EMBARGO AT QUARTA-FEIRA DIA 09/03/2011 ELEIES 2010 J PUBLICADO 1) CABLEGATE DE SOBEL

213148 6/19/2009 21:00 09BRASILIA791 Embassy Brasilia CONFIDENTIAL

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 000791 SIPDIS E.O. 12958: DECL: 06/18/2019 TAGS: PGOV, BR SUBJECT: HOW SICK IS DILMA ROUSSEFF? Classified By: Acting DCM Marie Damour, reasons 1.4 b and d. 1. (C) Summary. Dilma Rousseff, President Lula's choice to succeed him as president in January 2011, cast doubt over her viability as a presidential candidate when doctors discovered in March that she has lymphatic cancer. Observers say the Presidential Palace is being transparent about her condition and she will be able to run for president next year. With no good alternative PT candidate in sight, the PT stands to lose the election should Rousseff withdraw. Some believe her illness provides an opening for President Lula to seek a third consecutive term, despite his repeated avowals not to. Dilma looks well and if she can continue to look like a fighter and winner, it could help her win the election in October 2010. End summary. 2. (C) Dilma Rousseff, minister-chief of the civilian household and President Lula's top aide on domestic policy, was diagnosed with lymphatic cancer in March. Her doctors stated that her cancer was caught early and she has a 90 percent chance of a full recovery. She had lymph nodes under her left arm removed and began what was originally scheduled as a four month program of chemotherapy in April. In late May, she was briefly hospitalized on an emergency basis with pain in her legs, which was later attributed to an abrupt cessation of medication associated with the chemotherapy. Doctors said in the future she will taper off those drugs to avoid a recurrence. In the meantime, Rousseff said she would cut back on her schedule. By early June she had completed three chemotherapy sessions. In a June 18 meeting with a Washington visitor (septel), Rousseff looked well with good natural color and light make-up, and a top aide told the Ambassador that Rousseff was responding so well to chemotherapy that her sessions would be reduced from six to four, ending in late June. 3. (C) Journalists, analysts, and politicians tend to agree that the Presidential Palace is not hiding information related to her illness and is trying to be as transparent as possible but might be overly optimistic about her prognosis. Still, her illness has provoked speculation about who might replace her as the Workers' Party candidate in 2010 should she be too sick to run. 4. (C) Senator Tiao Viana (PT, of Acre), who is a physician, told poloff on June 9 that Dilma's illness is exactly what the GOB says it is: a case of lymphatic cancer caught early with a 90 percent chance of being fully cured. Viana also said that when her chemotherapy program is finished she should be considered cancer-free for five years. She will be able to campaign without restriction and should be fit enough for all the exertions that a national campaign will require, he said. Possible scenarios 5. (C) Several possible scenarios could emerge from Dilma's cancer. In one scenario, she and the PT inner circle might already know that she is much sicker than publicly revealed and too sick to be the candidate. In another, she might be well enough now to become the candidate but later be weakened by the illness and unable to campaign effectively. Another scenario, in harmony with the public statements by the GOB and Rousseff's doctors, is that she will respond well to chemotherapy and her cancer can be considered cured, or at least in remission. 6. (C) The

first scenario seems less likely, since the PT gains no advantage by waiting to select and groom another candidate only 14 months before the election. In the absence of another strong contender, the longer the party waits to put forth another candidate, the harder it becomes to build him or her up and gain national name recognition. If Rousseff were too sick to run successfully, Lula and his inner circle would quickly move to put forth a viable alternative, although PT choices may be limited. Without an alternative within the PT, Lula would choose to delay replacing Rousseff if her recovery is slower than expected. 7. (C) The second scenario poses the greatest danger to the PT's desire to retain the presidency, and if chemotherapy is successful this scenario will not occur. But given the estimates that Rousseff's lymphoma has a 90 percent chance of BRASILIA 00000791 002 OF 003 being cured now, there is still a ten percent chance that Rousseff will face this scenario, and it would probably mean the loss of the presidency for the Workers' Party in 2010. Nonetheless, Lula and the PT may be choosing to believe the most optimistic prognosis when the reality could be a range of possibilities, with the 90/10 prognosis at the sunny end. 8. (C) The third scenario seems the most likely. Again, using the medical estimates, assuming the doctors are both correct and honest in their public statements, there is a 90% chance the cancer will be cured and Rousseff will be physically able to mount a strong campaign. Some analysts have noted that a "victory" over cancer will play in her favor and foster an image of her as a fighter and winner. Conversely, if she looks weak and defeated next year, voter support will flag. On June 18, poloff spoke with Paulo Delgado, a former five-term federal deputy for the PT (1987-2007), now a political consultant with the Federation of Industries of Sao Paulo (FIESP) and a monthly guest columnist for national daily O Globo. He suspects the presidential palace is uncertain about her condition but hopes she will be well enough to go the distance. Rousseff will have plenty of time to recover from the effects of chemotherapy before the October 2010 elections. In the wings 9. (C) What if Rousseff is no longer a viable candidate? Senator Viana said the most likely alternatives are Federal Deputy Antonio Palocci, the former finance minister who resigned in a scandal, and Gilberto Carvalho, the president's chief of staff. The Supreme Court is to decide this month whether to allow federal prosecutors to bring a case against Palocci in the Supreme Court. In this case, he would not be a viable candidate unless acquitted after trial, which could take a long time. Carvalho is not nationally known, and the PT would face an uphill battle to build name recognition. In his current portfolio he lacks a vehicle to put him before the public, unlike Rousseff, who as the "mother of the PAC," (the Accelerated Growth Program, a massive public works program) is regularly seen in a leading role at public works inaugurations. Other than Carvalho and Palocci, there are no obvious alternatives from within the Workers' Party. Although there are five governors from the PT, none is now widely viewed as presidential material, and PT members of congress would all be very dark horses starting from the back of the pack. Occasionally the name of Patrus Ananias, the minister for Social Development and the Combat against Hunger, is mentioned. Like Carvalho, he is not well-known, but has the advantage of administering the Bolsa Familia (Family Stipend) program, the flagship social program of the Lula administration with national name recognition. Governor Neves to the rescue? 10. (C) The wild card in everyone's calculations is Governor Aecio Neves (PSDB, opposition), of Minas Gerais. Speculation about Neves's presidential ambitions has long been rife, often focusing on a possible switch to the Brazilian Democratic Movement Party (PMDB, a non-ideological party in the government coalition). Delgado said another scenario is more likely: should Rousseff not be able to run, Neves could move to the Brazilian Socialist Party (PSB) or the Green Party (PV) and run with the support of the Workers' Party. Neves has been careful to maintain good relations with Lula and the PT, and PT support for his candidacy is plausible, especially to beat Sao Paulo Governor Jose Serra (PSDB), who now has an edge over all other possible candidates in early polls. However, there is also speculation that Neves has an

arrangement with Serra to support Serra's candidacy in 2010 in return for becoming Serra's choice as his successor. If Neves is to run for president for a different party, he must resign from the governorship by early October because he cannot switch parties less than a year before the election, and were he to switch without resigning, the PSDB would sue to reclaim the governor's seat and remove him office. President Lula to the rescue? 11. (C) There is always speculation about a third consecutive term for Lula, which would require a constitutional amendment. President Lula has repeatedly (and convincingly) stated publicly that he is against it. Nonetheless, there is BRASILIA 00000791 003 OF 003 considerable mistrust of Lula and the PT on this subject, even among allied parties. Federal Deputy George Hilton (Progressive Party - PP, of Minas Gerais) told poloff on June 17 that he believes Rousseff's illness could be worse than publicly admitted but the Presidential Palace and/or the PT are maintaining her candidacy so that later this year they could drop her and, with no alternative in sight, force Lula to change his mind, let Congress amend the Constitution, and have him run for a third term. (Comment: This scenario is highly implausible, but this and similar lines of thinking will always find followers among those who do not trust Lula and the PT. End comment.) Delgado pointed out that Lula has never categorically closed the door to running for a third term and one should not rule out such a turn of events. 12. (C) Comment. When Rousseff's illness was first made public, the Lula government rushed to give optimistic predictions for Rousseff's health when it was too early for a reliable prognosis. This indicates some wishful thinking on the part of Lula and top government figures. Rousseff's illness has also exposed a vulnerability in the PT that it did not have only a few years ago, when it could point to several star-power governors and congressmen. Those stars for one reasons or another have now faded, and the party has adopted Dilma Rousseff, the choice of Lula, its senior leader, for better, for worse, in sickness and in health. If she is sicker than publicly stated, and cannot effectively campaign and be elected Lula's successor, Lula is making a colossal gamble that will be increasingly harder to unmake as time passes. But by all appearances, Dilma is doing well, and a winning and healthy appearance could help her to close the gap in polls with Serra and contest the election in October 2010. SOBEL Traduzido por Renata 2) CABLEGATE DO CONSUL GERAL DE SP KUBISKE traduo e comentrios publicados aqui: http://mariafro.com.br/wordpress/?p=23840
217391 7/20/2009 19:15 09BRASILIA905 Embassy Brasilia UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS SECTION 01 OF 04 BRASILIA 000905 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV, BR SUBJECT: Brazil's 2010 Presidential Election: Early Snapshot REFS: SAO PAULO 273, SAO PAULO 90, BRASILIA 791, BRASILIA 799 1. (SBU) Summary. The 2010 presidential election in Brazil, fifteen months out, currently looks like a two person contest between Minister Dilma Rousseff and Sao Paulo Governor Jose Serra. Although Serra maintains his lead in the polls, Rousseff's steady rise in public opinion has some analysts already labeling her the favorite. Without either having clear frontrunner status established and few evident policy differences between these two mainstream leftist candidates, they will try to persuade low income voters of their firmer commitment to ongoing social programs, and middle and upper income voters of their greater managerial competence. Analysts say both major parties-Rousseff's Workers' Party (PT) and Serra's Social Democrats (PSDB)--will try to win massively in their regional strongholds and reduce their opponent's edge as much as possible where they do not expect to

win. The non-ideological Brazilian Democratic Movement Party (PMDB) could play a decisive role and both leading parties would like to form an alliance with it. A steady stream of political scandals and the accompanying revelations could change the landscape suddenly and surprisingly. Despite the unpredictability that is typical of Brazilian politics, institutional stability is as great as it has ever been in the post-military dictatorship period. End summary. Two Person Race 2. (SBU) The October 2010 presidential election in Brazil, fifteen months out, looks like a two person contest between Dilma Rousseff (PT), Minister-chief of the Civilian Household, and Jose Serra (PSDB), governor of the state of Sao Paulo. Rousseff, President Lula's handpicked choice to succeed him, is the president's top domestic policy adviser, whom he has given a lead role and high visibility in the execution of the Accelerated Growth Program (PAC), a massive public works program. Serra, a former minister of health and planning under President Fernando Henrique Cardoso, Lula's predecessor, is governor of Brazil's most economically important state, and its most populous one (refs A and B). Serra: Slow and Steady... Serra maintains the overall lead in early polling, with numbers remaining in the range of 40 percent. In keeping with his administrative style (Sao Paulo septel) Serra is keeping a low profile at the moment as he carefully lines up federal monies for a stream of PAC-like projects to announce at the state level when the national campaign accelerates. Dilma on the Rise 3. (SBU) The story of recent months is Dilma Rousseff's rise in the polls, from single digits late last year to mid-teens earlier this year to as high as 24 percent in May (depending on which candidates are included in the poll). Her rise is the result of her heightened public visibility in PAC events, Lula's declared support, and her apparently rapid recovery from lymphatic cancer. PATRI's Miranda said that the public perception that she has quickly defeated cancer plays strongly in her favor. While Miranda and some PT officials such as Luis Marinho believe that, if by March 2010 she is tied with Serra in the polls, he could yield his PSDB candidacy to Minas Gerais Governor Aecio Neves, other observers such Serra colleague and former Central Banker Luiz Fernando Figueiredo downplayed the influence of polling on Serra's plans. As long as Rousseff continues to look like a fighter who conquered cancer, her presidential chances will improve. If her cancer recurs and makes her candidacy impossible, the PT has no alternative of her stature, although former Finance Minister Antonio Palocci and Presidential Chief of Staff Gilberto Carvalho are sometimes named as possible candidates (ref C). 4. (SBU) The relatively minor effect of the global financial crisis in Brazil helps Rousseff as a member of the incumbent party.. Developments in the ongoing scandal involving Senate President Jose Sarney (septel) could play in Rousseff's favor as well. Thanks to President Lula's intervention with PT senators, Sarney's chances of retaining the Senate presidency are improved-- meaning the PT is better positioned to demand stronger concrete support for Rousseff's candidacy from the PMDB in the general election. Several "Also-Rans" BRASILIA 00000905 002 OF 004 5. (SBU) Aside from Rousseff and Serra, other candidates are unlikely to gain sufficient support to make it a three- or four-person race. Prospects for a run by the young, charismatic governor of Minas Gerais state, Aecio Neves, the strongest of the second tier candidates, appear to be waning. However, if Serra's prospects were to nose-dive because of a scandal, health concerns, or a serious blunder, Neves would be

the obvious choice for the PSDB. Alternatively, Neves could switch parties to run as a PMDB, PSB or even Green Party (PV) candidate, but would have to do so by October 2009 (see ref C). 6. (SBU) Alternative names will continue to surface, and there will certainly be a handful of other candidates from other parties ranging from nationally important to "dwarf" parties. "Also-rans" currently in the news include Heloisa Helena, leader of the Socialism and Freedom Party (PSOL), a small far left party, who came in third in 2006 with 6.85 percent, and Ciro Gomes, a federal deputy from the Brazilian Socialist Party (PSB). In 1998, Gomes came in third for president with 11 percent of the vote, and in 2002 came in fourth with 12 percent. He is positioning himself to run for governor of Sao Paulo or for president as a second pro-Lula candidate. In either case, he would do Rousseff and the PT the favor of being the hatchet man against Serra, with the expectation of a cabinet position if Rousseff won. Under current circumstances, these second-tier candidates stand little chance of surpassing either of the two front-runners. The last two presidential elections were also primarily contests between the PSDB and the PT, and the broad political alignment remains the same as it was in 2002 and 2006. Third Term for President Lula? 7. (SBU) President Lula has repeatedly and convincingly stated he does not want to serve a third consecutive term, which would require a constitutional amendment (PEC) enacted not less than a year before the election. This month, a Chamber of Deputies committee probably put an end to any possible amendment when it overwhelmingly voted down such a proposal. Federal Deputy Jose Genoino, a senior PT figure, recommended its rejection, signally the party's opposition to a third consecutive term. Given the lead time necessary to approve a PEC and the PT's opposition, the chances of a 2011-2015 Lula presidency can now be ruled out. Some analysts, including Andre Miranda, and many opposition figures now believe Lula plans to run in 2014, in which case he could serve two additional terms. Strategies Beginning to Take Shape 8. (U) Analysts say that Rousseff and Serra are developing similar campaign strategies: try to win massively in their bases with a single overall message, and diminish the other party's margin of victory in its stronghold with a single, different, and resonant message. Thiago de Aragao, of the Arko Advice consulting firm, said the PT is probably unbeatable in the north and northeast, home to a large percentage of Brazil's poor, and will reinforce its image as the guarantor of generous social welfare programs such as the Bolsa Familia (Family Stipend). At the same time, the PT will attack Serra in the south and southeast, where the PSDB is strongest, with a message of demonstrated executive competence through Rousseff's leading role in the PAC. In the south and southeast, Serra will run on his record as governor of Sao Paulo to persuade voters he has the administrative competency and leadership to be president. In the north and northeast, Aragao believes, Serra will try to reassure the poor that he would maintain social spending. He will also try to associate the PT with ongoing corruption scandals, although it will not be the most important message for voters, Aragao said. Wooing the PMDB 9. (U) The Brazilian Democratic Mvement Party (PMDB), Brazil's largest political arty, will play a crucial and probably decisive ole in the election. The PMDB, a fractured and noideological confederation of state organization that often form alliances for local reasons, oftn prefers to play a supporting role to a presidetial candidate rather than running its own, allowig it to enter the government with the winner or,if on the losing side, to seek concessions from he winner exchange for joining the government coaition. According to Andre Miranda, of the PATRI cnsulting firm, and Thiago

de Aragao, both partie are wooing the PMDB because, as the holder of te most seats in congress and more mayoral slots han any other party, the PMDB can take advantage ofa BRASILIA 00000905 003 OF 004 vast network of influential local politicians who get the vote out. The PMDB is in the Lula government coalition, and analysts expect the party will back Rousseff, putting it in a position to demand the vice presidential slot. 10. (U) A less likely possibility is a PSDB-PMDB alliance, which cannot be ruled out because, according to Aragao, old rivalries make a PT-PMDB alliance impossible in nine states. Moreover, a powerful PMDB figure in Sao Paulo, Orestes Quercia, has already pledged to support Jose Serra. (Note: Quercia's support would be in exchange for Serra's support for Quercia's expected run for the Senate in 2010. End note.) Possible PMDB vice presidential running mates include Sergio Cabral, governor of Rio de Janeiro, Michel Temer, president of the Chamber of Deputies, and Nelson Jobim, the Defense Minister. Miranda said the PMDB might increase the ticket's appeal in the south and southeast by choosing a southerner such as Nelson Jobim, of Rio Grande do Sul. State Alliances a Complicating Factor 11. (U) The effort by Rousseff and Serra to build support beyond their respective bases is being complicated by the need for parties to build coalitions in support of their candidates in the simultaneous races for state deputy, federal deputy, senator, and governor. Brazilian parties traditionally form state and federal alliances in support of a slate of candidates for these races, but alliances in favor of state and federal candidates often differ from those at the local level. Local rivalries often make state-level alliances in support of a national candidate difficult, and local politics often make for strange bedfellows. Several state PMDB branches are bitter rivals of the PT and will not back a state or national PT candidate. Under Brazilian law, parties are free to enter regional coalitions that are different from coalitions in support of a presidential candidate. The result is a complex and unpredictable patchwork of alliances that may or may not be effective in mustering a party's support for a presidential candidate. For example, in Pernambuco the PMDB traditionally allies with the PSDB and DEM at the state level, and can be expected to do so even if Dilma Rousseff's running mate is from the PMDB. The Limits of Early Polling 12. (SBU) Early polls are not particularly reliable in Brazil as a result of low party membership (less than ten percent of voters) and the non-ideological nature of Brazilian politics. The similarities between the platforms of the two most likely candidates and their equally matched (i.e., limited) personal charisma are also factors that could allow small events or mistakes to carry out-sized weight during the campaign. One additional reason for the low reliability of early polls is the extreme influence of television advertising among the masses in the run-up to the first round. Campaign advertising in electronic media is strictly regulated by law, presidential candidates are allotted the same amount of free advertising time, all stations must broadcast the campaign messages simultaneously. The season for presidential campaign messages is short and opens only two months before the election. As a result, this advertising may cause sudden changes in the candidates' relative popularity. Electoral Volatility, Institutional Stability 13. (SBU) Fifteen months, the time remaining before the October 2010 presidential election, is a long time in Brazilian politics. Although Serra, the favorite to win only six months ago, has lost some ground to Rousseff, the inherent volatility of the political process will make it difficult to pick the winner up to the end. A steady stream of political scandals and the accompanying revelations could change the

landscape suddenly and surprisingly. In 2006, the "bloodsuckers" scandal sent the presidential race to a second round, although it did not change the result. The outcome of the Senate scandal and its possible effects on the 2010 election are still unclear (ref D, septel). Rousseff's lymphatic cancer introduces an uncertainty that could invalidate calculations about the election's outcome (ref C). But in spite of the unpredictability that is typical of Brazilian politics, institutional stability is as great as it has ever been in the post-military dictatorship period. The system is dealing fairly well with scandals and there are no signs of a turn toward populism or the possibility of anything but strict constitutional order. BRASILIA 00000905 004 OF 004 14. (U) Mission Brazil takes the opportunity of his final cable to say farewell to Dale Prince, our lead domestic political analyst for the last three years, whose in-depth knowledge, insights, and contacts we will miss. This cable was cleared by Consulate General Sao Paulo. KUBISKE 3) CABLEGATE DE SOBEL
218133 7/24/2009 19:02 09BRASILIA931 Embassy Brasilia CONFIDENTIAL

