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UNCLAS SECTION 01 OF 06 SAO PAULO 001264 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/BSC AND WHA/EPSC 
STATE PASS USTR FOR CRONIN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE 
USDOC FOR 4332/ITA/MAC/WH/OLAC 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD 
TREASURY FOR OASIA, DAS LEE AND JHOEK 
NSC FOR FEARS 
SOUTHCOM ALSO FOR POLAD 
AID/W FOR LAC/AA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: PGOV PINR ECON PREL BR
SUBJECT: PT EXPECTS LULA TO ADVANCE THE PARTY'S AGENDA 
 
REF: BRASILIA 2578 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
 
SUMMARY 
 
¶1.  (SBU) Summary: Officials of President Lula's Workers' Party 
(Partido dos Trabalhadores - PT) downplayed reports of tensions 
between the President and his party.  The PT considers the 2006 
elections to have been a referendum on President Lula's record and 
his vision for the country and believe they have a solid mandate to 
expand programs for the poor.  They said Lula and the PT are of one 
mind on the agenda for the second term, in which the government will 
seek to promote GDP growth of at least 5 percent by lowering 
interest rates, while expanding social programs, and promulgating 
political reform.  Social security reform is not on the agenda and 
labor reform is considered unlikely; the government may attempt a 
limited tax reform.  Foreign policy is not expected to change, as 
the PT remains enamored of the "south-south" approach.  The PT's 
National Directorate (DN), meeting in late October, announced that 
the party's third National Congress will take place in July 2007 in 
Brasilia.  Whether party president Ricardo Berzoini, who stepped 
aside in September after being implicated in the "dossier" scandal, 
will return to his post remains unclear.  The National Congress is 
expected to move internal elections for party president and DN from 
late 2008 to late 2007.  In 2008 municipal elections in Sao Paulo, 
the PT is likely to nominate former Mayor Marta Suplicy and 
considers it likely that her opponent will be former Governor 
Geraldo Alckmin of the Brazilian Social Democracy Party, who lost 
this year's presidential election to Lula.  If Suplicy wins, she 
would become the PT's most likely candidate to succeed Lula.  We 
believe PT members exaggerate the degree of their influence over 
Lula and will be disappointed when they see him continue to govern 
like the pragmatic centrist that he has shown himself to be.  End 
Summary. 
 
¶2.  (U) In late November, President Lula achieved the remarkable 
feat of uniting almost the entire Brazilian Democratic Movement 
Party (PMDB) as the anchor of his governing coalition.  The PMDB, 
Brazil's largest political party, has been sharply divided for the 
past 20 years; during his first term, Lula had the support of one 
wing, while the other was in opposition.  Lula's political success, 
however, has led political commentators to question whether his own 
PT will continue to fully support his government.  Many PT members 
reportedly harbor resentment over the way Lula campaigned for 
re-election independent of his own party, often without even 
mentioning it during public speeches and appearances.  Some also 
blame the corruption scandals of Lula's first term for creating 
electoral problems for the party, though the PT ultimately did 
better than expected, winning 83 seats in the Chamber of Deputies 
(second highest after the PMDB's 89) and five governorships, 
including in the important state of Bahia.  During his first term, 
Lula was often criticized by members of his own party for his 
orthodox macro-economic policies.  Many PT militants are also known 
to be uneasy with the government's entering into alliances across 
ideological lines, i.e., with non-leftist parties. 
 
¶3.  (U) In addition to the Socialist and Communist parties on the 
left, Lula's coalition will include not only the centrist PMDB but 
also several so-called "rent-a-parties" which, to the very limited 
extent that they have a political identity, occupy various 
center-right spaces on the political spectrum, and many of whose 
members were implicated in one or more of the corruption scandals of 
Lula's first term.  Lula has also reportedly obtained the support of 
 
SAO PAULO 00001264  002 OF 006 
 
 
the center-left Democratic Labor Party (PDT) and the Green Party 
(PV) and some smaller entities, and he appears to have a solid 
working majority. 
 
