VZCZCXRO4614
RR RUEHRG
DE RUEHBR #2193/01 2921405
ZNR UUUUU ZZH
R 191405Z OCT 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 7037
INFO RUEHAC/AMEMBASSY ASUNCION 5740
RUEHBU/AMEMBASSY BUENOS AIRES 4356
RUEHMN/AMEMBASSY MONTEVIDEO 6549
RUEHSG/AMEMBASSY SANTIAGO 5878
RUEHRG/AMCONSUL RECIFE 5696
RUEHRI/AMCONSUL RIO DE JANEIRO 3148
RUEHSO/AMCONSUL SAO PAULO 8389

UNCLAS SECTION 01 OF 05 BRASILIA 002193 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV BR
SUBJECT: BRAZIL ELECTIONS: PRESIDENTIAL CONTEST FOCUSES 
NARROWLY ON PRIVATIZATION VS. CORRUPTION; LULA ADVANCES IN 
POLLS 
 
REF: A. BRASILIA 2157 
     ¶B. BRASILIA 2100 
     ¶C. BRASILIA 2027 
     ¶D. BRASILIA 1996 
 
¶1. (SBU) Summary.  With a week and a half left before the 
second round of the Brazilian presidential election, the 
campaign has evolved into a bitter contest dominated by 
President Luiz Inacio Lula da Silva's (PT - Workers Party) 
claims that challenger Geraldo Alckmin (PSDB - Brazilian 
Social Democracy Party) would privatize state firms and cut 
an entitlement program for millions of poor families, and 
countercharges by Alckmin's campaign over a scandal in which 
top PT operatives tried to purchase a dossier of ostensibly 
damaging information about a leading PSDB politician. 
 
¶2.  (SBU)  Summary continued.  Latest polling shows Lula has 
increased his lead to 20 points, but with three more TV 
debates to go, new revelations could help Alckmin repeat his 
first round surprise with a sudden gain in the final days. 
But leading pollsters told Ambassador that Alckmin's earlier 
surge was probably temporary, and many of third place 
finisher Heloisa Helena's voters will vote for Lula.  They 
said the election is basically a referendum on Lula's 
administration, most voters have made up their minds, and 
only 5-10 percent of votes are still in play.  The pollsters 
said the issues driving voters are jobs, health care, and 
security. 
 
¶3.  (SBU)  Summary continued.  Opposition party leaders 
called this week on the Superior Electoral Court to 
accelerate its investigation of alleged electoral crimes by 
the PT after a leading newsweekly reported that Marcio Thomaz 
Bastos, the Minister of Justice, collaborated in a scheme to 
divert attention from a central figure in the dossier 
scandal, Freud Godoy, a long-time Lula insider and adviser. 
The origin of the dossier money, about USD 800,000, is still 
unclear.  The opposition politicians also asked the Court to 
investigate as a possible electoral crime Lula's commitment 
of nearly a half a billion dollars in agricultural loan funds 
in exchange for political support from the governor of Mato 
Grosso.  A congressional committee ordered eight PT figures 
implicated in the dossier scandal to testify, but only after 
the election on October 29.  It also ordered Godoy's 
financial and telephone records opened for investigators. 
End summary. 
 
---------------------------- 
LULA: ALCKMIN WILL PRIVATIZE 
---------------------------- 
 
¶4.  (SBU) Lula's campaign is accusing Alckmin of planning to 
privatize Petrobras (a partly government-owned oil company), 
the Postal System, and two state-owned banks, the Caixa 
Economica Federal and the Bank of Brazil.  Alckmin is trying 
to put down the charges by reminding voters that 
privatization is not in his campaign platform and denying 
that he will privatize these large state firms.  His campaign 
has charged that Lula's campaign is using a "big lie" tactic, 
betting that by countless repetition the accusation will gain 
acceptance with voters.  Lula's strategists appear to be 
betting that the privatization canard will resonate among 
some middle class voters Lula needs to woo. 
 
