Campos spoke of the corruption scandals as if they happened to 
someone else, and were not related to his own party.  By comparison 
with his opponent Humberto Costa, Campos can sit comfortably: Costa 
has been indicted by the federal police for his alleged role in the 
ambulance scandal, a fact the Mendonca campaign is not letting 
anyone forget. 
 
SOBEL