¶4.  (U) Over the past ten days, Poloff and Political Assistant have 
met separately with Valter Pomar, PT Secretary for International 
Relations; Jose Americo Dias, a PT Sao Paulo City Councilman; and 
Eloy Pieta, PT Mayor of Guarulhos, a city of 1.3 million on the 
periphery of Sao Paulo, who helped coordinate Lula's campaign in Sao 
Paulo state.  Our discussions focused on the relationship between 
the PT and President Lula personally and his government, as well as 
PT perspectives on the Lula administration's agenda and priorities 
for the second term.  Pomar is the leader of a small leftist faction 
within the PT who ran unsuccessfully for party president in 
September 2005.  Dias, who is close to former Sao Paulo Mayor Marta 
Suplicy, and Pieta, who is the Mayor of Sao Paulo state's 
second-largest city, are influential within the party's state and 
local organizations. 
 
LULA AND PT "INSEPARABLE" 
 
¶5.  (SBU) Both Valter Pomar and Jose Americo Dias began the 
conversations by warning us that anyone who gets their information 
from the Brazilian media will have a distorted view of the PT. 
Pomar decried what he called misinformation published and broadcast 
by the media and criticized those who would drive a wedge between 
the President and his party by alluding to a rupture.  "Nothing that 
happens in the PT is alien to Lula.  And he is responsible for 
everything that happens in the party."  Lula, he continued, is 
President of the Republic, head of government, and founder/leader of 
the PT.  This does not mean that Lula is legally answerable for 
everything that every party member does (and certainly not for 
actions that led to the political corruption scandals, which most PT 
members maintain were blown out of proportion by the media and the 
opposition), but that Lula and the party are inseparable.  The PT 
views itself as autonomous from the government, but it supports the 
government and mobilizes the population so that the government will 
succeed.  It also, Pomar added, tells the government and the 
President when the party faithful think they are heading down the 
wrong track.  Dias, for his part, sees the PT as the "great 
negotiator for the masses" with the government. 
 
¶6.  (SBU) It was the social movements in the leftist wing of the PT, 
Pomar recalled, who issued a statement defending Lula and denouncing 
"golpismo" (an alleged attempt to overthrow a democratically elected 
government) on the part of the opposition and the media during the 
darkest days of the "mensalao" scandal in 2005.  These movements - 
the Unified Labor Center (CUT), the Landless Movement (MST), and the 
National Students' Union (UNE) are the most prominent - also 
strongly supported Lula's re-election.  That said, Pomar 
acknowledged that leftist tendencies within the party have on 
several occasions harshly criticized Lula's economic policies.  But 
the real conflicts came from the opposition.  While the social 
movements could be counted on to agitate for an expansion of social 
programs in the second term, Pomar predicted that any conflicts of 
this nature would be minor compared to those generated by the main 
opposition parties, the Brazilian Social Democracy Party (PSDB) and 
the Liberal Front Party (PFL). 
 
LULA'S MANDATE 
 
¶7.  (SBU) All the PT officials we talked to saw the 2006 election as 
conferring a strong mandate on Lula and affirming his first-term 
record and his vision for Brazil.  Mayor Pieta referred to low 
inflation, job creation, the increase in the minimum salary, low 
prices for food, and redistribution of income via such programs as 
 
SAO PAULO 00001264  003 OF 006 
 
 
Bolsa Familia as the reasons Lula won the election.  Both Pomar and 
Dias said that while the reasons the election went to a second round 
- the "dossier" scandal in late September and Lula's decision not to 
participate in the final debate - were unfortunate, the second round 
itself was unequivocally good for both Lula and the PT, because it 
enabled him to differentiate himself from his opponent.  Lula, Dias 
said, talked to the poor and about the poor; he quite consciously 
used the discourse of class struggle, but in a non-radical way.  The 
second round highlighted the differences between the candidates. 
The values articulated by Lula -- no privatizations, emphasis on 
social policy -- prevailed over ex-Governor Geraldo Alckmin's. 
Pieta noted that Lula had governed cautiously during the first term, 
but would now be in a much stronger position to implement his 
agenda. 
 