--------------------------------------- 
ALCKMIN: WHERE DID THE MONEY COME FROM? 
--------------------------------------- 
 
¶5.  (SBU) While Lula's campaign tries to make Alckmin the 
privatization bogeyman, the Alckmin campaign is focusing its 
ammunition on the dossier scandal (refs c and d) that broke 
just over a month ago and is still under investigation by 
Federal Police.  Alckmin's television ads repeat the theme 
daily by showing a photo of the seized cash and how many days 
have elapsed since the scandal broke.  The ads declare that, 
a month after the money was seized from PT operatives, Lula 
still has not clarified the origin of the dossier money.  The 
latest revelation came in a report by Veja magazine last 
weekend.  Veja reported that top Lula advisers, including 
Justice Minister Marcio Thomaz Bastos, decided that it was 
necessary to remove Presidency employee and PT operative 
Freud Godoy from suspicion because of his proximity to Lula. 
When the scandal broke in mid-September, Godoy was identified 
 
BRASILIA 00002193  002 OF 005 
 
 
as the link between the PT campaign and the would-be dossier 
buyers, who were arrested with the money.  The Veja story 
said a Federal Police official was pressured by superiors 
into breaking prison visitation rules and allowed a private 
visit involving Gedimar Passos, Godoy, and other PT figures 
allegedly involved in the scandal.  As a result, Veja 
reported, Passos, who was arrested with the dossier money, 
retracted his earlier statement that Godoy had been involved. 
 The PSDB is calling for clarification of whether Federal 
Police prison regulations were violated with the visitations 
that led to Passos's retraction. 
 
---------------------------- 
LULA INCREASES LEAD IN POLLS 
---------------------------- 
 
¶6.  (U) Latest polling shows Lula has increased his lead to 
20 points over Alckmin.  A poll by Datafolha released on 
October 17 showed Lula with 60 percent and Alckmin with 40 
percent, after correcting for estimated null and blank votes. 
 Lula has polled increasingly higher since the Lula-Alckmin 
TV debate on October 8, even through viewers were divided 
over who won (ref a).  Three more TV debates are scheduled: 
Oct. 19, 23 and 27. 
 
--------------------------------- 
AMBASSADOR'S LUNCH WITH POLLSTERS 
--------------------------------- 
 
¶7.  (U) At a lunch in Sao Paulo on October 16 hosted by the 
Consul General, the Ambassador discussed the elections with 
Clifford Young of Ipsos-Brasil, Marcia Cavallari Nunes of 
Ibope-Opinion, and Amaury de Souza of MCM Consulting Group. 
He began by asking what factors accounted for Lula's failure 
to win in the first round. 
 
¶8.  (U) Young noted that a small percentage of voters, 
primarily in the impoverished northeast, have trouble with 
the voting machines and inadvertently nullify their votes. 
This probably cost Lula some votes.  He also lost votes in 
the last days of the first round because of the dossier 
scandal and his decision not to participate in the final 
debate.  These factors enabled Alckmin to force a second 
round, but his surge was only temporary and Lula is winning 
votes back from him.  Many of Heloisa Helena's votes are now 
shifting to Lula.  The various polls show him with a lead of 
10-12 points (NOTE: It has grown since.  END NOTE.), though 
not all his votes are considered solid.  Alckmin could still 
overcome the disadvantage, but it is not likely. 
 
¶9. (U) The pollsters noted that the campaign has been almost 
devoid of serious discussion of issues.   Alckmin has said 
very little about how he would govern and has failed to 
articulate a vision for Brazil.  The election is essentially 
a referendum on Lula and his administration.  He is winning 
this referendum because he is perceived to understand and 
empathize with the poor, and they identify with him. 
Alckmin, in contrast, is not seen as having any connection 
with the poor.  The great majority of voters are solidly 
either pro- or anti-Lula, with only about 5-10 percent of the 
electorate still in play.  Lula's social programs and his 
personal popularity make him more likely to attract these 
swing votes. 
 
¶10. (U) Cavallari pointed out that this is the first election 
in which results revealed such a marked geographic and 
economic division.  In general, southern states, and voters 
with higher incomes and more education, voted for Alckmin in 
the first round, whereas Lula carried most of the north and 
northeast, and poor and uneducated voters.  Low inflation and 
increased purchasing power helped Lula, as did high GDP 
growth in the northeast.  He fared poorly in agricultural 
states because Brazil's strong currency hurts agricultural 
exports. 
¶11. (U) In the second round, Young said, Lula has played on 
voters' fears by reiterating his assertion that Alckmin will 
privatize state-owned industries and will cut social spending 
and assistance programs.  Alckmin, on the defensive, has had 
no recourse but to highlight the corruption issue.  Lula, who 
benefits from the fact that many Brazilians consider 
themselves to be better off, will continue to stress that he 
won't privatize industries, won't cut social spending, and 
will create jobs. 
 