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 000931 SIPDIS E.O. 12958: DECL: 07/23/2019 TAGS: PGOV, KCOR, BR SUBJECT: BRAZIL: SENATE SCANDAL TAKES A BREATHER...BUT IT'S NOT OVER REF: A. BRASILIA 799 B. RIO DE JANEIRO 190 Classified By: DCM Lisa Kubiske, reasons 1.4 B and D 1. (C) Despite weeks of attacks and a continuous drip of negative stories in the media, former Brazilian president and current Senate President Jose Sarney (Brazilian Democratic Movement Party, PMDB- Amapa) remained in place as Congress left for a two week recess July 17. Although papers are carrying new revelations almost daily, Sarney may yet manage to remain atop the Senate leadership. If he does, it will thanks in large part to the vigorous lobbying by President Lula on his behalf and Sarney's own political maneuvering in the Senate to mollify the opposition. Lula and, somewhat grudgingly, Lula's Labor Party (PT) have stood behind Sarney in an effort to maintain the cohesiveness of the PT-PMDB coalition heading into the October 2010 presidential elections, when PMDB support will be essential if the PT candidate, almost certainly Minister Dilma Rousseff, is to succeed. Although Sarney and the coalition may survive, the high-profile series of scandals has further weakened the congress as an institution and made it even less likely that major legislative priorities will be achieved in the next 18 months, as election politics dominates the political scene. End summary. ------------------------------- New Scandals Surface for Sarney ------------------------------- 2. (U) For weeks, Senator Sarney has been staving off attacks and calls to step aside from the Senate presidency due to various ethics charges in the Senate (ref a), as well as complaints of mismanagement, nepotism, and malfeasance, saying that the crisis was "the institution's crisis, not his." However, the week of July 13, influential daily Estado de Sao Paulo added to Sarney's woes by revealing last week that the Sarney Foundation -- a Maranhao-based institute and museum dedicated to preserving his presidential papers -received a donation from Petrobras for 1.3 million reais (about USD 650,000) in 2005, some 40 percent of which was intended for a project that never got off the ground. Instead, the money was allegedly siphoned off to various entities linked to the Sarney family, including TV Mirante and two radio stations owned by Sarneys. 3. (U) After these revelations, Sarney spoke on the floor of the Senate to claim he had no role whatsoever in the running of the Foundation. Two days later, Estado de Sao Paulo published the Foundation's charter and other administrative documents which indicated that Sarney was the Foundation's "president-for-life," was formally involved in various decision-making structures of the

organization, and had veto power over decisions of the Council of Curators, over which he presides. The Council counts as members Sarney's son, brother, and son-in-law, as well as Sarney cronies from his time as president of Brazil. These revelations contradicted Sarney's floor statements and might result in a Senate investigation for ethics violation and breach of Senate decorum. Brazilian Social Democracy Party (PSDB) caucus leader Senator Arthur Virgilio filed papers with the Attorney General's Office to seek an investigation of the issue. 4. (U) A Federal Police (DPF) investigation into his son, Fernando, for money laundering has also embarrassed the Senate President, as photos of his son's and daughter-in-law's arrests made front-page news. To make matters worse, in the course of the investigation the DPF intercepted communications that revealed the Senate President's efforts to place the boyfriend of one of his granddaughters into a Senate staff slot that had previous been occupied by another Sarney family member through a secret act approved, Senate director Agaciel Maia, appointed by Sarney in a previous term as Senate President and recently forced to resign as a result of the broader corruption scandal. BRASILIA 00000931 002 OF 003 ----------------------------- Sarney Strategy: Misdirection ----------------------------- 5. (U) Reacting to pressure on two fronts -- scandals and political pressure to install the CPI to investigate Petrobras -- Sarney on July 9 agreed to establish the CPI, but kept control of it by having a supermajority of members, as well as the president and rapporteurs, be from the governing coalition. The governing base is also counting on the two-week recess that began July 17 to let the crisis cool down. The PMDB strategy in installing the CPI is to take the focus away from Sarney. There is speculation that the controlling faction of the CPI will only allow a real investigation if attacks against Sarney continue, as a way to divert attention away from Sarney; if the attacks taper off, the CPI will remain toothless. 6. (U) On July 13 Sarney also annulled all 544 secret acts taken by the Senate in the past 14 years, which had benefited senate employees with overly generous overtime and had hidden blatant cases of nepotism. For example, one of the secret acts dealt with the resignation of a member of Sarney's family from the office of Senator Epitacio Cafeteira (PTB-MA). His resignation was handled as a secret act to avoid revealing the nepotism involved in the original hiring. ------------ PT vs. PMDB ------------ 7. (U) The Sarney troubles are creating tension within a Workers Party (PT)-PMDB alliance that is crucial if President Lula is to elect his successor. Lula made a public, personal, and vigorous defense in Sarney's favor, ensuring that the PT Senate caucus leadership and the PT continued to support Sarney, although grudgingly. Even so, some PT senators, as well senators from the smaller parties in the governing coalition, have broken ranks and called for Sarney to step down. Pedro Simon (PMDB-RS), Cristovam Buarque (PDT-DF), and Eduardo Suplicy (PT-SP), among other senior senators, have &suggested8 Sarney step aside temporarily. --------- Comment: --------- 8. (C) Lula's support for Sarney, and the fact that some PT members are refusing to follow suit, is principally about election politics heading into 2010. Lula and the PT need the PMDB's support to win. Although the PT has never had any great affection for Sarney -- who in his past supported the military regime and in the most recent election for senate president defeated the PT candidate ) the primary reason some PT senators are breaking ranks with Lula has an election-related cause, also: two-thirds of them face re-election and fear alienating constituents by supporting the allegedly corrupt status quo in the Senate. The principal negative repercussion for the PT from its dissident senators is that it could fray a PT-PMDB alliance already tenuous in various states, such as Mato Grosso do Sul, Bahia, Minas Gerais, Santa Catarina, Parana, and Para, heading into the 2010 elections. 9. (C) Establishment of the Petrobras CPI and the revocation of the secret acts could buy Sarney and the PMDB time and take some of the momentum away from the opposition by acceding to their biggest demand and leading the media frenzy away from his own problems. If so, Sarney, the PMDB, and Lula have a good chance of accomplishing their strategy, bringing dissidents back into the fold, and

smoothing over any tension between the PMDB and the PT in time to repair the alliance well before the election heats up. However, the almost daily revelation of new illegal or unethical behavior by Sarney, his family, other senators, or senate staff BRASILIA 00000931 003 OF 003 continues, and could still undermine these efforts. The least disruptive result would be Sarney's resignation and replacement with, almost certainly, another PMDB stalwart. But a prolonged crisis could split the PT-PMDB coalition, throwing wide open the political alliances taking shape in advance of the October 2010 national (presidential, senate, chamber, governor, and local legislator) election. 10. (C) On a broader scale, this latest crisis, one of a series over the last few years, appears unlikely to undermine Brazil's solid democratic institutions. But it has weakened congress vis--vis both the courts and the presidency. In particular, this weakness has played into the hands of a popular president who, under the 1989 constitution, already exercises greater weight than either the courts or the legislature and who has not hesitated to exercise his powers (e.g., to issue provisional measures and to withhold authorized spending) to advance his agenda. At the same time, the crises have created a distraction that has prevented congress from taking steps to strengthen the legislature's hand or from acting on badly needed political and economic reform measures. With the 2010 elections already dominating the political agenda, the possibility of passing any politically charged legislation over the next 18 months -- anti-terrorism legislation, for example -- has become slight. SOBEL 4 CABLEGATE DE KUBISKE
223215 9/1/2009 19:10 09BRASILIA1098 Embassy Brasilia UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS SECTION 01 OF 04 BRASILIA 001098 SENSITIVE BUT UNCLASSIFIED SIPDIS STATE FOR WHA/BSC, EEB/IFD/ODF, INR/IAA, INR/R/AA STATE PASS USTR FOR KATE DUCKWORTH NSC FOR ROSSELLO TREASURY FOR KAZCMAREK USDOC FOR 4332/ITA/MAC/WH/OLAC USDOC ALSO FOR 3134/USFCS/OIO USAID FOR LAC/AA E.O. 12958: N/A TAGS: PGOV, SOCI, SCUL, EFIN, ECON, PREL, BR SUBJECT: BRAZIL'S CONDITIONAL CASH TRANSFER PROGRAM FIVE YEARS IN REF: (A) 08 SAO PAULO 38; (B) 07 SAO PAULO 10; (C) BRASILIA 310 1. (SBU) SUMMARY: A little more than five years into its existence, Brazil's conditional cash transfer program Bolsa Familia (PBF) continues to stir debate over its effectiveness. PBF aims to alleviate poverty both by providing for beneficiaries' short-run basic needs and by creating conditions for long-run upward mobility through incentives for education and investments in human capital. Some national and international studies claim PBF has reduced poverty. While it has helped millions of poor Brazilians make ends meet on a month-to-month basis and inspires their fierce loyalty to both the program and to President Lula, its success in reducing poverty and promoting long-term social mobility remains less clear. Significant implementation challenges exist due to the decentralized structure of PBF as well as the danger of the program becoming a political electoral tool. Some experts believe the PBF cannot succeed in breaking the cycle of poverty before other underlying issues are addressed, especially the need for deep educational reform. While experts debate PBF's long-term benefits, the program remains politically popular, has become a virtual entitlement, and is unlikely to be questioned by any candidate for president in the run-up to next year's election. END SUMMARY. ---------BACKGROUND ---------- 2. (U) Bolsa Familia was established in 2004 when President Lula consolidated several cash transfer programs that had been introduced during the predecessor administration of President Fernando Henrique Cardoso. Lula dramatically expanded PBF during his first

term, and the program now reaches 11.5 million families -- about 46 million individuals -- at a total annual cost of R$12 billion (US$ 6.7 billion). PBF participants represent approximately 80 percent of Brazil's poor, and about one quarter of the country's population. Fifty percent of beneficiaries reside in Brazil's underdeveloped northeast. Participation continues to increase as the government periodically raises the maximum income households can have and still be eligible and the program reaches more communities. Official government projections estimate the number of recipient households will reach nearly 13 million by the beginning of 2010. 3. (U) Families with monthly per capita income of US$ 78 or less qualify for PBF. Based on income and family size, scaled payments are dispersed via an ATM card issued by the Caixa Economica Federal (federally-owned bank). On average families receive about US$ 47 per month. In order to receive PBF benefits, parents must theoretically send their children to school, have them immunized and adhere to pre- and post-natal care. Literacy, professional and incomegenerating training programs are also made available to program beneficiaries. Approximately 93 percent of the persons who register on behalf of their families are women. The Ministry of Social Development and the Fight against Hunger (MDS) oversees PBF, but states and municipalities handle implementation. ---------------------------- ADMINISTRATION AND OVERSIGHT ---------------------------- 4. (U) Bolsa Familia is a federally funded program that is implemented at the state and municipal level, with the bulk of the identification and registration of beneficiaries occurring at the municipal level. With over 5,000 municipalities individually managing the delivery of funds and program compliance, federal oversight to monitor effectiveness is difficult. On the other hand, many municipalities are small and it is relatively easy for these communities to accurately register poor families. In the city of Sao Paulo, however, only two municipal officials manage the program for a population of about 11 million residents. Given the large variation in local capacities and resources, it is not surprising that issues of fraud and lapses in beneficiaries' compliance with program conditionality have surfaced. BRASILIA 00001098 002 OF 004 5. (SBU) The Federal Audit Court (TCU) evaluates PBF's execution along with civil society organizations. In 2009, the TCU found that about 1.2 million families who were not poor received PBF benefits illegitimately, and estimated that combating PBF fraud could save about US$ 177 million per year. The TCU has relied on the cross-checking of major databases to uncover abuses. For example, comparing PBF beneficiary lists with other available databases revealed that approximately 40,000 politicians; 300,000 deceased people; and 100,000 vehicle owners were fraudulently receiving benefits. In 2009 in the State of Bahia, two officials stole US$ 1 million in PBF funding through false contracts. ---------------- REDUCING POVERTY? ----------------- 6. (U) Brazil's poverty rate -- as measured by per capita income of half the local minimum wage -- dropped from 39.4 percent of the population in 2003 to 30.3 percent in 2007, according to the World Bank. Recent data from Brazil's official government economic statistics office (IPEA) indicate that Brazilians are continuing to pull themselves out of poverty. IPEA reports that despite the current economic crisis, another 500,000 Brazilians have risen above the poverty line over the past year. With respect to PBF, questions remain as to how much of the drop in poverty can be attributed to PBF or to a combination of other cash transfer programs, most notably social security cash transfers to some 30 million retired rural workers, and Brazil's sustained economic growth over the last five years. Some academic research has suggested that PBF has played a partial role in Brazil's improving Gini coefficient (measure of income distribution equality), which has fallen from 53 to 49 since 2002. The World Bank continues to back PBF with technical and financial assistance, giving it credit for positive social outcomes in Brazil. --------------------------- PULLING IN THE MARGINALIZED --------------------------- 7. (U) Aside from cash transfers, PBF has a number of positive secondary effects that help to integrate the poor into society according to economist Andre Portela Souza

and social worker Paula Galeano, both based in Sao Paulo. By registering for PBF, vulnerable populations become visible to both national and local level governments because participants must acquire and present documents they might have never had before: a birth certificate, ID card or proof of residence. Potentially, this evidence could help the GOB tailor programs to specific needy groups (the handicapped, those suffering from mental illness, the unemployed, etc.). In this way, PBF has put a human face on the formerly marginalized, bringing them in from the shadows and making their plight potentially more measurable. 8. (U) In addition to identification, PBF also integrates recipients into Brazil's growing consumer and banking cultures. Even families living in relatively remote areas can enroll in the program and in a matter of months receive an ATM card that allows for modern and direct access to PBF funds. With this card, the same families can then open a small checking account and apply for microloans. Anecdotal evidence suggests that, in addition to subsistence, PBF enables poor families to make small capital investments. For example, PBF authorities in Sao Paulo cited the example of a female PBF recipient who used the cash transfer to buy a washing machine to sell laundry services in her community. ---------------------------------------- MINIMAL IMPACT ON CHILD LABOR AND HEALTH ---------------------------------------- 9. (U) Studies conflict on Bolsa Familia's impact on reducing child labor, indicating only a small long-term impact on reducing children's presence in the workforce. PBF is not incentive enough for children from poor families to abandon the labor market and the BRASILIA 00001098 003 OF 004 short school day encourages families to have their children perform wage work outside of class. Children who work full-time receive an average wage that is higher than the sum of the average wage received by children working part-time with added program benefits. Studies show no difference in the rate of immunization, as the same numbers of children are being vaccinated with Bolsa Familia as without. Studies have yet to show the impact on pre- and post-natal care of PBF recipients. 10. (SBU) Interestingly, some employers may be encountering difficulties finding workers willing to give up their Bolsa Familia eligibility to join the workforce. Consulate Recife has heard of complaints raised from sugarcane growers from the states of Alagoas and Pernambuco that PBF has made it more difficult to find workers to cut the cane, saying that some of the men who normally performed this seasonal labor are opting not to because of Bolsa Familia stipends. -------------------------------------- LACK OF COMPLIANCE AMONG BENEFICIARIES -------------------------------------- 11. (SBU) Another concern for officials is the failure of legitimate recipients to fulfill PBF requirements. Though school attendance is up overall thanks to PBF, in some key areas it lags badly, indicating a lack of high quality nationwide supervision and follow-up. According to Alexandre Marinis, a political economist and writer for Bloomberg, in the state of Goias 33 percent of children in families receiving PBF benefits were not enrolled in school. The same figure for Rio Grande do Sul was 32 percent, according to Marinis. 12. (U) Social workers in Sao Paulo tended to dismiss non-compliance violations. They stated that non-compliant PBF families were often the most marginalized, and that they needed more help, not less. A Sao Paulobased social worker said, "The people whose kids are missing school or are not getting proper medical treatment, those are the most needy. They should not be kicked out of the program." -------------------------------------------- --- SCHOOL: ATTENDANCE UP, BUT QUALITY BLUNTS BENEFIT -------------------------------------------- --- 13. (SBU) Ironically, school enrollment non-compliance may not be a significant factor as long as Brazil's public school system continues to underperform. Bolsa Familia was designed to encourage long-run upward mobility by setting conditions that children of beneficiary families attend school. Professor Andre Souza cites studies indicating that PBF has raised school enrollment by two percent and the amount of time students spend in school by three months. Unfortunately, increased school attendance does not guarantee educational gains, given the shortcomings

of Brazil's public schools. As Souza explains, "The problem is not demand for schooling, but the supply of good schools." PBF brings more kids from marginalized families -- many of whom represent the first generation ever to attend school -- into an educational system that is woefully inadequate. Overcrowding, a truncated school day (Brazilian elementary and high school students only study three to four hours per day) and rigid school structures hostile to innovation frequently combine to undermine the benefits that might have been gained from increased attendance. While the public system is inadequate, efforts at reform are being made by the Ministry of Education and state and municipal governments, some of which are being supported by various Public Affairs programs in Brazil (reftel C). 14. (U) A study conducted by IPEA and the Brazil office of the United Nations Development Program (UNDP) found that Brazil's education system is not capable of assisting PBF beneficiaries escape poverty. The study modeled the impact the PBF would have had on Brazil's current poverty levels had it been instituted since 1976. In other words, the researchers attempted to go back in time BRASILIA 00001098 004 OF 004 and simulate 30 years of PBF implementation, modeling perfect school enrollment of beneficiary children, to model how current levels of poverty would have been impacted. According to their study, current poverty levels would have only dropped from 25 percent (what it is today) to 22.3 percent. The researchers concluded that exposing more students to a weak public educational system would not have led to a significant improvement in poverty levels. ---------------- PBF AND POLITICS ---------------- 15. (SBU) PBF remains a popular program, particularly with the poor, who constitute President Lula's political base. The program likely contributed to Lula's successful 2006 Presidential reelection. In the Northeast, President Lula's home region and an area which concentrates program beneficiaries, Lula averaged between 68-85 percent of the vote. Another study indicated that nationwide, for every one percentage-point increase in a state's population receiving PBF funding, Lula's voting share jumped by more than 7 percentage points in the 2006 race. This has led critics like PMDB Senator Jarbas Vasconcelos, from Pernambuco in the Northeast, to charge that PBF benefits amount to vote buying. Senator Vasconcelos also criticizes the PBF for not doing more to address the substandard education system that children attend. -------------------------------- COMMENT: A PARTIAL ANSWER AT BEST --------------------------------- 16. (SBU) Bolsa Familia has ameliorated daily living conditions for the poorest Brazilians. Cash transfers, however, will not address the significant structural problems -- most importantly a weak public education system -that continue to undermine longer-term goals of social and economic mobility and opportunity. The PBF also suffers from operational challenges that may be easier to address, including: building a more complete registry, designing mechanisms to systematically evaluate and police the program, creating a modern compliance management system, and, eventually proposing an exit strategy for beneficiaries. Nonetheless, to advance the PBF key goals of long-run upward mobility, education reform stands out as the critical need. Independent of Brazil's ability or willingness to address the underlying conditions impacting the country's poor populations, Bolsa Familia is politically popular and, as a result, no candidate in next year's presidential election is likely to challenge it. The program appears to have become a permanent part of Brazil's political infrastructure -- almost a sacrosanct entitlement -- ensuring that it is here to stay. END COMMENT. 17. (U) This cable was co-drafted by Consulate Sao Paulo and Embassy Brasilia, with input from Consulates Rio de Janeiro and Recife. KUBISKE 5) CABLEGATE DE KUBISKE
224457 9/10/2009 14:01 09BRASILIA1127 Embassy Brasilia CONFIDENTIAL

C O N F I D E N T I A L BRASILIA 001127 SIPDIS E.O. 12958: DECL: 09/10/2019 TAGS: PGOV, PREL, PINR, BR SUBJECT: LULA'S ALLIANCE WITH PMDB: MORE TROUBLE THAN IT'S WORTH? REF: A. BRASILIA 1099 B. BRASILA 931 Classified By: Charge D'Affaires Lisa Kubiske for reasons 1.4 (b) and ( d). Summary ------- 1. (C) The last couple of months have added new challenges to President Lula's bid to put his Casa Civil Minister Dilma Rousseff into the Planalto Palace as his successor in 2011. By leveraging his support for corruption-tainted Senate President Jose Sarney to reinforce a core electoral alliance backing Rousseff, Lula has for the moment weakened his party's longterm prospects by turning the upcoming election into a referendum on the alliance between his Labor Party (PT) and Sarney's Brazilian Democratic Movement (PMDB) -- rather than on himself. PMDB has successfully used PT's weakened position to extract support from them in key state races while providing only lukewarm support for Dilma in the presidential race. PT members (petistas) understand that a strong alliance with PMDB will erode their identity as a principled left-center party. There are signs that petistas will try to take a stronger statist-nationalist line on certain issues, such as state ownership of the recent "Pre-Salt" offshore oil finds, in order to solidify their center-left credibility. Despite these problems, PT has generally maintained party unity, albeit with significant grumbling and a couple of high-profile defections. Senator Marina Silva's (PT-Acre) move to the Green Party has grabbed headlines but her prospects as a national presidential candidate are less than convincing. With the election still over a year away, these latest developments will be overtaken by events before most voters have formed their opinions. Jose Serra (PSDB) remains the strong frontrunner, but Dilma and the PT are almost certainly in a better position than recent events suggest. End summary. Dilma, Jose, Petrobras, and Pre-Salt ----------------------------------- 2. (C) As outlined in ref B, Lula spent much of his vast political capital over the past two months saving the Senate Presidency of Jose Sarney, despite opposition from the PT leader in the Senate, Aloisio Mercadante, and much of his party base. The conventional wisdom holds that Lula supported Sarney primarily to maintain a base of electoral support for Dilma. On a related note, many also point to Lula's need to build allies to shield Petrobras from an audit that could prove damaging to his party. As Dep. Eduardo Cadoca (PSC-Pernambuco) told poloff on Sept. 2, "Lula didn't save Sarney. He saved Petrobras so he could save PT from auditing. Petrobras was always part of his election strategy." Even members of the governing coalition including, including Foreign Relations Committee Chairman Dep. Severiano Alves (PDT-Bahia), have told us that the relationship between Petrobras and PT has grown close and politicized. 3. (C) Shortly after Sarney's mid-August clearance by the Senate's ethics committee, the August 31 Pre-Salt oil basin rules announcement provided a perfect photo op of power in today's Brasilia: Lula, Dilma, Sarney, and other leading PMDB officials standing together after days of public negotiations (ref A). Legislators from various parties told poloff that both the statist nature of the proposed rules and the process of negotiation can be seen as a template for future PT-PMDB partnership. Dep. William Woo (PSDB-Sao Paulo) called the proposal "campaign material for Dilma and PMDB," saying it would be impossible to vote on quickly, and, if passed, to implement. Interestingly, he and other opposition politicans weren't bothered by its statist nature as much as its impracticality. Dep. Mauricio Rands (PT-Pernambuco) praised the proposal but lamented that PMDB-affilated governors in Rio De Janeiro and Espirito Santo had succeeded in getting Lula to remove his plan to share proceeds evenly with non-oil states. Division of revenues will be dealt with in Congress, where it will be fiercely contested. Even PT politicians have been reluctant to predict final passage with confidence, mostly because they cannot envision a compromise on division of royalties, including within PMDB ranks. 4. (C) PMDB, recognizing its internal conflicts, successfully pushed Lula to remove the "Provisional Measures" (PM) status of the legislation. Lula announced the change after a September 9 meeting with Chamber of