THE COALITION 
 
¶8.  (SBU) Pomar noted that the governing coalition Lula has put 
together is roughly the same as he had in the first term, with a few 
additions.  The major difference is that he now has the support of 
virtually the entire PMDB (with a few Senators and Deputies holding 
out as "independents") instead of just one wing.  This, Pomar said, 
will give the coalition more "quality."  He did not believe, 
however, that the PMDB would necessarily get more Ministries or 
other senior appointments, as most observers expect.  He also did 
not expect the PMDB to try to impose an agenda on the government. 
Thus, he expressed confidence that the PT's presence and influence 
in Lula's second administration will not be significantly diminished 
and does not believe the PT has quarrel with Lula about the way 
forward, despite reports to the contrary.  Pieta, on the other hand, 
admitted that the PT would lose some representation in the 
government but said it wouldn't matter because the main advisors 
closest to Lula are all party faithful. 
 
THE AGENDA 
 
¶9.  (SBU) With regard to the agenda for Lula's second term, the PT 
has a party line, an official story.  The mantra is "growth of 5 
percent."  Dias asserted that "Brazil has a vocation for growth." 
The first and most important measure, according to our 
interlocutors, will be a reduction of interest rates.  A change in 
exchange rate policy to bring down the strong Real is also possible, 
though this has not yet been decided.  There will be increased 
emphasis on social policy and expansion of social programs; Pieta 
indicated that improving the Bolsa Familia cash transfer program 
will be a priority.  There will also be increased investment in 
infrastructure via Public-Private Partnerships (PPPs).  Dias spoke 
of removing legal and environmental impediments that have made it 
difficult to launch PPPs.  These measures are expected to stimulate 
growth.  Pomar said the reduction of interest rates will make a big 
difference in the near term. 
 
¶10.  (SBU) Both Pomar and Dias were quite firm, however, in 
declaring that there will not be a reform of social security in the 
second term.  Dias was explicit, saying that "FIESP's agenda lost 
the election," a reference to the powerful Sao Paulo State 
Federation of Industries, Brazil's most important business 
association.  He noted that at the PT  National Directorate's (DN) 
meeting in late November, acting party President Marco Aurelio 
Garcia had stated that "the defeated are trying to impose their 
losers' agenda" on the government, but that the PT would fight back. 
 Lula, according to Dias, had said more or less the same thing, 
albeit somewhat less bluntly.  Social security reform is viewed as 
incompatible with the interests of the party's base.  It is also 
highly doubtful that the government will propose either labor union 
reform ("reforma sindical") or industrial relations reform ("reforma 
 
SAO PAULO 00001264  004 OF 006 
 
 
trabalhista").  Pieta noted that it would be hard to get the unions' 
consensus on these reforms, and that Lula is reluctant to risk 
alienating part of his own base by asking workers to make any 
concessions. 
 
¶11.  (SBU) Lula's priority will be political reform, Pomar said. 
While this might mean different things to different members of 
Congress, there are some areas of convergence, including moving to a 
mixed party list and single district system for legislative 
elections, requiring party fidelity (no more party-jumping), and 
instituting public financing of political campaigns.  Pomar said 
political reform would improve the quality of political discourse 
and of the legislative branch and thus would make it easier for the 
government to implement pro-growth policies and to work on 
de-concentrating wealth.  Besides political reform, Pomar and Dias 
both said the government might propose a limited tax reform. 
However, while the government may attempt to make improvements in 
certain targeted areas of the tax system, our interlocutors do not 
believe it will attempt to significantly reduce the tax burden or 
make the system more transparent and less cumbersome. 
 
¶12.  (SBU) Foreign policy, all three PT officials said, will not 
change significantly in the second term.  All praised Lula's 
"south-south" orientation.  If Lula plans to alter course and reach 
out more to the United States, as has been reported, he apparently 
has not yet told his own party. 
 