BRASILIA 00002193  003 OF 005 
 
 
 
¶12.  (U) The issues that drive voters, according to 
Cavallari, are jobs, health care, and security.  Violent 
crime in Sao Paulo has declined in recent years, but the 
violence orchestrated by the First Capital Command (PCC) hurt 
Alckmin because it went contrary to the "good administrator" 
image he tried to project.  While voters in Rio de Janeiro 
and Sao Paulo worry most about security, crime is spreading 
to other areas and is now a concern for an increasing number 
of voters.  For example, voters in the southern state of 
Parana, which borders on Paraguay, are increasingly concerned 
about drug trafficking. 
 
¶13. (U) There is great similarity between the candidates on 
many issues, De Souza noted.  Lula and the PT came to power 
in 2002 without a platform.  They appropriated the orthodox 
economic policies of Fernando Henrique Cardoso (FHC), and the 
social programs as well.  This leaves little for the 
candidates to argue about.  However, all agreed that foreign 
policy is one area where there is a clear difference between 
the candidates.  Lula's foreign policy is oriented towards 
the developing world, whereas Alckmin would focus more on 
strengthening Brazil's relations with the U.S. and the EU. 
However, the pollsters all agreed that foreign policy plays 
almost no role in voters, decision-making.  Most Brazilians 
know little about the subject, and it is considered too 
abstract.  When Alckmin brought up foreign policy during the 
October 8 debate, Lula was able to turn it to his advantage 
by highlighting his south-south approach and thus portraying 
himself as a champion of the underdog. 
 
¶14.  (U) The Ambassador asked if Brazilians were receptive to 
populism.  Our interlocutors agreed that they generally are 
not.  Democratic institutions are strong, and almost half the 
country supports Alckmin.  Brazilians tend to be conservative 
and are unimpressed with politicians like Hugo Chavez. 
Populist former Rio de Janeiro Governor Anthony Garotinho is 
an isolated phenomenon with a small following.  However, De 
Souza thought the danger could possibly arise if Lula, in a 
second term, were to face a serious economic crisis that 
damages his popularity. 
 
¶15.  (U) De Souza noted that the next President will face 
tough economic challenges.  The middle class is squeezed by 
high taxes, which will be hard to cut because Lula has spent 
so much on income transfers and public servants, salaries. 
The government is unable to invest in infrastructure, and 
private investment is insufficient to stimulate growth. 
Economic reforms are needed, but it will be difficult to 
generate sufficient support for them in Congress.  In the 
2010 election, the major issues will be the size of the 
state, its role in the economy, and big government. 
 
¶16.  (U) The Ambassador closed the lunch by asking how 
Brazilians view the United States.  The unanimous reply was 
that while U.S. foreign policy (particularly the war in Iraq) 
is unpopular among Brazilians, most of them still have a very 
positive image of the country, and still identify with 
Americans more than with any other people. 
 
------------------- 
COURT INVESTIGATION 
------------------- 
 
¶17.  (U) In Brasilia this week, after the Veja story 
appeared, the leaders of three opposition parties met on 
October 16 to demand that the Superior Electoral Court (TSE) 
accelerate its investigation of the dossier scandal, and they 
accused Justice Minister Marcio Thomaz Bastos of acting as 
the president's personal criminal lawyer.  The three leaders, 
Tasso Jereissati (PSDB), Jorge Bornhausen (PFL - Liberal 
Front Party), and Roberto Freire (PPS - Socialist People's 
Party), want the Court to investigate Bastos's alleged 
involvement in the plot to distance Godoy from the dossier 
scandal, and they want the Court to investigate Veja's 
allegation that Paulo Lacerda, head of the Federal Police, 
and other senior PF officials approved the irregular meeting 
between Godoy and Passos.  According to Veja, the meeting was 
illegal because it took place outside of regular visiting 
hours and was not authorized by an internal memorandum.  In 
the meantime, Antonio Carlos Biscaia (PT), the chairman of 
the Parliamentary Inquiry Committee looking into the dossier 
scandal, said he is certain that the 1.7 million reais (about 
 
BRASILIA 00002193  004 OF 005 
 
 
USD 800,000) intended to purchase the dossier but seized by 
Federal Police, came from illegal sources, such as gambling. 
A Federal Police official working on the case said he expects 
to know the origin of the money before the second round of 
voting on October 29, but will not divulge the information 
before voting. Discovery and proof of use of illicit funds in 
the campaign would be legal grounds for cancelling Lula's 
candidacy even after he has won. 
 