Deputies President Michael Temer (PMDB). According to PM rules, the Chamber and Senate would have been forced to approve the legislation and bring it to a final vote within 90 work days, with virtually no space for amendments. Speaking with the press after the meeting, Temer emphasized that Congress would still stick closely to the schedule envisioned by the PM rules, with the Chamber vote scheduled for November and the final vote scheduled for early 2010. Earlier in the day, Senator Valdir Raupp (PMDBRondonia) told poloff that Lula would recognize the political wisdom of removing PM status, arguing that the legislation in itself is popular but the PM rules are not. "Without the (PM rules), PSDB has no angle to oppose this except defending Sao Paulo," he said. Raupp also said PMDB is working internally to develop a proposal by which producing states would get a larger share of royalties, but in which nonproducing states like Rondonia would also get a significant share. Marina: The Next Big Thing? -------------------------- 5. (C) The Lula-Sarney alliance has provoked such a strongly negative public response that it provided the perfect environment for Marina Silva to disaffiliate with PT (Aug 18) and affiliate with the Green Party (PV)(Aug 31) as a prospective presidential candidate. Marina cited as reasons for departing a lack of support during her tenure as Minister of Environment and specific disagreements with Dilma about economic development policy. Most leading politicians and political analysts see Marina as a serious presidential candidate, but probably with limited electoral impact. Senator Romero Juca (PMDB), leader of the governing coalition, told poloff that Marina could pull "about ten percent of the vote, but it would come equally from PT and PSDB." A top PSDB political advisor grudgingly agreed that Marina pulls from both sides, but emphasized that Marina's departure hurts Dilma more because Marina,s life story closely resembles that of Lula -- a reminder to voters of how PT has strayed from its roots. Juca, among others, said that Marina is better served as a national candidate promoting environmental issues, which are popular among educated voters in major cities, than as a senator from her Amazonian province of Acre, where her stands are not always popular. Several Marina sympathizers have told us that they like her but question whether she is really presidential material or really wants to be -- the same questions Lula faced 20 years ago. PT Chronicles ------------- 6. (SBU) Despite the departure of Marina and disaffected PT Senator Flavio Arns, Lula has been largely successful in keeping a united front in a party that was deeply divided on protecting Sarney. As PT Senator Paulo Paim told poloff, "No one is happy to make a compromise like that; I was with (Mercadante) in voting against him." He emphasized, however, that Dilma embodies the mainline thinking of PT and that party enthusiasm for her is high. Dilma herself has become a subject of controversy in the Sarney affair given the accusations by former Internal Revenue Service (RF) chief Lina Vieira that Dilma pressured her into dropping an RF investigation into Sarney's son. While neither Lina's version nor Dilma's is provable at this point, public opinion surveys indicate that the vast majority believes the former. Meanwhile, several rounds of early September polling indicate that Dilma's negatives are rising quickly and she still trails PSDB prospective candidate Jose Serra by a solid 20 points or more. Even Lula's sky-high numbers have dipped. 7. (SBU) Meanwhile, PT also faces the question of how to proceed in the aftermath of the August 29 dismissal by the Supremo Tribunal Federal (STF), by a 5-4 margin, of 21 criminal charges against former Finance Minister Antonio Palocci. Palocci had been accused of breaking the bank account privacy of a witness against him in a corruption case. On the following day, Palocci -- still considered the primary PT backup choice for President if Dilma's health condition worsens -- was nominated as one of a list of "pre-candidates" for Governor of Sao Paulo. The public response to the STF Palocci decision has been muted, suggesting that his political rehabilitation may well be possible -- even though winning in Sao Paulo probably is not. Dealing with the PMDB Devil --------------------------- 8. (SBU) Weakened and needing support for Dilma, PT leadership finds itself forced to concede support for PMDB in gubernatorial and senatorial

races in 2010. Without a viable presidential candidate, PMDB still maintains the majority of Governor, Senate, Deputy, and state legislative slots -- and intends to maintain or even expand that majority. Lula is making the most visible concessions to PMDB in the big-state governor races, such as supporting reelection of Sergio Cabral in Rio and, more contentiously, backing Geddel Lima Vieira, currently Minister of National Integration, in Bahia. In some provinces -- generally smaller ones -- PT and PMDB have reached an informal agreement for one party to target the governorship and the other the senate seat(s). Prospective PT candidates, naturally, are not happy about this and are often running anyway despite what national leadership requests. In several provinces, including Pernambuco and much of the south, there is no agreement between PT-PMDB and likely never will be, adding to the instability of the national alliance. 9. (C) The big question is what, if anything, do the petistas get out of this arrangement? Senator Juca, responding for PMDB, told poloff that PT and PMDB will cooperate at the national level for Dilma even if agreements are not reached at the state level on other races. He then spent five minutes complaining about Dilma's weakness as a candidate. Senator Juca admitted more frankly that his party was split in loyalty between Dilma, Serra, and his personal favorite, Aecio Neves of PSDB, who he would like to woo to PMDB as a presidential candidate. Senator Paim of PT also spoke confidently cooperation in the presidential race, waiving off the historical animosity in his home province of Rio Grande do Sul, where PMDB is expected to support Serra. Dep. Cadoca, a long-time member of PMDB before defecting to PSC in 2007, said there is no way that PMDB will actually work to support any presidential candidate. He emphasized that PMDB backed Serra in 2002 against Lula and delivered nothing for him while winning many new seats for themselves. Dep. Alves, commenting on cooperation in Bahia, said PMDB will stick with PT in this presidential race (rather than jump back to Serra), but will only really work with PT's alliance after the election. Petista Worries --------------- 10. (C) PT has been pilloried in the press for aligning itself so closely to a party known for representing nothing much more than the desire to stay in power. They are sensitive to the criticism. PT Dep. Rands spoke to poloff of the need to get a few more initiatives in public view that will reinforce his party's identity as a competent, progressive, center-left party with a vision for the future. The Pre-Salt announcement he viewed as a positive first step, showcasing that Brazilian government and business had developed over recent years to a point that they can now manage oil exploration and distribution. He also expected an increased PT emphasis on public education and health in upcoming months. Leading PSDB Senate leadership staff told us that they expected a slew of leftish social program proposals forthcoming from PT, and that they would be ready with their own very similar proposals. 11. (C) Other opposition figures, including Sen. Heraclito Fortes (DEM-Piaui) believe that PT's need to distinguish itself also extends into foreign policy. He specified, however, that Lula and Dilma would only be taking strong left-of-center stands on issues of limited true impact. Sen. Fortes said that he expected PT and PMDB to oppose U.S. use of Colombian bases, which puts them in line with public opinion and has little practical downside for the government. It would not, however, take a significantly different tone -- for or against -- in regard to relations with Hugo Chavez. Comment ------- 12. (C) Unfortunately for PT, their reliance on PMDB has reached such an unprecedentedly high level that they are in danger of being trapped by their much larger coalition partner's foibles. Next year's election now looks like a referendum on Lula's support for the PMDB at the cost of PT principles, rather than the hoped-for referendum on Lula's popular government. And with the PMDB looking out for its own interests, its continuous presence in the campaign may prevent the taint of the Sarney scandal from fading. Nonetheless, Dilma and PT are almost certainly in a much stronger position than recent events suggest. Few here doubt the political genius of Lula, and the lack of loyalty among the Brazilian electorate means Serra is vulnerable to falling from favor again. PMDB-PT

cooperation within Congress appears stronger than ever, which might allow for passage of legislation that strengthens Dilma -- although the paralysis in the Senate caused by its recent Sarney-centered crisis could give way to elections-related paralysis. Despite Dilma's continued lag in the polls, PMDB does not yet appear to be seriously looking for new partners, perhaps realizing that PT offers the most favorable preelection deal. End comment. KUBISKE 6) CABLEGATE DE KUBISKE J PUBLICADO
230646 10/21/2009 14:21 09BRASILIA1250 Embassy Brasilia CONFIDENTIAL

C O N F I D E N T I A L SECTION 01 OF 04 BRASILIA 001250 SIPDIS E.O. 12958: DECL: 10/21/2019 TAGS: PREL, PGOV, BR SUBJECT: BRAZIL'S 2010 ELECTIONS: ONE YEAR OUT REF: A. BRASILIA 1127 B. BRASILIA 905 C. RECIFE 66 D. RIO DE JANEIRO 340 E. SAO PAULO 551 Classified By: Charge D'Affaires Lisa Kubiske for reasons 1.4 (b) and ( d). 1. (SBU) Summary. One year before Brazil's October 2010 national elections, Social Democratic Party (PSDB) presidential candidate Jose Serra continues to lead Labor Party (PT) hopeful Dilma Rousseff in the polls, while PMDB, Brazil's largest party, uses its bargaining leverage to maintain its advantages in parliament and in key state races. President Lula has further solidified the PT-PMDB alliance in recent weeks, but is having difficulty herding the center-left parties in his coalition, some of which are launching their own presidential candidates. The October 3 deadline for party switching and electoral reform produced a flurry of movement, including party switches by both the Foreign Minister and the Central Bank President. These moves presaged a potential forthcoming exodus of over half the ministers in Lula's cabinet by April 3, the date by which candidates must declare themselves for office; such an event would dramatically reduce Brazil's governing capacity during the campaign season. Congress will likewise lose impetus by April, increasing the need for a strong push by Lula in order to enact Pre-Salt oil exploration and other key legislative objectives considered crucial to the campaign. Observers from all sides expect the presidential race to tighten considerably as the election approaches, with the final outcome depending in large part on Lula's ability to transfer his personal popularity to Dilma while at the same time allowing her to distinguish herself from Lula as a viable presidential figure. End summary. What's At Stake, What's to Come ------------------------------- 2. (SBU) Brazil's national elections, to be held October 3, 2010, will feature the largest number of open races for federal and state office in over a generation. In addition to the presidential race, 54 of 81 federal senate seats, all 513 federal deputy seats, all 27 governorships, and all state deputy seats will be contested. On October 3, 2009, the deadlines passed for switching parties or residences in order to run as a candidate from that party/state, and also for passing electoral reforms related to the 2010 election. This is the first of several milestones in the next twelve months, including: April 3, 2010: Deadline for announcement of candidacy for all offices. State governors and members of the executive branch running for office, including cabinet members, must resign; - June 10: Commencement of political party nominating conventions for all offices; - July 3: Parties and candidates can start advertising on radio, television, and the internet; - July 17: The Electoral Tribune (TSE) will allocate radio and television advertising to parties; - September 13: TSE must confirm the correct functioning of vote machines; - October 3: Election Day, First Round; - October 31: Election Day, Second Round. A second and final round is held when the leading candidate for a given office receives less than 50 percent of the vote in the first round. Only the top two candidates are eligible to compete.

One-Year Deadline ----------------- 3. (C) In the two weeks leading to the October 3 deadline, five senators and at least 33 federal deputies switched parties. The high number of party switches reflects the nonideological nature of Brazilian politics and is standard operating practice here among officials seeing greater opportunity elsewhere. (During an October 6 Embassy meeting with Senate Foreign Relations Committee Chairman Eduardo Azeredo, Sao Paulo Deputy William Woo cheerfully entered midway through and, despite having left Azeredo's PSDB for PPS the previous week, was well received by the Chairman.) The PSDB, which picked up three senate seats and several deputy seats, was the biggest winner in the shuffle, while PMDB and DEM, the second largest opposition party, both suffered significant losses. Small parties fared surprisingly well, especially the opposition PSC. House Foreign Relations Committee Chairman Severiano Alves switched from PDT to PMDB (both parties within the governing coalition) and left Congress altogether in order to prepare BRASILIA 00001250 002 OF 004 for a run as Vice-Governor in his home state of Bahia. Damiao Feliciano, also PDT and from the northeastern state of Paraiba, took over October 8 as Committee Chairman. 4. (C) While most switchers are relatively obscure figures, two high-profile ministers switched parties while a presidential candidate changed residence. After much speculation, Central Bank President Henrique Meirelles announced his move from non-aligned to PMDB, where he is expected to run for Senate from Goias state, but might run instead for Governor. Embassy sources, including Sen. Romero Juca (PMDB-RO), have told us that Meirelles' transfer confirms rumors that he is also a top-tier potential vice-presidential candidate for Dilma. (It is broadly expected that PMDB will get the Vice slot on Dilma's ticket, with Chamber of Deputies President Michel Temer most often named as the leading contender.) Foreign Minister Celso Amorim officially switched from PMDB to PT, but there are no indications at this point that he will step down to run for office in his home state of Rio de Janeiro. Finally, Ciro Gomes switched his residence from the northeastern state of Ceara to his birth state, Sao Paulo, in a move that allows him to both run for President on the PSB ticket and, potentially, to switch gears to run for Governor of Sao Paulo if his presidential campaign falters. See ref C for more on Gomes. Election Law, Internet and the Media ----------------------------------- 5. (SBU) President Lula also signed on September 29 the law that will define the rules for the 2010 elections. The more interesting changes include rules to permit campaign contributions and electioneering via the internet, to increase participation of minor candidates in television/radio debates, and to introduce absentee voting. Many here believe, as the chief PSDB-affiliated advisor to the Senate Foreign Relations Committee told poloff recently, that PT is better prepared to take advantage of rule changes liberating the use of media and the internet but that his party and several others will catch up in time. The new legislation has been widely panned by Embassy contacts -- including some senators who voted for the law -- for actually reducing federal oversight over party campaign activities and expenditures. Although the deadline for electoral reform has passed, a petition drive has gathered enough signatures to authorize Congress through June 5 to pass legislation to prohibit candidates convicted of crimes to run for office. It is unclear whether PMDB leadership, which has taken the lead in opposing such legislation, will allow such a bill to pass. Ministerial Exodus, Congressional Paralysis ------------------------------------------ 6. (C) Both Congress and the ministries will be in a hurry to produce as many electoral deliverables as possible before the April 3 deadline for declaring candidacies. Ministers who declare are required to step down for their positions, which means that no minister has officially declared his or her candidacy at this point -- even those who are already actively campaigning. Media and Embassy sources suggest that over half of Lula's 37-member candidate will run for office, most notably ChiefMinister Dilma Rousseff and Meirelles, but also the Ministers of Justice, Energy, Social Security, Education, Environment, Planning, Labor, Communications, Agriculture and several others. It is still

unclear when ministers will declare their candidacies and depart their ministries, but recent media reports indicate that Dilma will officially launch her presidential bid at the PT Annual Convention, which takes place February 18-21. In Meirelles' case, Dep. Antonio Carlos Magalhaes Neto (DEM-BA) told poloff on October 9 that Meirelles will not announce the office he will run for until a week before the deadline because "Lula needs to keep him in his current position as long as possible." Other ministers, he said, will be free to announce earlier. 7. (C) Congress will also be under pressure for progress before the campaign starts in earnest, particularly on the Pre-Salt oil exploration legislation, but also on a range of minor social assistance and education initiatives expected to be launched shortly. The governing coalition still holds a strong position in the Chamber of Deputies but the recent round of party switches complicates matters for Lula in the Senate, where his coalition officially suffered a net loss of three seats but unofficially two more. Sen. Arthur Virgilio (PSDB-AM), the leader of his party in the Senate, outlined for poloff on October 7 member-by-member how this would affect the President's ability to pass the legislation he desires. Virgilio counted only 40 firm votes for the BRASILIA 00001250 003 OF 004 governing coalition on key party-line matters, and pointed out specific coalition members likely to jump ship on key issues, including Venezuela's accession to Mercosul -- which he said did not currently have the votes to pass either the Foreign Relations Committee or the full Senate due to worries about Hugo Chavez. Virgilio also emphasized that Dilma needs to maintain her viability in the oil-producing states of Sao Paulo, Rio de Janeiro, and Espirito Santo, as do the seven senators from those states belonging to coalition parties. This will make it very difficult to pass Pre-Salt legislation with the distribution of royalties scheme that Lula and Dilma would prefer. Prospectus: President --------------------- 8. (SBU) Dilma will need signature accomplishments in Congress to raise her presidential profile to compete with Sao Paulo Governor Jose Serra (PSDB), the front-runner for the Presidency. Serra is pulling 36 to 43 percent in recent polls, roughly 20 points ahead of Dilma, who has seen her support on the left eroded by PSB candidate Ciro Gomes and PV candidate Marina Silva, both of whom are polling nearly even with Dilma. Heloisa Helena (PSoL), though barely visible in the news for months and possibly not even running, also polls around 10 percent. Serra has benefitted immensely from the negative publicity created by PT's marriage of convenience with the PMDB (ref A). Also, Dilma's perceived lack of charisma makes her, in the words of Sen. Azeredo (PSDB), "the perfect opponent" for Serra because she is unable to take advantage of Serra's own lack of personal magnetism. The difficulty for Serra, who enjoyed a similarly strong early lead when running for President in 2002, will be to translate the support from his base to other parts of the country and to lower income brackets. Recent state polls indicate that Serra's support tops 50 percent in Sao Paulo and nearly so in the three states to the south, but falls to the 10-25 percent range everywhere else, including Rio and Brasilia. Many PSDB leaders are pushing reluctant Minas Gerais Governor Aecio Neves (ref D & E), who would rather be President himself or perhaps President of the Senate, to accept the vice-presidency to shore up support from his large state and potentially put an all-PSDB ticket over the top. 9. (SBU) Observers from all sides acknowledge that, barring a major health crisis for Dilma or Serra, the "x factor" in this campaign will happen in the final weeks, when Lula's undereducated base in the northeast starts to pay attention to the race. In a country where less than ten percent of voters belong to a political party but voting is mandatory and voter participation rates run in the high 90s, final election results do not reflect the early polls. The advisor to a prominent opposition parliamentarian from Pernambuco told poloff that he expects Serra to win the first round, but expects Dilma to rise dramatically in the last week out of voter loyalty to Lula. In the second round, he worries, "If they add up the votes of all four of them (Dilma, Ciro, Marina, Helena), they win." Another opposition party advisor from the Northeast told poloff to watch out for Ciro, whom he characterized as "the only

person who can beat Serra, even if he doesn't win himself." Ciro has lately been playing an attack dog role in the campaign against Serra, while Dilma and Serra have been reluctant to engage one another directly. Prospectus: Parliament and Governors ------------------------------------ 10. (C) Governor, Senate, Federal Deputy, and State Deputy races in each state will be heavily influenced by the needs of the leading parties in the Presidential race. The key dynamic to watch will be between PMDB, which wants to retain its position as the party with the most seats in all four categories, and PT, which is under pressure to throw support behind PMDB candidates in order to shore up support for Dilma's presidential bid. With few candidates officially declared, it is too early to predict how these races will go, but the general consensus in Brasilia is that PSDB stock is rising and PMDB falling at the federal level. The PMDB already lost two senators and ten deputies in party-switching season, and legislators are increasingly confident that PMDB will lose its pre-eminent position at the federal level. In a reference to the damage done by the recent scandal involving Senate President Jose Sarney, Sen. Virgilio told poloff, "Thanks to Sarney, PMDB is about to become a state-level party." A PT-affiliated Senate advisor told us much the same, but believed that PT and smaller parties within the governing coalition, rather than the opposition, would gain at PMDB expense. At the state level, PMDB remains in solid position to retain or increase its governorships, with strong candidates in key states such as Rio de Janeiro, Minas Gerais (PSDB-held), and Bahia BRASILIA 00001250 004 OF 004 (PT-held). Comment: Stay Tuned! ------------------- 11. (C) While Brazil's 20l0 national elections appear to be moving toward a PT-PSDB presidential showdown, with Serra leading and Dilma expected to make up ground toward the end, it will be months before dependable outlines of the election environment take shape. The first few months of 2010 will bring focus, as candidates officially declare, state-level alliances with national implications further crystallize, and ministers depart their posts. The late 2009-early 2010 dynamic between Congress and Lula, who will be in a hurry to pass legislation ranging from Pre-Salt to social program reform to Mercosul accession, may bring to the forefront policy differences in an election race that has thus far been about personalities and image. Even if policy issues do not grow in importance, the debates will indicate how the two major coalitions, if elected, could address issues of interest to the United States. End comment. KUBISKE 7) CABLEGATE DE KUBISKE
238827 12/9/2009 11:32 09BRASILIA1407 Embassy Brasilia CONFIDENTIAL