CONGRESSIONAL LEADERSHIP 
 
¶13.  (SBU) Pomar confirmed reports that Lula is supporting Aldo 
Rebelo of the Communist Party of Brazil (PC do B) for re-election as 
President of the Chamber of Deputies, because he thinks Rebelo is 
the candidate most likely to garner broad support.  He acknowledged 
that the PT would prefer one of its own, notably Arlindo Chinaglia 
(PT-SP), but that ultimately the PT would line up behind the most 
viable candidate.  Dias acknowledged that the PT's failure to elect 
its candidate to the National Accounting Court (reftel) suggests 
Chinaglia may have trouble rounding up the necessary votes for 
President, as the PT's coalition partners would prefer someone from 
another party. 
 
PARTY CONGRESS AND INTERNAL ELECTIONS 
 
¶14.  (SBU) The PT will hold a National Congress in Brasilia in July 
2007, only the third in its 27-year history.  There will be three 
broad themes addressed: "The Brazil we want" (an attempt for the 
party to identify its goals for the country), PT socialism, and the 
conception of the PT.  This last presumably refers to the question 
of whether the PT needs to be "re-founded," which was much talked 
about in 2005 in the wake of the corruption scandals.  There remains 
a divide between the moderate majority faction ("Campo Majoritario") 
and the leftist tendencies and social movements.  When Ricardo 
Berzoini of the majority faction won the party presidency in October 
2005, some leftists defected to Heloisa Helena's Socialism and 
Liberty Party (PSOL), but most remained.  Berzoini was forced to 
step aside in September 2006 when his name was linked to the 
"dossier" scandal.  Pomar noted that because Berzoini had been 
elected by the PT membership, he could not be removed by the 
National Directorate.  Rather, he had removed himself temporarily 
until his role in the scandal could be clarified.  Depending on the 
outcome of ongoing investigations, he could decide either to return 
or to resign.  The National Congress is expected to move the party's 
internal elections up from late 2008 to late 2007.  It is not clear 
whether either the Party Congress or the internal elections will 
revive the conflict between the party's factions.  Pomar, despite 
his position as leader of the Axis of the Left, stressed unity.  The 
 
SAO PAULO 00001264  005 OF 006 
 
 
PT, he said, intends to remain in power by electing a President in 
2010 and therefore must remain united behind Lula to ensure the 
government's success and provide the party's candidate with a strong 
government record to run on. 
 
MUNICIPAL ELECTIONS 
 
¶15.  (SBU) Dias said the PT is already looking ahead to the 2008 
municipal elections.  By August 2007, candidates and parties will be 
staking out their positions; thus, Lula has less than a year to move 
his agenda forward before the political distractions begin.  (Note: 
Most observers believe that after the municipal elections, Lula will 
be a lame duck.  End Note.)  He said Marta Suplicy is the PT's most 
likely candidate for Mayor of Sao Paulo.  Suplicy, who served as 
Mayor from 2001 through 2004 and lost her bid for re-election to 
(now Governor-elect) Jose Serra (PSDB), will run on a social 
platform of reversing policies instituted by Serra and his 
successor, Gilberto Kassab (PFL).  She will bring back the Unified 
Education Centers that were a hallmark of her administration and 
will introduce a low-cost single ticket for public transportation. 
The municipal elections, he noted, offer the PT a chance to regain 
ground lost in Sao Paulo state. 
 
¶16.  (SBU) Dias predicted that Governor-elect Serra will run both 
the state and the city because his successor, Kassab, is politically 
weak.  Many officials from Serra's time as Mayor continue to hold 
high positions in City Hall.  Kassab lacks a majority on the City 
Council and isn't as well protected against negative press as Serra 
was.  Though he may want to run for re-election, the PSDB-PFL 
coalition probably won't nominate him, because his management of the 
city's affairs has been mediocre, according to Dias.  Another PFL 
leader, businessman Guilherme Afif Domingos, recently named State 
Secretary of Labor, would not make a good Mayoral candidate, in 
 
SIPDIS 
Dias's view, because "he has no social discourse." 
 