---------------------- 
CONGRESSIONAL HEARINGS 
---------------------- 
 
¶18.  (U) A Parliamentary Inquiry Committee (CPI), already 
investigating the related ambulance price-rigging scandal, 
took up the dossier matter and on October 17 ordered eight PT 
figures to testify, but the earliest hearing will be on 
October 31, two days after the second round.  The eight 
witnesses will be Ricardo Berzoini, ex-president of the PT 
and former manager of Lula's campaign; Oswaldo Bargas and 
Jorge Lorenzetti, longtime Lula associates who worked on the 
campaign; Freud Godoy, former adviser to Lula and sometime 
security consultant; Gedimar Passos and Valdebran Padilha, PT 
operatives who were arrested with the dossier money; Expedito 
Veloso, former Bank of Brasil risk manager on leave to work 
on the Lula campaign; and Hamilton Lacerda, former staffer in 
Senator Aloizio Mercadante's (PT) unsuccessful gubernatorial 
campaign against Jose Serra (PSDB), the main target of the 
dossier.  The CPI also ordered Godoy's financial and 
telephone records opened for investigators. 
 
--------------------------------------------- - 
A BILLION REAIS FOR FARMERS AND AN ENDORSEMENT 
--------------------------------------------- - 
 
¶19.  (SBU) Jereissati, Bornhausen and Freire also asked the 
TSE to investigate a possible electoral crime because Lula 
 
SIPDIS 
announced last week the government will provide a billion 
reais (USD 450,000,000) in loans to soy farmers in Mato 
Grosso to roll over debts accumulated over the past few 
years, which were hard for the agricultural sector.  This 
came the day after Blairo Maggi (PPS), governor of Mato Gross 
and so-called "soy king," said to be the world's biggest soy 
grower, declared his support for Lula.  Maggi said he will 
not benefit from the funds because his soy firm, Amaggi, is 
not endebted.  Maggi will almost certainly be expelled from 
the PPS. 
 
---------------------- 
PDT CHOOSES NEUTRALITY 
---------------------- 
 
¶20.  (U) The PDT (Democratic Workers Party), whose 
presidential candidate Cristovam Buarque came in fourth in 
the first round, decided to remain neutral.  PDT supporters 
may vote as they choose, the party announced this week. 
Third place finisher Heloisa Helena (PSOL - Socialism and 
Freedom Party) said right after the first round her party 
would not endorse any candidate. 
 
¶21.  (SBU) Comment.  The conventional wisdom here is that the 
surprise revelation of the dossier affair gave Alckmin enough 
of a surge, and took away enough from Lula, that the election 
went to a second round.  But polls suggest the effect is 
waning and Lula has resurged.  As much as Alckmin hammers on 
the corruption issue, Lula's support grows, possibly because 
his campaign's fear tactics are working both with the least 
educated and poorest sectors of the population, and some 
middle class swing voters who have career and business 
interests tied to public sector enterprises.  Many educated 
people who voted for the PSOL and PDT are also going for Lula 
because they believe Alckmin is not in touch with Brazil and 
will not do as much for social integration as Lula has done. 
Both of these types of voters appear willing to live with the 
corruption factor.  A week and half is still a lot of time in 
Brazilian politics, and events are unfolding very rapidly. 
With three debates to go, and investigations under way by 
Federal Police, Congress and the Superior Electoral Tribunal, 
there could be more surprises.  We are still not ready to 
call Alckmin out, even though he is way down in the polls -- 
he has been there before -- because the potential for another 
October surprise still exists. 
 
 
BRASILIA 00002193  005 OF 005 
 
 
¶22.  (U) Consulate General Sao Paulo contributed to this 
cable. 
 
Sobel