C O N F I D E N T I A L BRASILIA 001407 SIPDIS AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE E.O. 12958: DECL: 2019/12/09 TAGS: PGOV, PREL, BR SUBJECT: Brazil: Center-Left Presidential Candidates Compete for Small Party Support CLASSIFIED BY: Lisa Kubiske, Charge D'Affaires; REASON: 1.4(B), (D) 1. (SBU) Summary. While the gap between front-running presidential candidates Jose Serra (PSDB) and Dilma Rousseff (PT) appears to be tightening, parties within President Lula's PT-led governing alliance are quietly considering other options besides supporting Dilma. Ciro Gomes (PSB) entered the presidential race with Lula's blessing as an additional voice against Serra, but PT and PSB are currently in a behind-the-scenes battle to win the support and television time of five smaller parties in the governing coalition. With adequate support, Ciro could seriously rival Dilma's efforts to attract the center-left vote, especially in Lula's northeastern base, where she has thus far been underperforming. The odds of PSB succeeding in cobbling together this coalition still appear

considerably less than 50-50, however. Meanwhile, the center-right opposition Democratas (DEM) party, also primarily based in the northeast, may be seriously hurt by a high-profile corruption scandal revolving around Federal District (Brasilia) Governor Jose Arruda. End summary. Presidential Race State of Affairs ------------------------------------------ 2. (SBU) As predicted by most local political insiders, the gap between front-running Serra and PT's Rousseff appears to be tightening somewhat; a late November CNT/Sensus poll indicates Serra at 32 percent, Dilma with 22 percent, 18 percent for Ciro Gomes, and PV candidate Marina Silva with 6 percent. The poll confirms that both Serra and Dilma carry significant baggage. Dilma maintains the highest voter "rejection rate" among serious candidates; politicians from both sides concur that her stature was not helped by statements made before and during the November blackout. PT insiders hope Dilma's role leading the massive Brazilian delegation in Copenhagen for climate change talks will give her a significant boost. Serra must contend with an environment in which half the electorate state they would never vote for a candidate backed by former President Fernando Henrique Cardoso (PSDB). The market for presidential candidate alternatives to PT and PSDB continues to be strong. Aligned with Lula, not PT -------------------------------- 3. (C) Ciro Gomes, ostensibly in the race with Lula's blessing to be an attack dog against Serra, has most effectively filled the need for an alternative candidate by attracting the many voters and politicians who support Lula but are suspicious of PT. (Ciro also has been drawing some support away from Serra.) Lula still maintains a strong connection with Ciro and PSB. In a recent meeting with the Charge, Pernambuco Governor Eduardo Campos (PSB) said that Lula, Dilma, Ciro and others (including himself) would meet shortly in advance of the PT national convention in early March, when Dilma is expected to announce her candidacy officially. Campos made it clear that Ciro would step aside if asked to do so by Lula at that time. 4. (C) Some PSB leaders see Ciro's rise mostly as an opportunity to leverage Lula, while others foresee a strong Ciro presidential candidacy up to the general election. Fernando Bezerra Coelho, a leading Pernambuco state official and 2010 PSB candidate for federal senate, told us that, as a price for Ciro stepping down, a coalition of supporters could force Lula to withdraw support from a weak Dilma candidacy and support a third candidate. He believes that Governor Campos, who is especially close to Lula, could be that candidate. Bezerra Coelho also spoke of the need to solidify PT support for several PSB senate and governor candidates, the strongest of whom are running against opposition bloc incumbents in the northeast. (PSB's glaring weakness is in the federal senate, where they hold only two seats.) In a December 2 conversation with poloff, Senator Renato Casagrande (PSB-Espirito Santo) outlined a more ambitious goal. He confirmed that PSB is in a fairly heated behind-the-scenes battle with PT to secure the support for Ciro from all the other smaller parties within the governing coalition. PSB, Small Parties and TV time --------------------------------------- 5. (C) Senator Casagrande outlined the central challenge facing Ciro Gomes. With political advertising on television and radio calculated based on the number of seats each party has in the Chamber of Deputies, PSB earns minimal airtime based on having 28 of the 513 seats in the Chamber. The next largest parties within Lula's governing coalition - PP, PDT, PTB, and PC do B - include slightly over 100 more seats, which combined with PSB would almost rival the 170 combined held by PT and the largest delegation in the coalition, the PMDB. PSB has therefore been aggressively courting these parties since October to gain their official support and TV/radio time. The senator did not want to reveal too much detail or sound overly optimistic about outfoxing Lula and PT, but hinted that negotiations with some parties (PDT) were more advanced than others. He also confirmed that, if Aecio Neves were nominated as PSDB candidate instead of Serra, Ciro would stop his candidacy and most of the party would support Neves. 6. (C) November conversations with representatives from the recruited parties indicate support for the idea of backing Ciro but have questions about the wisdom of

doing so. A political advisor for the conservative Progressive Party (PP), which holds the most seats among the courted parties, told poloff that he is pushing his party leadership to donate TV time to Ciro. He reasons that Ciro is in excellent position to supplant PT in the north, given PSB's strength in two major states, Pernambuco and Fortaleza, and the weakness of PT in Bahia. The advisor said that most of the party's elected representatives prefer Ciro, but that they are still figuring out if there would be repercussions for breaking with Lula. The PDT party deputy chair from the state of Goias told poloff much the same thing. He even compared favorably the idea of smaller parties joining to offset the power of PT and PMDB with Brazil's strategy of allying with other emerging countries (like India, South Africa) to balance the power of the United States and the European Union. Most of these parties are considered more conservative than PSB or Ciro, but are philosophically more comfortable with PSB/Ciro than with PT/Dilma. DEM disaster ----------------- 7. (SBU) While PSB and Ciro Gomes make their case to be stronger players on the national scene, the center-right opposition Democratas (DEM) party, also based primarily in the Northeast, faces a scandal that could darken their already-dimming prospects on the national level. Jose Arruda, Governor of the Federal District (Brasilia area), was caught on November 23 accepting bribes on camera, as were many of his political supporters. While most politicians caught on camera represented other parties, DEM faces the brunt of the scrutiny as it prepares to kick its only elected governor out of the party and office. DEM still has the third-largest benches in both the Senate and House of Deputies, despite a significant number of recent switches by its elected officials to other parties. The fall of one of its only nationally known figures outside the Northeast, considered a possible vice-presidential candidate for Jose Serra, will further isolate DEM. One DEM staffer told poloff that, "it's just too much of a disaster to talk about now." More on this and the challenges facing the Brazilian center-right will be reported septel. Comment ------------- 8. (C) The fact that so many political insiders like the idea of a Ciro candidacy (or an Aecio Neves candidacy) suggests significant space for maneuver during the 2010 election season, including a possible reshuffling of alliances. The vitality of smaller political parties such as PSB and its prospective allies is particularly interesting. In an environment where PT sans Lula is not widely trusted, PSDB still suffers from negative public perceptions of Fernando Henrique Cardoso, PMDB is associated with Sarney and corruption, and DEM has its own growing corruption scandal, smaller parties have potential to fill the vacuum and to play a meaningful role in affecting Brazil's 2010 presidential, gubernatorial, and congressional race outcomes. Nonetheless, although Ciro Gomes and PSB hold a surprisingly strong hand right now, President Lula's immense power to block ambitions of other center-left presidential contenders means that efforts to unite the smaller governing coalition parties behind Ciro and eventually supplant Dilma as the center-left candidate remain a long shot. End comment. 9. (U) This cable was coordinated with Consulate Recife. KUBISKE J publicado: Traduzido por Tatiane Pires 8) CABLEGATE DE KUBISKE Traduo e comentrios podem ser lidos aqui

Tatianeps - Wikileaks: Eles contam com a falta de memria do eleitor

240721 12/18/2009 19:33 09BRASILIA1429 Embassy Brasilia CONFIDENTIAL

C O N F I D E N T I A L BRASILIA 001429 SIPDIS AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE E.O. 12958: DECL: 2019/12/18 TAGS: PGOV, KCOR, BR SUBJECT: Brazil:

DEM, Corruption, and the Decline of the Right REF: BRASILIA 1407 CLASSIFIED BY: Lisa Kubiske, Charge d'Affaires; REASON: 1.4(B), (D) 1. (C) Summary. Federal District (Brasilia) Governor Jose Arruda, caught on camera accepting bribes in late November, continues in office to fight the charges against him, ensuring a drawn-out and damaging scandal for the DemC3cratas (DEM), Brazil's leading center-right opposition party. The Arruda scandal revolves around a monthly bribe system very similar to the mensalC#o ("monthly pay-off") corruption scheme associated with President Lula's Workers Party (PT); this case and other recently revealed bribery charges will hurt the opposition's ability to sell itself to the electorate as champions of good governance. The leading opposition party, the centrist Brazilian Social Democratic Party (PSDB), has only been marginally implicated to date but many fear additional charges pending. DEM pushed Arruda out of the party and will try to showcase itself as having reacted responsibly in the face of scandal, but finds itself - like so many other center-right Brazilian parties - in the precarious position of having no clear message to distinguish itself on policy or administrative competency. PT has been little affected by the latest wave of scandal, leading center-right parties within Lula's coalition to solidify their alliances with PT, further hindering the already-weak ability of the center-right to play an influential role in Brazilian politics. End summary. Caught on Camera 2. (SBU) Governor Arruda, considered DEM's bright star of the future and a top-tier prospective vice-presidential candidate for Jose Serra, fell into disgrace when he and several political allies in Brasilia's state government (many from other parties) were caught accepting bribes on camera. The comical, you-tube friendly nature of the footage - including elected officials shoving envelopes of money from contractors into pockets, socks, and blouses - will likely stick in the public consciousness for some time. Despite the visual evidence and the paper trail against him, Arruda insists on remaining in office, fighting the charges against him, and running for re-election. Dep. Onyx Lorenzoni (DEM-Rio Grande do Sul) and other party members told poloff (with no small degree of anger and frustration) that Arruda will probably remain in office through the October 2010 elections, despite the multiple legal cases against him and an impeachment motion. On December 10, Arruda left DEM in advance of an internal party vote the following day, in which he would have been expelled from the party. 3. (SBU) The Arruda scandal revolved around monthly payments made by several contracting firms building the Brasilia metro system and other major construction projects. As such, the scandal very closely resembles the mensalC#o (monthly payment) scandal that significantly damaged PT late in Lula's first term, and which created difficulties for him in his 2006 re-election campaign. (The present scandal is increasingly being referred to as the "Arruda mensalC#o.") Two similar monthly payment scandals have surfaced over the past week, including one in which the Federal Police has announced that it will imminently file a case against the construction company Camargo Correa, charging that it paid out approximately R30 million (17 million USD) to various politicians in recent years. Initial reports released by the Federal Police list several opposition and coalition politicians as recipients of funds, including heavy hitters such as Chamber of Deputies President Michel Temer (PMDB-SC#o Paulo). Federal and state contracts generally release funds to contracting companies on a monthly basis, with weak rules for detailing and justifying line item expenses, making it easy for the mensalC#o to become Brazil's bipartisan favorite corruption scheme. Effects on DEM 4. (C) For DEM, which has the third-largest bench in both the Senate and the Chamber, the Arruda mensalC#o strikes a crippling blow to a party that was already slowly losing support. Dep. Ronaldo Caiado (DEM-Goias), leader of the party in the Chamber, admitted that the scandal will hurt them in the elections but argued that the party at least distinguished itself by taking action to expel Arruda, in contrast to PT, which took no action against offenders in its own mensalC#o scandal. Though true, it is hard to see the party getting much credit from the public for such a stand. As one party advisor

admitted to us, DEM never did get around to expelling Arruda before the Governor left the party, largely because several leading DEM politicians stalled the action out of concerns about having their own ties to Arruda exposed. The Arruda mensalC#o may not ultimately have a large impact on DEM in the 2010 federal elections, Dep. Lorenzoni argued, since most of its key figures are well-established in their northeast and rural bases. News of corruption in Brasilia will have limited impact, especially when it becomes old news by October. But the vice-presidency slot on the PSDB ticket, which DEM has held in the last two elections, is almost certainly gone. It will also be difficult for the country's largest right-ofcenter party to win a single governor's seat in the elections. Perhaps the most serious problem for DEM arising from the scandal, as Dep. ACM Neto (DEM-Bahia) told poloff, is that his party, which planned to run on an effective governance platform, "does not have an identifiable message." Effects on the Opposition and PSDB 5. (C) It is not clear at this point whether or how the latest wave of scandal will affect PSDB and its front-running presidential candidate, JosC) Serra. Two Federal District state deputies caught taking bribes in the Arruda mensalC#o were PSDB members, and Arruda has his public defenders within PSDB ranks, much to the chagrin of the rest of the party. The greater worry with the Arruda mensalC#o is that three of the same contracting companies prominent in paying bribes in the Federal District are also prominent in other state governments with PSDB governors, including Sao Paulo (Serra) and Minas Gerais (AC)cio Neves). Sen. Gim Argello (PTB-Federal District), vice-leader of Lula's governing coalition in the Senate, told poloff last week that he believes these companies were likely not engaging in the same practices outside Brasilia, and that the scandal will not affect Serra or Neves. According to Argello, also a real estate investor with his own contracting interests, Arruda's corruption had been known among the local contracting community and created an environment in which bribes were necessary. 6. (C) Dep. Bruno AraC:jo (PSDB-Pernambuco) expressed confidence in his party's ability to weather the Arruda scandal, and even saw the benefit in PSDB gaining at DEM expense, but expressed concern that more news about corruption was coming and that PSDB would have to fight hard to burnish its image as the party of good government. He noted the case of Sen. Eduardo Azeredo (Minas Gerais), Chairman of the Foreign Affairs and Defense Committee, now under investigation for a mensalC#o-type scheme during his campaign for Governor in 1998. AraC:jo characterized the Azeredo case as all smoke, no fire - but conceded that there will probably be a lot of smoke for PSDB to deal with in the coming months. He also asserted, like other PSDB contacts recently, that an all-PSDB Serra-Neves presidential ticket would be the silver bullet means of overcoming voter concerns about corruption and good governance. Where Does the Center-Right Go? 7. (C) The immediate impact of the Arruda mensalC#o scandal seems fairly obvious: that it weakens Brazil's leading center-right party and challenges the opposition's claim that it would govern more cleanly and effectively than PT and its ally PMDB. More broadly, the scandal further limits the ability of the center-right to articulate policy positions, both within the opposition and the conservative wing of the governing coalition. The governing coalition's center-right parties - including PP, PR, PTB, PDT and parts of PMDB - have moved away from their previous independence on key issues and has become increasingly acquiescent to Lula's agenda in Congress. All but one senator from this bloc voted for Venezuela's accession to Mercosul and the vote on the Pre-Salt oil exploration legislation is expected to yield a similar count. Senators from those parties, such as SC)rgio Zambiasi (PTB-Rio Grande do Sul) often tell us that they have concerns with some of the votes they're asked to cast, but there's no indication of any coming rebellion. After all, as one political analyst told us, the leaders of many of these parties have corruption concerns themselves, and are safer within Lula's coalition than outside of it. As Dep. Neto told poloff, "in Brazil today, a party can only be genuinely conservative on economics if it has no scandals." KUBISKE

9) CABLEGATE DE KUBISKE
240722 12/18/2009 19:46 09BRASILIA1486 Embassy Brasilia UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS BRASILIA 001486 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV, BR SUBJECT: BRAZIL: AECIO NEVES WITHDRAWS FROM PRESIDENTIAL RACE REF: RIO DE JANEIRO 340; BRASILIA 1250; SAO PAULO 551 1. (SBU) In a press conference on December 17, Minas Gerais governor A????cio Neves officially terminated his "pre-candidacy" for the Brazilian Social Democratic Party (PSDB) nomination in Brazil's 2010 Presidential elections, effectively leaving the PSDB field to Sao Paulo governor Jose Serra. Governor Neves is expected to run for the federal senate in 2010, although he has not yet declared intentions. Neves' associates continue to assert that he has no interest in being a vice-presidential candidate on Serra's ticket, the hopeful expectation of many in the PSDB. 2. (SBU) Sao Paulo and Minas Gerais contacts agree that Neves quit the race because, having made little ground against Serra in the polls and with no sign that PSDB would make a decision on its candidate any time soon, he decided that he did not have time to pull together the support to make a successful run. While Sao Paulo analysts and PSDB federal deputies in Brasilia told us that they believe Neves can be convinced to run as Serra's vice, political and journalist contacts in Belo Horizonte closer to Neves remain adamant that Neves will not accept any such offer. A PSDB congressional contact confirmed that Neves made inquiries this week to confirm whether he would be assured the presidency of the Federal Senate if PSDB is able to win enough seats in next year's elections. 3. (SBU) Comment: In an October meeting with Rio Principal Officer, Neves indicated he would force the issue of selecting a PSDB candidate by the end of 2009 or early 2010; Serra was widely reported to prefer delay in a formal selection until March 2010. The persistent strong performance of Jos???? Serra in the polls against PT pre-candidate and Lula prot????g???? Dilma Rousseff and Neves' desire to remain in good standing with his party in the interest of his current and future ambitions appear to be factors in his decision. Rio-based analysts have also speculated that Neves' withdrawal now affords him the tactical option of re-entering the race later as a white knight capable of saving PSDB fortunes should Serra's candidacy begin to flounder in early 2010. 4. (SBU) Comment continued: Further, although Neves announced his intention to run for Senate and a lack of interest in the VP slot with Serra, it would not be prudent to discard the possibility that Neves might yet be lured into the VP position. Serra's age and Neves'star power (derived from his youthful charisma, relationship to the late Tancredo Neves, and popularity in Minas and nationally) suggest a possible scenario wherein a PSDB victory in 2010 with a Serra-Neves ticket (which polls indicate would be a strong one)could be the basis for a deal in which Neves is promised PSDB support for his candidacy in the 2014 presidential contest. End comment. 5. (U) This message was coordinated between Consulate General Rio de Janeiro, Consulate General Sao Paulo and Embassy Brasilia. KUBISKE 10) cablegate de kubiske J PUBLICADO
242951 1/8/2010 16:29 10BRASILIA5 Embassy Brasilia CONFIDENTIAL