¶17.  (SBU) The most likely candidate to run against Suplicy, Dias 
said, is former Governor Alckmin.  Serra may try to put obstacles in 
Alckmin's path - the two were rivals for the 2006 PSDB presidential 
nomination - but Alckmin can win the nomination if he wants it, and 
will be a strong candidate, (Comment: If Suplicy and Alckmin are the 
two major candidates for Mayor, it is reasonable to expect that 
neither of them will promise voters, as Serra did in 2002, that if 
elected they will serve the full four-year term and not seek 
election to any other office.  End Comment.)  However, Dias, who 
served as Municipal Secretary of Communications during Marta 
Suplicy's term as Mayor, believes Alckmin is too conservative and 
that Suplicy's social message will carry the day. 
 
THE SUCCESSION 
 
¶18.  (SBU) If Suplicy wins, she will be in a strong position to 
become the PT's presidential nominee in 2010, Dias said.  He 
dismissed Institutional Relations Minister Tarso Genro as a possible 
candidate, claiming Genro has no support among the party's rank and 
file ("he's only in the government because he's close to Lula"), and 
he didn't think Dilma Rousseff, Lula's Chief of the Civil Household, 
had the necessary political weight.  Ciro Gomes, who served as 
Minister of National Integration in Lula's first term and was just 
elected Federal Deputy, remains a possibility to succeed Lula even 
though he's not a PT member but rather a Socialist.  Finally, Dias 
thought that Jaques Wagner, just elected Governor of Bahia, could 
emerge as a strong contender.  He added that "we're not a party of a 
single personality" and predicted that although there may not be 
many obvious candidates now, the PT will be ready when the time 
comes. 
 
 
SAO PAULO 00001264  006 OF 006 
 
 
COMMENT 
 
¶19.  (SBU) The PT exceeded expectations in this year's election, in 
which they were widely expected to lose ground in the aftermath of 
the scandals.  Nevertheless, we believe the party officials we spoke 
to are too optimistic about the degree of the party's influence over 
Lula and its ability to see its agenda implemented.  The PMDB almost 
certainly expects more than the three Ministries it currently holds, 
and also expects to have an important say in the legislative agenda. 
 In fact, the coalition could fall apart if Lula does not satisfy 
the PMDB, which does not see eye-to-eye with the PT on many issues. 
And while Lula may believe Brazil can achieve 5 percent annual 
growth without addressing the threat to healthy fiscal accounts that 
the burgeoning social security deficit represents, at some point he 
will be disabused of this notion.  (He is already reportedly backing 
away from last week's endorsement of a 5 percent growth target for 
2007, projecting instead that GDP will grow only 4 percent.)  While 
he remains loyal to the PT, the bonds are not as strong as they once 
were.  Lula created a stir this week when he stated publicly that 
humanity tends to evolve towards the center and that anyone over 60 
who remains on the left "has problems."  Numerous sexagenerian (and 
older) party militants and ideologues expressed outrage, and even 
acting PT President Marco Aurelio Garcia, 65, reaffirmed that he is 
a "man of the left."  Lula then tried to pass his remark off as a 
joke and accused his comrades of lacking a sense of humor. 
 
¶20.  (SBU) We also believe the PT is exaggerating the extent to 
which voters - even those who voted for Lula - support the party and 
its agenda.  Nobody we talked to said anything about ethics, which 
used to be a PT marketing point.  The PT has not yet come to terms 
with the institutional weaknesses that led to the corruption 
scandals, nor the degree of alienation among the populace, and does 
not appear to be trying to.  Many PT members continue to talk and 
act as if the scandals were a minor distraction that have little or 
nothing to do with the party. 
 
¶21.  (SBU) We do not doubt that Lula will try to expand social 
programs and devote more attention to the poor if he can, but we 
think he will continue to govern more like the pragmatic centrist 
that he is, whether his party likes it or not.  End Comment. 
 
¶22. (U) This cable was cleared/coordinated by Embassy Brasilia. 
 
MCMULLEN