C O N F I D E N T I A L BRASILIA 000005 SIPDIS AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE E.O. 12958: DECL: 2020/01/08 TAGS: PGOV, PREL, PINR, BR, SU, VE, CO SUBJECT: Brazil: Foreign Policy as an Emerging Campaign Issue REF: 09 BRASILIA 1476; 09 BRASILIA 1439; 09 BRASILIA 1262 CLASSIFIED BY: Lisa Kubiske, Charge d'Affaires; REASON: 1.4(B), (D) 1. (C) Summary. With both sides unwilling to promote distinctive alternatives to prevailing economic policy in a pre-election environment, Brazil's two principal rival parties - President Lula's Worker's Party (PT) and front-running presidential candidate Jose Serra's Brazilian Social Democratic Party (PSDB) - are increasingly eager to air their differences on foreign policy. Congressional voting and debate over issues such as Colombia-Venezuela, Honduras, and Iran have grown increasingly partisan, with coalition lines enforced. Strongly opinionated individual members, especially those who travel frequently to key countries, have proven more effective than party leaders or relevant committees in shaping the foreign policy debate. In the case of PT, this allows some of their most militant to shape priorities, as seen in PT's new foreign policy platform, tentatively approved in December. PT has addressed its lack of foreign policy outside of Lula by bolstering the credentials of presidential candidate Dilma Rousseff with recent visits to Copenhagen and Germany. PSDB and its allies, meanwhile, are staking out positions neither rightist nor isolationist - most heavily favor Brazil's stance on post-Kyoto negotiations in Copenhagen, for example - but wish to promote a Brazilian foreign policy more in line with traditional, pre-Lula approaches. As 2010 unfolds, the PT and the PSDB can be expected to continue ratcheting up the rhetoric on foreign policy, largely due to the need to find a way to distinguish their parties before the October elections. End summary. The Emerging Issue? 2. (C) In separate late December discussions, federal deputy Bruno Araujo (PSDB-Pernambuco) and Valter Pomar, Director of PT's International Relations office, made the same basic point to poloff: foreign policy will be a bigger campaign issue in 2010 than in previous elections, and that their respective parties see it as advantageous to their side for it to be so. Neither is under illusion that the general public will much focus on foreign policy, and each conceded that they are pressing foreign policy matters for other reasons. Araujo, like other tucanos (members of PSDB), acknowledged that his party has become more aggressive on foreign policy in large part because it is not advantageous for them to oppose popular government economic initiatives like the Pre-Salt oil legislation. He further argued that voters, the media, and most rank-in-file diplomats at Itamaraty (Ministry of Foreign Relations) disagree with Brazil's recent adventurous tack in foreign policy. 3. (C) Pomar explained PT's desire to highlight Brazil's increasingly visible foreign policy as a means of communicating with the voter about what Brazil can become - a first-tier country. He said that keeping issues such as Honduras, the Middle East, and Copenhagen in the public sphere reinforces to the voter the image of a new Brazil, and that the debate with PSDB shows voters that the party of Lula and Dilma is the only real vehicle for achieving that outcome. Other petista (PT member) voices, such as Dep. Emiliano Jose (PT-Bahia) made an argument mirroring that of PSDB's Araujo. "The economy is about negotiations and compromises....With the U.S. in Colombia...we will be militante." Colombia, he added, will not be the only issue where PT members will emphasize their differences with U.S. policy during this election year. 4. (C) Votes in Congress show the increasingly enforced divide and the more heated quality of the rhetoric. The December 18 Senate vote to approve Venezuela's accession to Mercosul, while expected, was carried out on a strict party line vote that did not reflect the privately held views of many senators. In comparison with a mid-October Mercosul vote count estimate provided to poloff by Sen. Arthur Virgilio (Amazonas), leader of the PSDB in Senate and a key opponent of Venezuela's accession, at least one-quarter of the senate - including several members from both sides switched their projected vote by December due to pressure from each side's respective coalition

leadership. Senate floor debate was unusually rancorous. (see ref A for more on Mercosul.) President Ahmadinejad's November visit brought a similarly heated response, with hours of pointed speeches on both sides. The vast majority of activists in these debates are tucanos and petistas, with PSDB's coalition partners DEM and PPS also playing a visible role. The Brazilian Democratic Movement party (PMDB), PT's primary coalition partner in the government, only sometimes joins the debate - strongly aligned with Lula on Mercosul but much more distanced on Iran and Honduras. The many small center-right parties within Lula's governing coalition are conspicuously silent on foreign policy. Travels to the Andes, Honduras, Sudan 5. (SBU) Given the weak role of Brazil's Congress in foreign policy, with limited budget-shaping ability and oversight of MRE, activist individual members play a large role in shaping party positions and debate. Members with acknowledged foreign policy expertise who travel frequently, such as Dep. Raul Jungmann (PPS-PE), become more influential than committee chairmen - to the extent that Foreign Affairs Committee and both Senate and Chamber presidency staff have complained to poloff recently that Congress has lost institutional control over its ever-expanding number of CODELs that purport to speak for the GOB. Trips over the last two months that received media coverage include Honduras, the Andean region, Egypt, and Sudan, in addition to the 40-member congressional delegation in Copenhagen in December. In some cases, bipartisan delegations work well together. PSDB's Araujo and Dep. Mauricio Rands (PT-PE), both members of the October delegation to Honduras organized by Jungmann, told us enthusiastically that, despite differences of opinion, the mission focused successfully on the single goal of protecting the Brazilian Embassy housing deposed president Manuel Zelaya (ref C). 6. (C) Other delegations become more politicized. Jungmann's mid-November delegation to Colombia, Venezuela, and Ecuador - which included visits with Colombian President Uribe and Ecuadorian President Correa - revealed sharp differences among participants. Jungmann, per his post-visit conversations with Recife Principal Officer and Brasilia poloff, expressed concern that low-level armed conflict between Colombia and Venezuela was now quite likely. He did not see the U.S.-Colombia Defense Cooperation Agreement (DCA) as a contributing factor in regional instability or as any particular novelty. In contrast, the PT member in the delegation, Dep. Emiliano Jose (Bahia), returned making speeches claiming that the USG is building seven new army bases in Colombia, and that the U.S. is planning to build up troop size in order to carry out missions in neighboring countries. Another PT Deputy, Nilson Mourao (Acre), traveled to Sudan in September at GOS expense and returned issuing a spirited defense of Sudanese President Omar al-Bashir, including a sharp rejection of the international community's approach to Sudan. PT: The Militant View 7. (C) Hardliners such as Jose and Mourao play a strong role in PT's public foreign policy because the party counts few among its ranks who have training or natural interest in the area. Their historical distrust of the United States can make communication difficult. Early December conversations between poloff and Dep. Emiliano Jose and Dep. Jose Genoino (PT-Sao Paulo) bogged down into extended discussions about a U.S. Air Force budget document, which they were convinced was a mistakenly released confidential document that proved U.S. intentions to carry out military operations against neighboring governments. While it seemed that we made progress clarifying the nature of the document and the DCA in general, it was equally clear that the PT deputies did not want to be convinced. As Jose put it, "PT has its own vision of South America, which is against the presence of the U.S. military. That will not change." In early December, Jose and Genoino successfully pushed for language in PT's draft international policy platform chastising the U.S. for its "military buildup" and "new U.S. bases" in Colombia. (Comment: While PT leaders had been previously briefed on the real nature of the U.S.-Colombia DCA, the message has not been relayed down the ranks and the perceived advantages during an election year of a public stand against an American presence in

the region make such a position irresistible. End Comment) 8. (C) There are some checks within PT against such hard-liner inaccuracies. The PT International Relations office went out of its way to tell us that Mourao's glowing report in support of the Sudanese government represented neither PT nor GOB positions, and that Mourao was told to quiet down. PT staff and party moderates also softened and/or removed language in the draft international platform that directly criticized the U.S. position in Honduras and the Middle East. The PT nevertheless promotes Mourao as its "Middle East expert," despite his strong biases and evident lack of understanding of the basics of the region. He helped organize schedules for the November Ahmadinejad and Abbas visits, and, according to several sources, is the party's designated interlocutor with all embassies from the region except Israel's. (It bears noting that Foreign Minister Celso Amorim officially affiliated with PT in September and has taken an increasingly active interest in the region, to be reported septel.) There are no signs that PT has anyone else available to work Middle East issues. 9. (C) As the 2010 elections approach, the PT will find itself under pressure to keep such party hardliners out of view as it tries to sell presidential candidate Dilma Rousseff as the leader of an emerging, optimistic, internationalist Brazil. Rousseff was heavily advertised as the point person for the Brazilian delegation at the COP-15 Climate Change Conference. She also accompanied Lula to Germany before Copenhagen. Rousseff surprised by making statements in Germany to the effect that GOB recognition of the November 29 Honduran elections will have to be reconsidered down the line. As reported in ref B, Lula also went out of his way to contrive a prominent Rousseff role in Rio's successful 2016 Olympic bid. PT contacts view Rousseff's international travel not only as a means of bolstering her foreign policy credentials - which they admit are weak - but also as a way of communicating to the voter that Brazil will continue to be a bold emerging player on the international scene. The PT is convinced the voters want this even if they don't know all the details; Pomar described it in terms of projecting the optimism of the PT against the cautious pessimism of the PSDB. In a pre-Copenhagen meeting with poloff, Dep. Rands (PT) defended the idea that Brazil could cut projected CO2 emissions 39 percent by 2020, but also said the emissions goal was set with the image of Brazil and Rousseff squarely in mind. The Opposition: Traditionalist, not Center-Right 10. (C) The PSDB and its fellow opposition members sense opportunity vis-C -vis the PT, but it would be inaccurate to categorize their international approach as right-of-center or deferential to U.S. positions. Dep. Jungmann (PPS) and Dep. Araujo (PSDB) both expressed strong support for Brazil's new position on climate change negotiations. The PSDB and PPS voted nearly in bloc to support the domestic legislation, signed into law by Lula on December 22, committing Brazil to make the emissions cuts that form the basis of its Copenhagen proposal. DEM, the most rightward of Brazil's major parties, expressed greater reservations, but Dep. Ronaldo Caiado (Goias), the party's leader in the Chamber, told poloff during the COP-15 negotiations that DEM would not oppose any agreement reached in Copenhagen. Jungmann anticipates that a prospective Serra administration would still be in conflict with the U.S. on some issues, with distinctions on trade, energy and ethanol assuming a higher profile while disagreements on Middle East and Latin America recede. The PSDB and PPS also have exhibited strong socially liberal streaks in their foreign policy statements, frequently criticizing Iran and other authoritarian governments for their positions on gay rights, abortion, and other issues that the PT is reluctant to address even domestically. 11. (C) The opposition is working to project a foreign policy that, in the words of the policy advisor to Sen. Joao Tenorio (PSDB-Alagoas), is "both liberal and traditional." Some tucano contacts, such as Araujo, emphasize the traditional. In his view, PSDB should campaign to show that a Serra win will move Brazil back to its pre-2002 foreign policy stances, especially on Latin America. He viewed PSDB's bloc vote against Venezuela's Mercosul accession as a primary case in point. Others, including Jungmann and Tenorio's advisor, are careful to

emphasize the "liberal," acknowledging that PT has a point when it says that Brazilians enjoy seeing their government take an active role in international affairs because it speaks well of the country. In their view, promoting democracy and conflict resolution abroad and taking an aggressive stand on climate change are winning issues domestically, if carried out properly. The opposition's challenge will be to expose the poor decisions and unhealthy alliances developed by Lula and the PT in Honduras, Iran and elsewhere, in order to develop maximum advantage for Serra in the campaign. Comment: How Important is This? 12. (C) It is questionable whether foreign policy will have a meaningful impact on public opinion and the election season. The PT's Pomar correlated the spike in Lula's activity on international issues with his subsequent recent rise in the polls while the PSDB's Araujo argued that the party's position on Iran helped turned the media against Lula and the PT. Both may be right, but there's no evidence that the voters who decide elections care much about Ahmadinejad, Zelaya and the like. In any case, all parties have to define themselves against their opposition in some fashion, and all indicators suggest that foreign policy will be the easiest way to do so. This is especially true for the PSDB, which is reluctant to discuss economic issues given the electorate's discomfort with Brazil's economic performance under former President Fernando Henrique Cardoso. Meanwhile, as distinctive foreign policy positions solidify over the next year, the stage will be set for either Dilma Rousseff or Jose Serra to take the next administration's foreign policy in substantively very different directions. End comment. KUBISKE 11) Cablegate de SHANNON J PUBLICADO
248788 2/13/2010 18:48 10BRASILIA49 Embassy Brasilia CONFIDENTIAL

C O N F I D E N T I A L BRASILIA 000049 SIPDIS AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE E.O. 12958: DECL: 2020/02/13 TAGS: PGOV, BR SUBJECT: BRAZIL'S PRESIDENTIAL ELECTIONS: DILMA ROUSSEFF COMES UP FAST BEHIND JOSE SERRA REF: RIO DE JANEIRO 32 CLASSIFIED BY: Lisa Kubiske, Deputy Chief of Mission, State, Embassy Brasilia; REASON: 1.4(B), (D) 1. (C) Summary. Late January polling indicates that likely Workers' Party (PT) presidential candidate Dilma Rousseff, President Lula's chosen successor, has closed much of the gap with front-running opposition Brazilian Social Democratic Party (PSDB) candidate Jose Serra, and now trails by less than ten points in a two-way race for October's election. The narrowing of the race was widely expected; the campaign now enters a zone where predictions are more difficult, as both Rousseff and Serra struggle to overcome public perceptions that have limited their respective voter preference ratings. Some observers see the latest polls as giving her an advantage, while others attribute the surge to hard campaigning by President Lula and suggest that his star power will not be sufficient to maintain the momentum once the intense glare of campaign TV reveals weaknesses in Rousseff's candidacy. Rousseff's rise has increased pressure on Serra to announce his candidacy and on Minas Gerais Governor Aecio Neves to accept a slot as Serra's VP running mate. Meanwhile, PT and its primary coalition partner the Brazilian Democratic Movement Party (PMDB) continue to argue about which party gets to run for which state and congressional races, excluding and alienating smaller coalition parties to the extent that PSDB may be able to recruit new allies from within coalition ranks. End summary. State of Play: An Expected Rise, A Long Way to Go 2. (C) Two late January national polls - Vox Populi and CNT - yielded very similar results, indicating a slight decline in preference for Serra and a significant rise for Rousseff.

The Vox Populi poll shows Serra beating Rousseff 34 to 27 percent with Brazilian Socialist Party (PSB) candidate Ciro Gomes included in the race, and 38 to 29 percent without him. In both categories, this represented a nearly 15-point net gain for Rousseff from December. CNT shows that Serra leading Rousseff by a slim 33 to 28 percent in a race with Gomes included, and a much wider 41 to 29 percent lead without him. In both polls Gomes slipped from the previous month's poll, falling from 17 to 11 percent, while Green Party (PV) candidate Marina Silva maintains ratings in the high single digits. Gomes is pulling slightly more votes from Serra than from Rousseff, while Silva's vote comes entirely at Rousseff's expense. 3. (C) These outcomes were not unexpected. As Sen. Sergio Zambiasi (Brazilian Labor Party (PTB)-Rio Grande do Sul) joked to poloff on February 2 about the polls, "Maybe the only surprise is that (Rousseff's rise) happened exactly when everybody thought." Lula's aggressive presentation of Rousseff as the centerpiece of domestic legislation (including pre-salt oil) and international negotiations (Copenhagen) has managed to boost her name recognition, in the process bringing home much of PT's natural electoral base. PT contacts are encouraged and confident but they also recognize that Rousseff's rise is only an early step in the process. Candido Vaccarezza (PT-Sao Paulo), leader of the governing coalition in the Chamber of Deputies, acknowledged to poloff that, due to Lula's strong advocacy, most of the low-hanging electoral fruit has already been picked for Rousseff. The challenge, he said, will be to get her to 40 percent - which he acknowledged would take some work. (Vaccarezza strongly supports Ciro Gomes as a third-party candidate in order to lower the threshold for Rousseff.) Rousseff: The Start of Something Big or the Best She'll Get? 4. (C) Dilma Rousseff's rise in the polls creates a positive narrative for her heading into PT's national congress, to be held in late February, where she is widely expected to announce her candidacy officially. Third-party observers offered divided opinion about how much higher Rousseff can rise from here. Two competing Brasiliabased analysts told us in the past week that the race now tips toward Rousseff, because the economy will continue to be strong and because at this point, she only needs the support of a small fraction of the 80 percent of the electorate who approve Lula's performance. Humberto Saccomandi, International News Editor of Valor Economico and political analyst Rafael Cortez of Tendencia Consultoria told Consulate General Sao Paulo much the same. Most of these analysts added, however, that Rousseff repels many with her uncharismatic performance on television and she still has to prove she can hold her own in debates and public appearances. 5. (C) Rousseff's harshest critics most often emphasize that television and public speaking will kill her candidacy. Journalist William Waack described to CG Sao Paulo a recent business forum in which Serra, Rousseff, Neves and Gomes all participated. According to Waack, Gomes was the strongest overall, Neves the most charismatic, Serra detached but clearly competent, and Rousseff the least coherent. Other critics take a more subtle tack, arguing somewhat counterintuitively that Brazil's desire for continuity after years of progress and prosperity actually benefits Serra, because he is seen by many as more likely to follow the economic path laid out by Cardoso and followed by Lula. Helio Gurovitz, News Director at Epoca magazine, described Brazil as similar to Chile, arguing that the social base of the country has developed to the extent that it would prefer to alternate parties in power in order to retain continuity, rather than keep one party in power long-term, thereby facilitating a hard shift to that party's side of the political spectrum. Others just see her as the wrong candidate at the wrong time. The Chiefs of Staff for Senators Osmar Dias (Democratic Labor Party (PDT)-Parana) and Alvaro Dias (PSDB-Parana) - who are brothers representing the same state but opposite sides of the political fence met poloff together on February 5 and were united on one point: Rousseff will suffer among reachable voters because she is clearly not Lula. 6. (C) If Rousseff's personal lack of charisma were not enough of a worry, PT also is having problems keeping PMDB, its primary coalition partner and the largest party in

Brazil, happy in the state-level races, which may have adverse effects on Rousseff's campaign. PMDB has already committed itself to support Serra in Sao Paulo, the country's largest block of votes by far. PTPMDB infighting also continues over which candidates to support in many other gubernatorial and legislative races, without signs of resolution in virtually every major state, including Minas Gerais, Rio de Janeiro, Bahia, Pernambuco, Parana, and Rio Grande do Sul. PT may have little choice other than to resolve most of these impasses by supporting PMDB candidates, leaving little space to support aspirants from smaller coalition parties. Sen. Zambiasi, whose PTB is one of those smaller parties, confirmed to poloff that his party, among others, has been offered very little from PT to stick with Rousseff in the 2010 campaign. While declaring himself a Lula supporter (he spoke diplomatically of Rousseff, who is from his home state), Zambiasi more-or-less confirmed local rumors that PTB is strongly leaning toward backing Serra, bringing the party's advertising time with them. He added that no decision would be made during the upcoming legislative session, adding that PTB is in no hurry to be "the first to jump off the roof." Pressure Grows for Serra and Neves to Declare 7. (C) Serra meantime has maintained a relatively low national profile while PSDB surrogates such as ex-President Fernando Henrique Cardoso and Senator Sergio Guerra draw headlines for sniping with President Lula and the government. Rousseff's rise has set off another round of speculation that Serra may decide to withdraw from the presidential race and run again for Governor of Sao Paulo. Presidential International Relations Advisor Marco Aurelio Garcia suggested as much in a February 8 meeting with the Ambassador, as has virtually every PT elected official in meetings with embassy officers over the past few months. While PT has an interest in pushing this line, it also comes from third-party sources and from Sao Paulo, including Valor Economico's Saccomandi. Others, including senior Sao Paulo-based PSDB contacts such as Mayor Kassab's Chief of Staff Clovis Carvalho and PSDB State Party President and Federal Deputy Antonio Carlos Mendes Thame, have told CG Sao Paulo officers that Serra will run. At this point, Serra is still not expected to announce his candidacy until March. 8. (C) Media speculation continues on the possibility of Minas Gerais Governor Aecio Neves joining the PSDB ticket as VP. Rio de Janeiro's O Globo reported recently that Neves is finding the pressure unhelpful in political management of his own state, where Neves is trying to shore up other state PSDB candidates, and where he continues to avow that he plans to run for Senate. Two PSDB staff sources in the Federal Senate also told poloff that Rousseff's rise is ratcheting up the pressure on Governor Aecio Neves to accept a slot as Serra's vice - a position Neves has previously indicated he does not want (reftel). Both see an Aecio vice-presidential nomination as an opportunity to regain momentum in the race, a vote-winner in Minas and surrounding states, and as the best possible vice presidential option in the quest to attract smaller parties from the governing coalition to PSDB's side. Interestingly, neither PSDB source considered himself a Neves fan. Both considered him to be more image than substance, easy for PT to attack for his lifestyle, and a poor potential substitute for Serra at the front of a presidential ticket. Former Cardoso Finance Minister and PSDB senior figure Pedro Malan told Rio Principal Officer February 5 that, while he believes Neves as VP candidate would strongly boost the PSDB's prospects for victory, it is now unclear to Malan whether Neves will ultimately take the decision to join Serra's ticket. "The calculus he has to make in terms of maintaining his influence and prestige in Minas Gerais over the long term and this upcoming election is more complex than some think," Malan said. As for Neves himself, it appears he hasn't entirely shut out the VP option: he told Rio Principal Officer on February 10 that, "Sometimes you have to give time to time-let's wait and see how things develop." Comment: The Race Is About to Begin 9. (C) After months revving their engines, Brazil's two most likely presidential contenders are poised at the starting line, both standing at poll positions most analysts anticipated for them at this point. Rousseff's expected official announcement, planned for shortly

after Carnaval (approximately February 20), will lead to yet another round of speculation on Serra's plans until the moment when Serra finally announces (or doesn't) in March, marking the de-facto start of the campaign. The race from that point forward becomes very difficult to predict, both because of measurable "x factors" such as the candidacies of Ciro Gomes and Marina Silva, and because of variables almost impossible to predict - such as the impact of Serra's as-of-yet-undefined campaign strategy or whether the PT's difficulties in holding its coalition together in state and congressional races will have any real effect on voter choices in October's presidential contest. At this point, assuming that Serra runs, Brazil's presidential race is the definition of a toss-up. End comment. 10. (U) This cable was coordinated with Consulates General Sao Paulo and Rio de Janeiro. SHANNON Traduzido 12) CABLEGATE WHITE voc pode ler a traduo aqui: http://mariafro.com.br/wordpress/?p=23791 CONSULADOS
214615 6/30/2009 14:45 09SAOPAULO372 Consulate Sao Paulo

UNCLAS SECTION 01 OF 02 SAO PAULO 000372 SIPDIS SENSITIVE STATE PASS DRL FOR MITTELHAUSER E.O. 12958: N/A TAGS: PGOV, PINR, PHUM, EFIN, BR SUBJECT: Brazil: Pragmatism, Uncertainty Temper Theory at Leftist Conclave REF: A. Sao Paulo 0367 SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY 1. (U) Summary: The ongoing financial crisis is focused on the core countries of the world economy, and so opens opportunities for Brazil and other South American countries to assert themselves, according to participants in a June 20-21 international meeting of leftist organizations in Sao Paulo. GOB International Advisor Marco Aurelio Garcia lauded leftist policies that stimulated local demand as providing a buffer against the economic crisis. Aurelio Garcia urged South American unity and warned against giving in to protectionist pressures. GOB Finance Ministry Secretary for Economic Policy Nelson Barbosa responded to criticisms of GOB policies by reminding the audience that responsible leadership differs from simple criticism. He told the activists in attendance that the GOB needs to support the IMF, that the U.S. dollar will remain the world's reserve currency, and that GOB help to Brazilian companies was necessary to preserve jobs. For an overtly leftist gathering, the tone of the discussion reflected a certain pragmatism, owing to the Workers Party's (PT) role as a governing force. End Summary. 2. (U) A variety of leftist organizations -- including the ruling Workers Party (PT), the Communist Party of Brazil (PCdoB), the Perseu Abramo Foundation (a PT think tank), Mauricio Grabois Foundation (a PCdoB think tank), and Corint (French communist organization)-- sponsored a June 20-21 conference on the financial crisis in Sao Paulo. Featured government guests were President Lula's International Advisor Marco Aurelio Garcia and Finance Ministry Secretary for Economic Policy Nelson Barbosa. A number of speakers from other countries participated, including Jorge Beinstein, economist and professor of the Buenos Aires University; Avtar Sadiq, secretary of the Communist Indians of Great Britain; Sergio Ribeiro, member of the Portuguese Communist Party; Christopher Matlhako, member of the Communist Party of South Africa, and Gyula Th|rmer, political scientist from Budapest. Several hundred people attended the conference. Crisis at the Core Creates Opportunity

3. (U) The meeting's main theme was that the present financial crisis mainly affects "the core" of the global economic system, the U.S. economy in particular. Developing countries on the "periphery" have been far less affected. In the view of the speakers, this opened up huge opportunities to advance socialist programs. Marco Aurelio Garcia: Multi-polarity/South American Solidarity 4. (U) Of the two GOB speakers, Marco Aurelio Garcia most closely followed the conference's overall ideological line. In his view, the crisis affects "the heart" of the capitalist world, but, thanks to leftists in places like Venezuela and Brazil, some countries are relatively insulated. "We, the leftists, stopped the previous government (Fernando Henrique Cardoso) from privatizing the Bank of Brazil, Caixa Econtmica Federal, Petrobras, and the Brazilian National Development Bank (BNDES)," he said. "We must be very proud of ourselves because these institutions proved to be fundamental for the government in dealing with the financial crisis. If they had been privatized, Brazil would be in a much more difficult situation today." 5. (U) Aurelio Garcia maintained that leaders like Hugo Chavez and Evo Morales bring stability to Latin America by promoting social inclusion. He urged Brazil to deepen economic, cultural, and political ties across the continent so that South America could have regional unified voice in an increasingly multipolar world. In this connection, he said that relations with the United States should have priority, in contrast, as he put it, "to what some retired diplomats" are saying. (Note: The last comment was a not-soveiled reference to comments from three retired Brazilian ambassadors--Ricardo Abdenur, Rubens Barbosa, and Sergio Amaral--who have long argued that Brazil's Ministry of External Relations pays too little attention to the United States. End Note.) 6. (U) Aurelio Garcia concluded his remarks on a moderating note, stating that all countries in the region must avoid protectionism because it could "destroy us." Nelson Barbosa: Lessons in Pragmatism SAO PAULO 00000372 002 OF 002 7. (U) Secretary for Economic Policy for the Finance Ministry Barbosa received some tough questions from the audience, which revolved around the following themes: -Why did Brazil agree at a recent BRIC meeting in Russia to lend the IMF USD 10 billion? The IMF is just a "capitalist instrument" that has hurt poor countries. -When will there be a new global currency to replace the dollar? -Why has the GOB moved to help Embraer, a company that has laid off workers? 8. (U) Barbosa noted that since there is no replacement yet for the IMF, it makes sense for Brazil to contribute to the organization and shape its policies. In a similar way, there is no replacement yet for the dollar. No one has designed a mechanism for establishing the exchange rate between the dollar and a new global currency. Barbosa also said that failing to help a local industry like Embraer would only cost more jobs. Uncertainty Ahead 9. (U) While conference participants were generally optimistic about the prospects for leftist advance they cited a number of left-wing governments that have recently taken power in Latin America, including Venezuela, Chile, Argentina, Uruguay, Bolivia, Paraguay, and Ecuador - there were also notes of anxiety. Some participants warned that an economic crisis could drive politics to the right as well as the left, citing recent trends in Europe. Professor Luis Fernandez of the Catholic University of Rio de Janeiro expressed concerns that the "decline of U.S. leadership" (hegemony) could open spaces for instbility. 10. (SBU) Comment: The most striking elment of the conference was the relatively subdue, pragmatic tone to the discussions. Despite th ongoing economic crisis, important GOB participans defended Brazil's contribution to the IMF, the U.S. dollar, state help for job-creation, export-oriented companies, and urged resistance to protetionism. The PT's time in power has moderated at east some elements in the party by

saddling them with the responsibility for governing. Moreover, Brazil's prosperity and desire to be a global player made it more difficult for PT supporters to adopt a simplistic, contrarian approach to international economic questions. The attacks on the Cardoso government should be seen in the context of Brazil's 2010 Presidential election in which the PT is polling behind the anticipated candidate from Cardoso's party, Sao Paulo governor Jose Serra. End Comment. 11. (U) This cable was coordinated/cleared by Embassy Brasilia. WHITE 13) cablegate CLINTON J PUBLICADO
218138 7/24/2009 20:13 09STATE77662 Secretary of State CONFIDENTIAL//NOFORN

C O N F I D E N T I A L STATE 077662 NOFORN SIPDIS E.O. 12958: DECL: 07/24/2034 TAGS: PINR, PGOV, BR SUBJECT: (U) KUDOS FOR POLITICAL REPORTING (C-AL9-01632) REF: A. BRASILIA 000905 B. BRASILIA 000799 C. BRASILIA 000791 Classified By: MICHAEL P. OWENS, ACTING DIR, INR/OPS. REASON: 1.4(C). 1. (C/NF) KUDOS TO US EMBASSY BRASILIA POLITICAL SECTION FROM WASHINGTON ANALYSTS FOR CONSISTENTLY THOROUGH AND TIMELY REPORTING ON DOMESTIC POLITICAL ISSUES IN BRAZIL. REFTELS A-C ARE THE LATEST EXAMPLES OF REPORTING THAT WE HAVE USED AND WILL CONTINUE TO USE IN OUR ASSESSMENTS AS PRESIDENTIAL ELECTIONS APPROACH. BRASILIA 000905 PROVIDED A SOLID PRIMER FOR PRESIDENTIAL ELECTIONS NEXT OCTOBER; INSIGHTS WILL INFORM A FORTHCOMING ASSESSMENT TO ADDRESS POLICYMAKER INTEREST IN THE ELECTION OF PRESIDENT LULA'S SUCCESSOR. BRASILIA 000799 GAVE UNIQUE INSIGHT INTO THE CORRUPTION SCANDAL IN THE BRAZILIAN SENATE AND ITS IMPLICATIONS FOR POLITICAL INSTITUTIONS IN COUNTRY. BRASILIA 000791 PROVIDED VALUABLE INSIGHTS INTO THE PROSPECTS FOR PRESUMPTIVE WORKERS' PARTY PRESIDENTIAL CANDIDATE DILMA ROUSSEFF, WHICH WE WERE ABLE TO CITE IN HIGHLEVEL BRIEFINGS AND WRITTEN PRODUCTION FOR POLICYMAKERS, INCLUDING THE SECRETARY OF THE TREASURY. SPECIAL THANKS TO POLITICAL OFFICER DALE PRINCE, WHOSE UNIQUE INSIGHTS INTO BRAZIL'S OFTENTIMES BYZANTINE POLITICAL SYSTEM HAVE PROVEN CENTRAL TO OUR ANALYSIS. CLINTON 14) CABLEGATE DE WHITE
225709 9/17/2009 20:11 09SAOPAULO551 Consulate Sao Paulo UNCLASSIFIED//FOR OFFICIAL USE ONLY

NCLAS SECTION 01 OF 02 SAO PAULO 000551 SENSITIVE SIPDIS STATE FOR WHA/BSC E.O. 12958: N/A TAGS: PINR, PGOV, PREL, KPAO, BR SUBJECT: LEADING PSDB PRESIDENTIAL CONTENDERS STEER AWAY FROM PRIMARY SPLIT 1. (SBU) Summary: In the past week, potential candidate for the Democratic Socialist Party of Brazil (PSDB) presidential nomination and current Minas Gerais Governor Aecio Neves -- though still a candidate for the PSDB nomination -- has backed off from his former insistence that the party must hold a presidential nominating primary, a key demand that had been the cornerstone of Neves' challenge to PSDB nomination front-runner, Sao Paulo State Governor Jose Serra. Neves' re-positioning is probably driven in part by recent polling that shows

Serra with a commanding lead over likely PT nominee Dilma Roussef. His sudden flexibility is good news for Serra and for the PSDB. The party can now avoid a debilitating knock-down, drag-out fight for the nomination and concentrate on honing its emerging message, which would appear to be an appeal for greater decentralization in the administration of the country. End Summary. No Primary Needed 2. (SBU) For the last year, Minas Gerais Governor Neves has insisted that the PSDB had to hold a primary to pick its presidential nominee. Such a mechanism represented Neves' best and perhaps only hope to challenge PSDB nomination front runner Jose Serra and, thereby, emerge as the principal opposition candidate to ruling Workers' Party (PT) candidate Dilma Rouseff. Serra is widely viewed a taciturn technocrat who enjoys the support of the PSDB leadership, while Neves, the young, charismatic governor of one of Brazil's most economically and historically significant states, has demonstrated a great ability to excite the party base and reach out to those outside the PSDB. The contest between these two PSDB heavyweights worried some in the party who feared a debilitating intra-party struggle that reminded them of 2002, when then-candidate Jose Serra failed to pull together all elements in the PSDB and subsequently lost the election to President Lula. What's more, the PSDB has never held a primary, and guidelines and standards for such a national event would have had to be drawn up from scratch. Finally, until recently, some had speculated that Neves might bolt the PSDB entirely and seek the PMDB nomination, splitting the anti-PT vote and significantly damaging PSDB chances in the 2010 presidential contest. Insiders Talk of a Deal 3. (SBU) In contrast to surface tensions, in recent weeks political insiders have spoken of the growing possibility of an agreement between Serra and Neves, where Serra would get the PSDB presidential nod and Neves the Vice Presidential spot. Journalist William Waack stated at a lunch with the CG on September 4 that Serra and Neves had already sealed the deal, agreeing to run together with Serra at the top of the ticket. A second participant at the event, Fernando Henrique Cardoso (FHC) Institute Director Sergio Fausto expressed surprise at Waack's assertion, but added that FHC would not permit the Serra-Neves rivalry to split the party. A Serra-Neves combination would unify the PSDB and could prove formidable. Both governors are highly popular in their respective states (recent polls give Serra 77 percent approval in SP and Neves has over 90 percent approval in MG) and they have contrasting, but potentially complementary political styles. Neves Shifts Rhetoric 4. (U) In an interview in Belo Horizonte September 9, Neves indicated that while he continues to prefer a PSDB primary, other "instruments" for choosing a candidate exist, including polls and other mechanisms for consulting the party base. Since his interview, Neves has made SAO PAULO 00000551 002 OF 002 several statements emphasizing his good relations with Serra. In a joint appearance September 14 in Sao Paulo with former President Fernando Henrique Cardoso, Serra and Neves spoke of party unity and their willingness to offer support to each other, whichever candidate wins the eventual PSDB nomination. Neves reiterated his preference for a party primary, but did not make it an absolute demand. Both emphasized the importance of their respective states in maintaining autonomy relative to a central government that they said is too centralized and collects too much in taxes. Neves Looking to the Future? 5. (SBU) While the press buzzes about a "pact" between Serra and Neves, local analysts point to a more subtle but still significant understanding. Consultant Thiago d'Aragao told Poloff that Neves had "no choice" but to become more accommodating to Serra and the PSDB. The PMDB is hurt by recent scandals and cannot provide an adequate platform for Neves' future ambitions. The Minas Governor has excellent chances of becoming Brazil's President some day, but he must bide his time. Political Scientist Rogerio Schmitt of the Center for Public Leadership agreed, stating that he and other SP analysts regard Neves' new line as laying the groundwork for a graceful exit from his campaign for the PSDB nomination, should his challenge not prosper. Comment: Not a Pact, But A Most Productive Understanding 6. (SBU) While it could be too

much to call the new relationship between Serra and Neves a pact, it would appear that Neves has walked back from a potentially party-splitting confrontation with the Sao Paulo Governor. Neves' re-positioning comes on the heels of a late August IBOPE poll that gave Serra a commanding lead over PT leading candidate Dilma Roussef in a potential second round run-off (57-23). This, plus the logistical challenges of organizing a first-ever PSDB primary, probably convinced the Minas Governor to moderate his position. As things now stand, Neves can continue his quest for the party's nomination, but do so within bounds that would not foreclose reconciliation at the end of the process. WHITE 15) CABLEGATE DE DEL CORSO
226818 9/24/2009 17:33 09RECIFE60 Consulate Recife

UNCLAS SECTION 01 OF 02 RECIFE 000060 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: BR, PGOV, ECON, EPET SUBJECT: LULA TOUTS JOBS AND CAMPOS IN NORTHEAST 1. Summary (SBU) During a visit to the Suape port on September 11, President Lula heaped praise on Governor Eduardo Campos (PSB), in his fifth visit to Pernambuco this year, fueling speculation that PT will offer Campos a high profile role - possibly the vice-presidency - in the upcoming presidential campaign . With Lula enjoying solid support in the Northeast, the event did not have any of the trappings of a campaign rally but felt more like a victory celebration. During events aimed at highlighting new industrial investment and jobs in the region, Lula lauded the dynamic growth in the Northeast and the strength of the Brazilian economy more generally amid the world financial crisis. Even though the day in Suape was all about the economy, commentators noted that PT prospective presidential candidate Dilma Rousseff did not attend due to medical reasons and was hardly mentioned in the speeches. Dilma's apparent failure to carry over Lula's high popularity levels in the Northeast has raised the value of electoral support from Campos, who has been courted heavily by PSDB leaders Jose Serra and Aecio Neves in recent months. End summary. 2. (U) President Lula inaugurated the fifth dock in the Northeast's largest port, and construction of the first Suezmax tanker at the Atlantico Sul shipyard, and also visited a new flour mill, all at the Port of Suape industrial zone; he then inaugurated two federal research labs at the UFPE campus. The shipyard event featured speeches from Transpetro chairman Sergio Machado, Estaleiro Atlantico Sul president Angelo Bellelis, Petrobras CEO Sergio Gabrielli, Pernambuco Governor Eduardo Campos, capped by an emotional half-hour speech from President Lula. Machado and Bellelis signed a contract for seven more tankers (for a total of 22) and Gabrielli announced an order for 28 deep-sea drilling rigs, a $495m investment that should create 8500 additional local jobs. Lula, three of his federal ministers, Governor Campos, and various federal deputies, CEOs, trade unionists, and local officials were on stage and in the audience Lula also recognized officials from Venezuela's PdVSA and from South Korea's SungDong corporation. 3. (SBU) Minister Dilma Rousseff was originally scheduled to participate in the events, but was undergoing medical treatment and was only mentioned once, and not by Lula. Her absence served as a reminder that she may not be sufficiently healthy for a vigorous campaign next year and also coincided with the release of new polls that showed probable PSDB candidate Jose Serra widening his lead over her - largely due to Dilma's inability to retain Lula's large advantage in the Northeast . With the announcement by Marina Silva that she will run with the Green Party and Ceara's Federal Deputy, former Governor, and former presidential candidate Ciro Gomes (PSB) publicly indicating his interest in a run, Dilma's vulnerability has prompted rumors Lula may turn to Campos to shore up the ticket. Campos is frequent visitor in Brasilia and traveled to the capital the week before and

the week after the Suape event, publicly participating in negotiations on infrastructure investments under the accelerated growth program (PAC) and the pre-salt royalties revenue-sharing debate. Lula's Governor 4. (SBU) Lula praised Campos as a strong, new kind of leader for the Northeast and emphasized the importance of the project in creating jobs and decentralizing Brazil's economy beyond the Southeast. Lula significantly referred to the Governor of his state of birth as an `achado de deus' - or gift from god - for Pernambuco, citing the fact that Campos puts the national and regional interest ahead of narrow state concerns, unlike previous Northeastern governors who bickered over federal funds. Campos served in Lula's first-term cabinet as Minister of Science and Technology, and as a federal deputy before his 2006 election as Governor. He is the political heir of his grandfather, the three-time governor Miguel Arraes, who was a close political ally of Lula and who was imprisoned and exiled during the military regime. The 44-year-old Campos is a gifted politician and strategic campaigner who knows how to employ a populist touch, while still maintaining his image as a competent administrator and economist attracting investment to the state. Investment and Jobs for Pernambuco 5. (U) At the Atlantico Sul event, Lula applauded Gabrielli's decision to opt for creating a new Brazilian shipyard over purchasing foreign-produced ships from Korea and congratulated the thousands of workers in the audience. Petrobras opted to pay more for the tankers than the cost of buying from Korea as part of policy to revive domestic shipbuilding. Echoing Campos' message touting the growth of the NE economy, he said that five years ago it would have been unimaginable for the sons of cane-cutters to hold industrial jobs. Lula also used the campaign-rally-style address to criticize the Washington consensus and economic policies of previous governments and lament that fact that the 80s and 90s did not create enough engineering jobs for the Northeast. He gave credit to low-income Brazilians' continued consumption for saving the country from the effects of the global crisis. Lula's overall theme for the event was that "today is the day Brazilian's start RECIFE 00000060 002 OF 002 believing in themselves." 6. (U) The Lula visit received extensive and positive television and press coverage in Recife with full-page cover stories and pages of articles and graphics celebrating the 9000 jobs at the shipyard, and the projection of 2000 more with the signing of the contract for seven additional tankers, bringing the total Petrobras order to 22. Lula's characterization of Eduardo Campos as a godsend and Pernambuco's 6% GDP growth beating China's (compared to 2% nationally) also garnered wide coverage, in addition to other expansion at Suape and the new research labs. Campos in 2010? 7. (SBU) Comment: A beaming Lula together again with Campos provided a picture of a successful up-and-coming governor from a state on the move economically. While it is still perhaps a long shot that Campos will actually be chosen as vice president, given the strong alliance between PT and PMDB (and especially Chamber of Deputies President Michel Temer, most post contacts confirm that Campos is interested in higher office. Some even see him as a potential dark horse presidential candidate, if Dilma stumbles or is unable to run and Ciro fails to gain traction with PT supporters. Either as a dynamic and popular Northeasterner to balance a ticket led by Dilma, or as a viable back-up at the top of the ticket, Campos seems focused on more than just re-election in Pernambuco. One post contact close to the governor sees the charismatic Campos as someone who could run an engaging campaign, holding his own against the PSDB's Serra one-on-one in the 2010 presidential race. PSDB is aware of Campos' clout and potential and will also continue courting him aggressively. End comment. DEL CORSO 16) CABLEGATE DE WHITE
229449 10/13/2009 17:57 09SAOPAULO601 Consulate Sao Paulo UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS SECTION 01 OF 02 SAO PAULO 000601 SENSITIVE SIPDIS STATE FOR WHA/BSC, EEB/IFD/ODF, INR/IAA, INR/R/AA USAID FOR LAC/AA E.O. 12958: N/A TAGS: PGOV, SOCI, SCUL, EFIN, ECON, PREL, BR SUBJECT: LABOR LEADERS' POSITIVE OUTLOOK REF: (A) BRASILIA 1201 (B) SAO PAULO 70 1. (SBU) Summary: In recent discussions, Sao Paulo labor leaders were positive on the voice of unions in Brazilian economic policy. Sector representatives praised U.S. Trade Representative (USTR) Kirk's September 16 visit, expressing gratitude for his interest in their views on trade but indicated their own interest in better understanding the U.S. trade agenda. At the same time some expressed skepticism that any U.S. trade agreement with Brazil could advance in the closing year of the Lula Administration. Beyond trade, the unionists also discussed their efforts to better organize Brazil's substantial informal sector and the challenges facing large employment sectors such as sugarcane cutting. Finally, the trade representatives expressed interest in obtaining English language training for young leaders, a possibly promising area of future engagement. End Summary. Deepening Contacts with Labor 2. (U) Over the last two months post has reached out to labor representatives in Sao Paulo, home to Brazil's major unions, to obtain a better understanding of organized labor's views on the economy, trade relations, and the 2010 elections. On October 2, post hosted a lunch for visiting Brasilia Laboff Fred Kaplan and several of these new contacts. In attendance were: Ivan Gonzalez, Political Coordinator, Trade Union Confederation of the Americas(TUCA); Braz Agostinho Albertini, President, Federation of Agricultural Workers of the State of Sao Paulo(FETAESP); Joao Carlos Goncalves Juruna, Secretary General, Union Movement (FS); Ortelio Palacio Cuesta, International Affairs Secretary, Union Movement (FS); Lourenco Ferreira do Prado, President, General Union of Workers (UGT); Caninde Pegado, Secretary General, UGT; Silvia Portela, International Affairs Advisor, Sole Center of Workers (CUT); and Brian Finnegan, Country Programs Director, AFL-CIO Solidarity Center. THANKS FOR USTR VISIT BUT MORE DETAIL SOUGHT 3. (SBU) The contacts expressed considerable satisfaction at USTR Kirk's recent visit to Brazil, noting it was a good sign of the positive relationship between the U.S. and Brazil. FS and CUT reps, who attended a September 16 roundtable with USTR Kirk hosted by the Consul General, appreciated the opportunity to engage Ambassador Kirk directly. CUT's Silvia Portela applauded USTR Kirk's willingness to listen to labor concerns on trade issues, while UGT Vice President Lourenco Prado appreciated the opportunity to "debunk the misperception" that free trade automatically benefits all participants. (Note: Brazil's labor leaders hold protectionist/pro-industrial policy views. Nonetheless, they proved knowledgeable and eager to engage the USTR during his recent visit, a sign we see as positive. End Note.) The only negative was that several participants mentioned they would have liked to hear more detail from USTR on President Obama's trade agenda. PROSPECTS FOR REGIONAL TRADE AND MERCOSUL 4. (SBU) In various side conversations with Consulate officers, the union leaders expressed eagerness to learn more about President Obama's vision on trade. UGT representative Lourenco said most unions in Brazil expected a Democratic administration in the United States to be more protectionist, but were optimistic the Obama Administration aimed to expand trade amidst the global economic crisis. Nevertheless, CUT representative Portela suggested that a bilateral or regional trade agreement with the United States stood little chance of moving forward in the last year of the Lula Administration. Meanwhile, Portela, who also serves as an international coordinator for unions in Mercosul trade bloc countries (Argentina, Brazil, Paraguay, and Uruguay) said she was confident Venezuela would become part of Mercosul in the very near future. (Note: Countervailing this optimism, on October 1 the Brazilian Senate Foreign Relations Committee suspended for thirty days a vote on Venezuela's incorporation into Mercosul due to concerns over violations of democratic freedoms in Venezuela. End Note.) ORGANIZING THE INFORMAL SECTOR 5. (U) Many of the unionists

discussed efforts to better engage Brazilians who are either not unionized or who work in the informal sector. For example, they cited outreach to the garment industry in SAO PAULO 00000601 002 OF 002 Sao Paulo, which is a major pillar of the local informal economy. According to Ortelio Prado of FS, his union is reaching out to workers in the clothing and shoe industries and to independent seamstresses. The CUT has enjoyed recent success in organizing overwhelmingly female domestic workers. THE EXTINCTION OF CANE CUTTERS AND OTHER AGRICULTURAL ISSUES 6. (SBU) Similarly, the sugar industry has very low rates of labor organization. According to FETAESP's Braz Albertino, employers prefer to pay by the amount of cane cut rather than set a fixed hourly wage rate. Consequently, workers who can cut more cane favor this system. Agreements with sugar cane growers' associations and recent legislation in several states mandate the mechanization of cane cutting by 2014. This will force many cane cutters, many of whom have low education levels and no other marketable skills, out of work and into cities in search of employment. Albertini welcomed the long-term environmental benefits of mechanization, but deplored the lack of resources and programs provided so far to cane cutters to prepare them for this shift. Voicing the frustration of some cutters, he complained "there are more laws governing the protection of farm animals than cane cutters." A REQUEST FOR HELP 7. (U) The Sao Paulo labor leaders have welcomed post outreach and requested the Consulate's help providing English language and exchange opportunities to deepen the international exposure of Brazilian union leaders. Specifically, CUT representative Portela, a former International Visitor's Program (IVP) participant, inquired about the availability of Consulate-supported English language courses. Similarly, FS showed keen interest in exchanges to send union youth to the United States for educational and work-related programs. COMMENT: IN THE LOOP 8. (U) Despite current global economic challenges and a round of recent strikes in the banking, automotive, and express delivery sectors, the sentiments expressed by labor union contacts to USTR Kirk and in recent Consulate follow-up underscore that under the Lula Administration organized labor feels their voice is being heard on social, political and economic issues. As Brazil exits the economic crisis and moves toward the 2010 national elections, organized labor will have further opportunity to expand its influence. 9. (U) This cable was coordinated/cleared by Embassy Brasilia. WHITE

17) CABLEGATE DE HERNE

231012 10/23/2009 9:22 09RIODEJANEIRO348 Consulate Rio De Janeiro UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS RIO DE JANEIRO 000348 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ECON, EPET, PHUM, SOCI, PGOV, BR SUBJECT: Rio Radar - October 16-23, 2009 REF: a)Rio 346, b) Rio 329 1. Rio Radar is a regular compilation of key economic, political, commercial, and other developments in the states of Rio de Janeiro, Bahia, Minas Gerais, Espirito Santo, and Sergipe. Subjects for 16-23 October: AECIO NEVES ON PRESIDENTIAL POLITICS 2. (SBU) In a 20 October call on Minas Gerais Governor and possible PSDB presidential candidate Aecio Neves, Principal Officer asked for Neves' views on the state-of-play of presidential politics as Brazil heads into the 2010 election year. Neves said that he and Sao Paulo Governor Jose Serra - the leading PSDB contender for the party's presidential candidate - are being careful to protect themselves, and to some extent each other, from overexposure and damaging in-fighting within the PSDB of the kind seen between Serra and Geraldo Alckmin in the last presidential contest. He said both would maintain a collegial posture through the end of the calendar year,

but Neves said he believed the PSDB would definitely name its candidate in a party meeting in January 2010. Neves left no doubt that he would not wait beyond that point. Neves also expressed optimism that the PSDB has a meaningful chance of winning. Neves said the presumed candidate of the PT-led governing coalition, Presidential Chief of Staff Dilma Rousseff, is hovering steadily at 30 percent in polling, and Neves indicated Rousseff's ability to rise above that number would depend more on her capacity to sell her candidacy to the public than on Lula's popularity or the PT machine. (Comment: Most current public polls actually show Rousseff with lower numbers, and it is not clear whether Neves was referring to internal PSDB research. In any case, Neves seemed to imply this may be a decisive weakness, given Rousseff's inexperience in running for office. End comment.) ONGOING FAVELA VIOLENCE 3. (SBU) Rio police continued through the week of 19-23 October in a broad crack-down on the Commando Vermelho (Red Command) narcotrafficking gang, in the wake of intense gang violence in the city's favelas on 17-18 October, which produced the shocking image of a police helicopter being shot down by criminal gunfire (ref a). The police effort is centered on 10 favelas across Rio where the Commando Vemelho operates, with a focus on arresting CV leaders responsible for the attack on the helicopter and the invasion of a rival gang's turf in a favela in the city's northern zone. More than thirty persons have died in the current wave of violence. Consulate General officers are seeking a briefing with senior police and public security officials on the current violence and on the Rio government's long-term strategic favela "pacification" plan (ref b) for re-asserting state authority in the city's favelas, many of which are effectively controlled by narcotrafficking groups. Septel will report on Principal Officer's visit to Dona Marta, the first favela considered to be successfully "pacified" under the state government's plan. POSSIBLE DISCOVERY OF 1.5 BILLION BARRELS OF OIL AT CAMPOS 4. (SBU) On October 15 2009, Brazilian energy company OGX, owned by Brazilian multi-millionaire Eike Batista, announced the discovery of a major reserve of oil, located at the southern end of the Campos Basin in block BM-C-43. According to OGX, the block could hold an estimated 1.5 billion barrels of oil. Petrobras had explored this block 15 years ago, but abandoned further exploration due to studies that indicated low quantity oil reserves. OBX is currently analyzing the quality of the oil. HEARNE 18) CABLEGATE DE WHITE
231411 10/26/2009 18:00 09SAOPAULO624 Consulate Sao Paulo UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS SECTION 01 OF 02 SAO PAULO 000624 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON, EFIN, EINV, ETRD, PGOV, PREL, BR SUBJECT: BRAZIL: NEW TAX UNLIKELY TO CURB REAL APPRECIATION REF: BRASILIA 128; BRASILIA 1099 1. (SBU) SUMMARY: The Brazilian government's (GoB) October 20 decision to re-impose a two percent tax on financial transactions (IOF) in order to curb appreciation of the local currency is unlikely to have a significant impact controlling the Real's rise or on foreign direct investment. The IOF applies to capital inflows by foreigners for portfolio investment, including for first time equity investments, where it could reduce some short-term inflows. While the decision created some immediate downward pressure on the Real, in the longer term the move is unlikely to deter foreign portfolio inflows as Brazil remains an attractive market with high interest rates. The administration's move was not carefully coordinated with the Central Bank or Trade Ministry prior to announcement. The action represents a political response by the Finance Minister to export sector complaints, but one which is unlikely to have long-term effects on exchange rates or export competitiveness. END SUMMARY NEW "OLD" TAX MEASURE --------------------- 2.

(U) Following a 36 percent rise of the Real against the U.S. dollar this year, and amidst strong complaints from Brazil's exporters, the GOB announced October 20 the re-imposition of a two percent per transaction tax on portfolio investment inflows. The measure, previously limited to fixed income investment and set at 1.5 percent, was suspended in late 2008 when financial flows reversed during the onset of the global financial crisis. With the rapid recuperation of the Brazilian economy in 2009, inflows have returned strongly, particularly in the equity market that now represents about 65 percent of capital inflows. The GoB decided to expand the tax to equity investments as well as bank lending, insurance transactions, and fixed income investment. The IOF does not apply to direct investment inflows, including earning retentions by foreign multinationals in Brazil. UNLIKELY TO CONTROL REAL, BUT COULD HURT LIQUIDITY --------------------------------------------- ----- 3. (SBU) Most of our contacts agree that this measure is unlikely to curb the currency's appreciation, which is mainly driven by macroeconomic fundamentals. International Finance Corporation Country Director Andrew Gunther and Federation of the Industries of Sao Paulo (FIESP) International Relations Director Mario Marconini told Econoffs separately October 21 the IOF will have only minimal effects, such as short-term market volatility, which is likely to stabilize in the long-run. Brazil's stock exchange, Bovespa, and the Real experienced some very minor volatility as a result of the implementation of the IOF, declining by 2.2 and 1.3 percent respectively the day after the IOF was implemented, only to make-up all of their losses the following day. Both experts agreed that tightening fiscal policy would do more to restrain the Real than the re-implementation of the IOF. Contacts at Brazilian banks Bradesco and Itau-Unibanco also suggested that the IOF, while only 1.9 percent of federal revenues, could actually serve as an excuse for the GOB to further delay necessary fiscal reform. 4. (SBU) Consulate contacts such as Bovespa Chairman Arminio Fraga and Chief Executive Officer Edemir Pinto warn that Bovespa, which has received USD 23 billion in foreign inflows since January 1, will be the biggest victim of the IOF. They expressed concern that SAO PAULO 00000624 002 OF 002 the IOF will effectively export Brazil's equity business to New York and drain liquidity from Brazil, thereby increasing price volatility and country risk. Nevertheless, most public criticism has focused on skepticism the IOF will halt the Real's appreciation rather than negative implications for investment. 5. (SBU) Central Bank contacts note that Governor Meirelles was only informed of the measure two hours before it was announced. The Central Bank does not support the measure as an effective tool, noting that historically, even with taxes as high as nine percent, investors both build these taxes into their costs of doing business and find ways to circumvent the taxes. Trade Minister Miguel Jorge stated publically that Finance Minister Mantega's suggestion that the tax would help the export sector was incorrect, as exports are more dependent on global economic growth than on exchange rates. Jorge said the tax might help the government with revenue collection, but would not help the export sector's competitiveness. Receita Federal (IRS-equivalent) believes the tax could yield an additional 2 billion reais/year in tax revenues, but Mantega publicly denied this was the reason for imposing the IOF. MORE MEASURES TO COME? ---------------------- 6. (SBU) Given skepticism about the effectiveness of the IOF, speculation has already begun that the Finance Ministry will pursue additional measures to restrain the Real. While President Lula has not ruled out taking additional steps, Finance Minster Mantega has so far downplayed likelihood of imposing additional measures such capital controls on outflows-another area the Central Bank opposes. Capital controls would be very unpopular with Brazilian industry and banks, as well as significantly more complicated to enforce. COMMENT ------ 7. (SBU) Experts' skepticism about the IOF's effectiveness, the potential harm for equity investments, and indications of weak interagency coordination within the GOB, suggest the decision to re-impose the IOF was a political maneuver by the Finance Ministry rather than a well-coordinated attempt to affect

either exchange rates or Brazil's export position. The lack of consultation with the private sector or within the GOB suggests that, despite existence of mechanisms to ensure interagency review and coordination for trade and investment policy, decisions based on political factors can still be made quickly, without full consideration of economic impact. The precipitous (and rescinded) import licenses decision last year (Ref A) and the proposed oil/gas exploration legislation (Ref B) could be considered examples. As Brazil nears the 2010 national elections, the risk of other politically motivated "band-aid" measures grows. However, it should be noted that, under Brazilian law, no new measures affecting the budget (including program funding, minimum wage increases, pension increases, etc) may be implemented within six months of the October 2010 elections. 8. (U) This message was coordinated/cleared with Embassy Brasilia. WHITE White 19 CABLEGATE DE CLINTON

233677

11/6/2009 19:20

09STATE114981

Secretary of State

CONFIDENTIAL//NOFORN

C O N F I D E N T I A L STATE 114981 NOFORN SIPDIS E.O. 12958: DECL: 11/06/2034 TAGS: PINR, PGOV, BR SUBJECT: (C/NF) KUDOS FOR PRESIDENTIAL ELECTION REPORTING (CAL9-02274) REF: A. BRASILIA 001250 B. RIO DE JANEIRO 000340 C. SAO PAULO 000597 D. RECIFE 000066 Classified By: ELISSA G. PITTERLE, DIRECTOR, INR/OPS. REASON: 1.4(C). 1. (C/NF) WASHINGTON ANALYSTS WISH TO EXTEND THANKS TO ALL POSTS IN BRAZIL FOR RECENT HIGH-CALIBER REPORTING ON UPCOMING PRESIDENTIAL ELECTIONS IN BRAZIL, INCLUDING COMPREHENSIVE ASSESSMENTS OF CIRO GOMES AND AECIO NEVES. WE APPRECIATED DETAILS OF NEVES'S LIKELY PLATFORM, SHOULD HE ULTIMATELY RUN FOR PRESIDENT IN EITHER 2010 OR 2014, AND DETAILS OF HIS PROBABLE INTERIM STRATEGY, SHOULD JOSE SERRA BECOME THE BRAZILIAN SOCIAL DEMOCRACY PARTY (PSDB) NOMINEE IN 2010. NEW INFORMATION ABOUT CIRO GOMES'S ELECTORAL STRATEGY--INCLUDING LULA ADMINISTRATION EFFORTS TO USE HIS CANDIDACY TO BENEFIT THE CAMPAIGN OF DILMA ROUSSEFF--WAS PARTICULARLY VALUABLE, GIVEN GOMES'S RISE IN POLLS RELATIVE TO ROUSSEFF. WE ALSO APPRECIATED THE ASSESSMENT OF THE LOOMING GOVERNANCE PROBLEM LIKELY TO EMERGE IN APRIL 2010 WHEN CANDIDATES RESIGN FROM GOVERNMENT POSTS IN ORDER TO CAMPAIGN, AND WE WELCOMED PRIVATE CONSULTANTS' ASSESSMENTS OF THE ELECTORAL PROSPECTS FOR SERRA AND ROUSSEFF. WE WILL BE ABLE TO USE INSIGHTS FROM THESE CABLES IN LEADERSHIP PRODUCTS, BRIEFINGS, CURRENT AND LONG-TERM ELECTION PRODUCTION DURING THE COMING MONTHS. SENIOR NSC OFFICIALS HAVE EXPRESSED INTEREST IN BRAZIL'S PRESIDENTIAL ELECTIONS, EVEN AT THIS EARLY STAGE. MANY THANKS, AND REGARDS FROM WASHINGTON. CLINTON 20) CABLEGATE DE WHITE JA PUBLICADO
234038 11/10/2009 10:40 09SAOPAULO660 Consulate Sao Paulo UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS SAO PAULO 000660 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV, PINR, PREL, KPAO, KIRF, BR SUBJECT: PT Insiders Say Don't Count Dilma Out REF: BRASILIA 1250; RECIFE 66; (08) SAO PAULO 581 1. (SBU) Summary: Workers Party (PT) insiders acknowledge Dilma Rousseff's 2010 presidential candidacy has run into some problems, but express confidence her campaign will rebound. Across a series of recent meetings, PT leaders in Sao Paulo say Dilma can come from behind and beat likely PSDB nominee Jose Serra. They, as well as some non-PT contacts, argue that the press is too negative on Dilma and Lula can work his vote-transfer magic in Dilma's favor (despite his failure to do the same for PT Sao Paulo Mayoral candidate Marta Suplicy in November 2008 -- Ref C). They also suggest the PT's alliance with the Brazil's largest party, the PMDB, will guarantee ample TV time, that wild-card candidate Ciro Gomes will make a perfect attack dog against Jose Serra (Ref B) and, perhaps most significant, that the PT has a strategy for outreach to Christian voters, both Catholic and Evangelical. End Summary. Dilma's Rousseff: Looking More Vulnerable 2. (U) Despite strong support from a popular President, Dilma Rousseff's candidacy as the PT's presumptive nominee has yet to take off. Her pre-campaign has been beset with a number of obstacles, including: a cancer scare, a dust-up over alleged exaggerations in her resume, a problem with the tax authorities, and, most recently, weak poll results that showed possible PSB candidate Ciro Gomes polling slightly ahead of her and gave a wide lead to her most likely opponent, Sao Paulo Governor Jose Serra (Refs A-C). Compounding Dilma's apparent difficulties are broader, PT-related problems, most notably President Lula's vigorous defense of PMDB ally Senator Jose Sarney against corruption charges and the subsequent departure of former PT stalwart and Environment Minister Marina Silva from the party in August to run as the Green Party (PV) presidential candidate. 3. (SBU) The pile-up of dim news for Dilma caused one local PMBD-oriented pundit, Gaudencio Torquato, to tell Poloff recently that he was revising his ideas on Rousseff's chances. Just a few months ago, Torquato had considered Rousseff a shoe-in to win the presidency citing a long list of popular programs -- Bolsa Familia, Minha Casa (My House), cuts in taxes for car purchases, as well as the plans to distribute oil revenues from the pre-sal deposits off Rio de Janeiro State -- as well as the backing of a popular president. Nonetheless, she remains stuck in the polls and the PT apparently has no "plan B," according to Torquato. He stated that, while it was too early to write Dilma off, her candidacy seemed far more fragile than just a few months ago. Compounding these programs, Torquato said, is Dilma's difficult personality and lack of experience in national politics. PT Regulars Dismiss the Doubts/Describe the Strategy 4. (SBU) PT insiders dismiss these doubts and radiate confidence that Dilma Rousseff, with President Lula's help, can win the presidency. Their assurances appear to reflect more than just the party loyalty. In discussions with various PT insiders, they laid out cogent arguments that could underpin a come-from-behind second-round win for Dilma based on several factors, the most novel of which is the PT's ongoing efforts to court Christian voters, both Catholics and Evangelicals. Among the chief reasons they cited for optimism: -Many of Dilma's troubles are nothing more than a press meme. The media, in the words of Walter Pomar, like to report every problem Dilma confronts as a "fatal bullet" that will do in her candidacy. -The Lula-Transfer Factor: President Lula retains sky-high popularity and can be expected to accompany Rousseff on constant attempts to showcase government programs, events that will, in the words of PT State Deputy Rui Falcao, "bathe Dilma in the people." When Poloff noted President Lula's failure to help PT candidate Marta Suplicy win the November 2008 Sao Paulo Mayor's race (despite strenuous efforts - Ref A), PT representatives dismissed the comparison. PT International Relations Secretary Walter Pomar said that Sao Paulo has always been tough territory for

Lula and the PT, and that this limited Lula's ability to help Suplicy. Once a national campaign begins in earnest, the Lula campaign machine will begin to roll and, particularly in the Northeast, PT insiders believe the vote transfer from Lula to Dilma will be very high. -Television Time: PT contacts seemed somewhat embarrassed by President Lula's September defense of Jose Sarney. They acknowledged, however, that "it was all about TV time." The PMDB brings TV time to its alliance with the PT, and this will be a crucial factor favoring Dilma in the campaign. -Ciro Gomes as Hatchet Man: PT insiders professed joy at Gomes possible candidacy (Ref B). They stated that Gomes does not like Governor Serra and will go after him, opening up a second flank that Serra will have to cover. At the same time, they seemed doubtful that Gomes could control his own rhetoric enough to reach the second round. In any case, without large amounts of TV time, Gomes' cannot upset the basic two-way nature of the PT-PSDB race. -The Religion Factor: In recent years, the PT has worked out a careful balancing act with both its Catholic Church supporters and the new, rising Evangelical Churches, according to Pomar. Catholic support for the PT is historical, but as the party has gained support among Evangelicals, the Catholic Church had cooled to the PT. PT insiders maintain the party has countered with a unified strategy to smooth relations on both fronts. PT City Councilman for Sao Paulo Jose Americo cited a recent concordat signed between Lula and the Vatican as a key strategic move to placate Catholics. (Note: President Lula signed the concordat in question in November 2008 and the Senate approved it on October 8 of this year. Among several planks, it guarantees continued Catholic education in the public schools. End Note.) Americo also lauded the potential political influence of popular Charismatic Catholics, often represented by young priests who sing or are talented entertainers, and strong potential vote-mobilizers for the PT. PT State Deputy Rui Falcao added that the GOB had recently widened its advertising. Formerly limited to Catholic publications, the GOB is now putting public service messages in publications put out by the Universal Church of the Kingdom of God (Igreja Universal do Reino de Deus, UCG), a controversial Evangelical Church that has sometimes been investigated by the government for corruption. The UCG owns Brazil's second largest television network. 5. (SBU) The PT would appear to be putting the religion strategy into practice. Dilma Rousseff participated in the annual two-million person religious procession of the C????rio of Nazar???? in Belem on October 11. The candidate admitted that she had never attended such an event before. She expressed surprise that many of the faithful carried miniature houses or even bricks in their hands, in hopes of receiving a place to live, according to press reports. During the same trip, Dilma also met with Evangelicals. She indicated to journalists that her religious outreach would not end with this one visit because "In Brazil, this [popular religious feeling] can't be contained." (NOTE: Post plans to report more on religion and the upcoming elections septel. END NOTE.) Comment: 6. (SBU) The confidence of PT insiders regarding Dilma Rousseff's candidacy appears to be based on more than just the party line. Their logic for, among other things, a powerful Lula vote-transfer at the national level (particularly in the northeast) and an intelligent strategy of outreach to Christians, both Catholic and Evangelical, is understandable. Likewise, Dilma can count on both the resources of her party and a popular President to help her in the lengthy contest to reach Planalto. Nonetheless, Dilma's lack of personal charisma, apparent limited personal connection with influential religious voters, and lingering doubts about her health and overall presidential credentials will remain challenges for her campaign. End Comment. White TRADUZIDO E COMENTADO EM: http://mariafro.com.br/wordpress/?p=23795

21) CABLEGATE DE WHITE

241953 12/29/2009 16:53 09SAOPAULO667 Consulate Sao Paulo CONFIDENTIAL

C O N F I D E N T I A L SAO PAULO 000667 SIPDIS AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE E.O. 12958: DECL: 2019/12/29 TAGS: PGOV, PREL, ECON, EFIN, BR SUBJECT: SAO PAULO LEADERS OUTLINE CONCERNS WITH GOB TO WHA A/S VALENZUELA CLASSIFIED BY: Thomas J. White, Consul General; REASON: 1.4(B), (D) 1. (C) SUMMARY: On the final leg of his week-long visit to the Southern Cone, Western Hemisphere Affairs Assistant Secretary Arturo Valenzuela met with leading political and economic observers in Sao Paulo, who expressed concern with Brazil's foreign policy, public spending, and political maneuvering in the run-up to the October 2010 elections. In a subsequent private meeting with A/S Valenzuela, Sao Paulo Governor and presidential front-runner Jose Serra warned that corruption and radicalization was growing in the ruling Worker's Party (PT) and suggested that as president he would push for a foreign policy more in tune with the United States. END SUMMARY. Sao Paulo Political and Economic Observers -------------------------------------------- -------- 2. (C) Concluding his visit to the region with a stop-over in Sao Paulo on Saturday, December 18, A/S Valenzuela attended a lunch hosted by the Consul General with the ChargC) and nine leading political and economic experts including former Foreign Minister Celso Lafer, former Brazilian Ambassador to the United States Rubens Barbosa, and former Science and Technology Minister Jose Goldemberg. A/S Valenzuela provided an overview of his trip and emphasized the high USG priority placed on the bilateral relationship. He identified cooperation with Brazil on regional issues, including Honduras, as being of critical importance. 3. (C) All of the Brazilian invitees criticized the Lula Administration's foreign policy, voiced concern over the increasing radicalization of the governing Worker's Party (PT), and stressed the deterioration of public accounts. Former FM Lafer described Brazil's stance toward Iran as the "worst mistake" of Lula's foreign policy, while Ambassador Barbosa cited Brazil's role in Honduras as a prominent failure. All agreed that the GOB is focusing on international issues (Iran, the Israeli-Palestinian conflict, Honduras, etc.) in which Brazil has few national interests and little influence, at the expense of ignoring issues closer to home, including relations with Mercosur. 4. (C) Vice Chairman of the Brazilian Center for International Relations (CEBRI) Roberto Teixeira da Costa and Professor Goldemberg particularly questioned the GOB's interest in Iran, given a paucity of commercial prospects and unlikelihood of civil nuclear cooperation. [NOTE: In an aside with ChargC), Goldemberg, who is also a renowned nuclear physicist, said Brazil has nothing to offer Iran on nuclear fuel issues as Iran is already well ahead of Brazil in centrifuge capacity. Moreover, he said he fully appreciated Secretary Clinton's recent statement about countries working closely with Iran and that the GOB should take it seriously. END NOTE.] A/S Valenzuela emphasized that an increasingly isolated Iran is looking for any opportunities like the one offered by the Lula Administration to try to cover up its lack of cooperation and unpopularity with the international community. 5. (C) Domestically, the Brazilian participants described the PT's strategy to make the upcoming national elections a referendum on the Lula administration as an improvement over the Cardoso administration and emphasized the party's intention to run an aggressive campaign. Taking this tack, they argued, could portray Jose Serra as Cardoso's candidate and help transfer some of Lula's popularity to Dilma Rousseff, who has never run for public office before and has demonstrated little charisma as a candidate so far. Folha de Sao Paulo Ombudsman Carlos Eduardo Lins da Silva highlighted the PT's unprecedented financial strength to run a campaign

after eight years in government, while political scientist Bolivar Lamounier said an increasingly radicalized PT would likely run a very negative campaign against the opposition. Lins da Silva added that, in the event the PT loses the 2010 presidential election, it could use its new wealth to serve as a very troublesome opposition. 6. (C) Economically, Teixeira da Costa said that public perceptions about Brazil were overly optimistic and that markets could shift downward quickly if the international situation deteriorates further. Ricardo Sennes, Director of international affairs' consulting firm Prospectiva, echoed the assessment, saying that GOB public accounts were under increasing strain and the Brazilian economy remained uncompetitive over the long-term due to weak infrastructure, high tax burdens, and rigid labor policies. All agreed, however, that Brazil's strong economic performance over the last eight years and current recovery from the global crisis would help Dilma Rousseff's campaign. Regarding Brazil's recent high-profile involvement in the Copenhagen Climate Conference (COP-15), Professor Goldemberg said President Lula's performance was mediocre, and jockeying by the GOB left the perception that Brazil developed its position in the last two weeks. Conversely, he praised Secretary Clinton's presentation and said that major country players should meet in small groups (vice the G-77) to foster progress on issues such funding and verification. SP Governor and Presidential Front-runner Jose Serra -------------------------------------------- ---------------------- - 7. (C) In a 90-minute one-on-one meeting at the Governor's Palace, Jose Serra expressed a number of the same concerns in regards to Brazil's national political currents, rising corruption, public spending and foreign policy. Serra told A/S Valenzuela that the ruling Workers Party (PT) is making every effort to build a long-term power base while in government. Serra claimed Brazil is reaching previously unseen levels of corruption as the PT and its coalition allies use rising public expenditures to construct a political machine for the 2010 elections. In the face of such efforts, and what he described as the comparatively weak apparatus of his own PSDB party, Serra was not firmly confident he could win the presidency in October 2010. 8. (C) Beyond domestic politics, Serra criticized the Lula Administration's foreign policy and indicated that he would take Brazil in a more internationalist direction if elected president. Serra cited Honduras specifically as a Lula Administration failure, blaming the GOB stand and Honduran President Zelaya for impeding a resolution. Conversely, he highlighted his engagement with the State of California on climate issues as an example of opportunities to work together on difficult issues. However, reiterating his public position on biofuels, Serra criticized the U.S. tariff on imported Brazilian ethanol as economically illogical. 9. (C) Referring to rising populism in the region, Serra said he found Argentine President Cristina Kirchner "cordial and smart" and suggested that if the USG has concerns about Kirchner's populist politics, that PT presidential candidate Dilma Rousseff should cause greater concern. He also warned that USG references to a "special relationship" with President Lula do not resonate well with all segments of Brazil and could be manipulated by the PT. [COMMENT: Beyond Argentina, Serra appeared generally uninformed of recent developments in the Southern Cone, including Paraguayan President Lugo's political situation, and seemed primarily immersed in Brazilian domestic politics. END COMMENT.] Finally, Serra said he was working on several articles and op-eds that would publicly articulate his criticism of the Lula Administration's foreign policy in the coming months. 10. (U) WHA A/S Valenzuela has cleared this cable. White 22) CABLEGATE DE WHITE
243156 1/11/2010 17:10 10SAOPAULO18 Consulate Sao Paulo UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS SAO PAULO 000018 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON, EFIN, ETRD, EINV, PGOV, PREL, BR SUBJECT: Private Sector Optimistic for Brazilian Economy in 2010 REF: 09 SAO PAULO 624; 09 SAO PAULO 630; 09 BRASILIA 950 09 BRASILIA 1354 1. (SBU) Summary: Brazilian private sector analysts see a bright economic outlook for 2010 with GDP growth nearing six percent, inflation remaining within target, and strong job creation. Boosted by the enduring impact of GOB stimulus measures implemented to weather the global economic crisis and strong domestic consumer demand, Brazil has emerged from the financial crisis earlier and more robustly than most countries. While inflation pressures and a strong currency pose moderate short-term risks, business contacts contend that sustained high rates of growth beyond 2010 are dependent on curbing the growth in GOB spending, progress on long-pending tax and labor reforms, and boosting infrastructure investment. End Summary. 2009 Ending Positive -------------------- 2. (SBU) While final data is not complete, most private sector analysts agree Brazil's economy closed 2009 on a positive note. Despite the global economic crisis' immediate effects on the Brazilian economy, the GOB was able to implement timely countercyclical measures (e.g. interest rate cuts, tax cuts, increased fiscal transfers to households, and softening lending restrictions, etc.) that prevented the external shock from reaching deeper into employment and income (ref C). Brazil's economy came out of a recession in the second quarter of this year, growing by 1.9 percent of GDP, and the Central Bank estimates that total annual growth may finish positive at around 0.2 percent. According to a study by leading Brazilian bank Itau-Unibanco, without the GOB economic stimulus measures the economy would have shrank 3.2 percent. Economic Growth Likely to Reach Pre-Crisis Levels --------------------------------------------- ---- 3. (SBU) Building off 2009 momentum, the Brazilian economy is likely to attain GDP growth levels of around 5.5 percent in 2010. Some of our contacts, such as Brazil's Central Bank (BCB) Senior Analyst Alexandre Pundek and Itau Bank Economic Analyst Mauricio Oreng, are even predicting about six percent GDP growth fueled by high domestic demand. They also cite as drivers the enduring economic stimulus measures the BCB and the Lula administration adopted in 2009 to weather the global economic crisis. Santander Bank Chief Economist Alexandre Schwartsman says these measures are likely to stimulate consumption, output, capacity utilization and investment well into 2010. Echoing the point, an Itau-Unibanco study indicates that without the GOB stimulus measures and their multiplier effects, the 2010 GDP growth outlook would only reach 3.7 percent. 4. (SBU) With respect to trade, business leaders expect both total exports and imports to increase in 2010 as the global economy rebounds. According to the Federation of the Industries of the State of Sao Paulo (FIESP), exports are likely to increase by 16 percent from the current $152 billion whereas imports are likely to increase by 30 percent from the current $128 billion, due to the strength of the Brazilian currency and slower global economic growth than Brazil. Nonetheless, FIESP expected Brazil to register a trade surplus of $10.5 billion, down from $24 billion in 2009. Output Growth Likely to Boost Job Creation ------------------------------------------ 5. (SBU) Brazil is also ending the year with a positive job creation record, despite the recession in early 2009. According to the Brazilian Labor Ministry 1.3 million jobs were created this year, pushing the unemployment rate down from 7.9 to 7.4 percent. Alexandre Schwartsman attributes the Brazilian labor market's resiliency to two key factors. First, companies were reluctant to let go of workers despite a decline in industrial production due to perceptions that the slowdown would be short-lived. Second, companies wanted to avoid incurring the high cost of firing and hiring workers, choosing instead to keep workers even if underutilized. Meanwhile Schwartsman estimates around 2 million jobs will be created in 2010 as industrial output rebounds further. Central Bank Tightening to Contain Inflation -------------------------------------------- 6. (SBU) Amid the positive outlook, the private sector is increasingly expecting the Central Bank to start raising

interest rates from their historic lows to contain inflation risks. According to Schwartsman from Santander, if economic growth for the first quarter approaches six percent, then the Central Bank will almost certainly raise its benchmark rate early in the second quarter. Yet, if the economy grows closer to five percent, then he expects the tightening process will start mid-year. Most other contacts agree that inflation risks are likely to surface in 2010, as higher economic growth reduces the output gap, with some like Itau's analyst Oreng predicting that the Central Bank will raise its benchmark as high as 10.75 percent, or about 200 bases points higher than this year's rate, to protect the inflation target of 4.5 percent. Currency to Experience Minor Election-Year Volatility --------------------------------------------- --------- 7. (SBU) While export industries continue to fret about the strength of the Brazilian Real (ref A), up 34 percent against the U.S. dollar in 2009, most of our financial sector contacts predict the Real will remain strong and not depart significantly from its 2009 closing of 1.73 R$/USD for most of 2010. Nevertheless, the Real may experience some minor volatility in the run up to national elections in October, and as the GOB continues to search for ways to quell the Real's appreciation. A Ministry of Finance official said January 4 that the GOB has allowed Brazil's sovereign wealth fund to invest in U.S. Dollars, representing another move by the GOB to try and stop Real appreciation, but perhaps more significantly gives the Ministry of Finance a tool to control the national currency, an activity that traditionally resides within the Central Bank. Schwartsman from Santander predicts the Real will likely depreciate to 1.8 Reais per dollar, due to election volatility. Economic Risks Could Hamper Long-Term Growth -------------------------------------------- - 8. (SBU) Despite the positive outlook, some in the business community worry that the heady recovery expected in 2010 is unsustainable in the long-run unless Brazil tackles deeper structural issues including fiscal account deterioration caused by increased government spending, and competitiveness and efficiency shortcomings caused by burdensome labor and tax regulations and failing infrastructure (ref D). In a recent luncheon hosted by the Consul General, prominent businessman Roberto Teixeira da Costa lamented the lack of progress on an economic reform agenda, a tendency by the GOB toward greater policy interventionism, and concern that prospects for much-needed amendments to simplify the labor code and tax system were slim in the upcoming electoral cycle (NOTE: Congressional opposition, unwilling to award additional political victories during the Lula administration's final months, will make passage of any significant reform measures unlikely this year. END NOTE). Alexandre Pundek told econoff in Brasilia that the Central Bank is concerned about permanent spending increases that are taking place within the GOB in government payroll and personnel. The Central Bank and the Ministry of Finance are counting on a strong recovery in tax collections to keep additional fiscal erosion at bay. (NOTE: the latest data for tax collections in October and November were both recent record highs. END NOTE). 9. (SBU) Meanwhile, Brazil's rate of investment, particularly in infrastructure, is failing to keep pace with demand. Despite its impressive recovery from the recession, Brazil continues to lag investment in fixed capital as well as in infrastructure. While FIESP estimates 2010 investment will account for 19 percent of Brazil's economy, an increase from 2009, much of the boost will likely be driven by planning for the upcoming World Cup and Rio Olympic Games, as well as offshore pre-salt oil projects. FIESP and other contacts acknowledge that long-term investment remains too low, considering IMF calculations that developing economies in Asia invest about 42 percent of their respective GDP and the world's investment average is 24 percent. According to Luis Fernando Lopes, chief economist at Patria Investimentos, Brazil will need to invest about 23 percent of GDP annually to sustain economic growth at five percent over the longer term. Comment -------- 10. (SBU) Spurred by government stimulus measures, the increased purchasing power of a strong Real, and a burgeoning middle class (ref B), Brazil's domestic market, more and more the country's key economic growth engine, is poised for a strong year. Given the broad political

consensus on sound macroeconomic policies among the country's leading candidates, any presidential election jitters are unlikely to have a major impact on the economy, aside from some minor currency volatility. Meanwhile, preparations for major offshore oil development in the pre-salt region, the 2014 World Cup, and the 2016 Olympic Games represent an opportunity to spur much-needed public investment. However, private sector analysts make a cogent argument that broad structural tax and labor reforms, along with infrastructure improvements and fiscal constraint are necessary for Brazil to achieve sustained high rates of growth over the longer term. End comment. This message was coordinated/cleared with Embassy Brasilia. White 23) CABLEGATE DE White
245007 1/22/2010 17:02 10SAOPAULO44 Consulate Sao Paulo UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS SAO PAULO 000044 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON, EFIN, ETRD, EINV, BR SUBJECT: BRAZIL: PRIVATE SECTOR VIEWS OF THE BRAZILIAN ECONOMY OVER THE NEXT 10 YEARS REF: 09 SAO PAULO 630; SAO PAULO 18; BRASILIA 1354 1. (SBU) Summary: Emerging from the global economic crisis, private sector leaders are generally confident that Brazil's economy will continue to grow over the next decade based on strong investment opportunities, stable macroeconomic policies, and favorable demographic and external factors. Nevertheless, uncertainty remains as to whether the economy may overheat in the next few years and, over the longer term, if it will grow at levels high enough to significantly reduce remaining poverty and income inequality. Most analysts agree that in order for Brazil to achieve such sustained growth, the next GOB administration must pass pending economic reforms in areas such as taxes, labor, and infrastructure. End Summary. Investment Opportunities and Domestic Demand to Spur Growth -------------------------------------------- -------------- 2. (SBU) Leading Brazilian bank Itau Unibanco estimates that the Brazilian economy is likely to grow over the next decade at an average of 4.5 percent annually. The main drivers for this growth include a significant boost in expected investment in areas such as energy, including the offshore pre-salt oil development anticipated through 2025, and public infrastructure. According to Mauricio Oreng, economic analyst at Itau, private research suggests that investment in the pre-salt oil fields will exceed $55 billion over the next ten years. Likewise, research institutions such as Fundacao Getulio Vargas predict continued strong demand from a growing domestic sector and Brazilian middle class (ref A). Fabio Pina, economist for the trade association Fecomercio, similarly emphasized to us that Brazilian economic output will benefit from a demographic increase in the share of working age population through 2020 which will relieve some pressure on public pensions and increase the labor pool. Externally, the current global context favors investment in emerging economies such as Brazil with high potential to expand domestic consumption. 3. (SBU) Additionally, world events such as the 2014 World Cup and 2016 Olympics to be hosted in Brazil will require a significant boost in investment in sports facilities, hotels, transportation, and urban development, which will stimulate growth in the construction and services sectors. According to Aurelio Bicalho economist at Itau, the Rio Olympic Games are likely to contribute a 0.7 percent increase in GDP growth in each of the four years preceding the 2016 event. Beyond the immediate impact of the World Cup or Olympic Games, leading private sector associations, such as the Sao Paulo Federation of Industries (FIESP) have welcomed the events in the hope that resulting improvements in transportation infrastructure boost long-term productivity and lower a key cost of doing business in Brazil. Most Economic Policy to Remain Unchanged --------------------------------------

---- 4. (SBU) Few private sector observers expect a significant change in current macroeconomic policies, regardless of who wins the 2010 presidential elections. Economic contacts such as Brazil's Central Bank (BCB) Senior Analyst Alexandre Pundek, Itau's Oreng, and Santander's chief economist, Alexandre Schwartsman, agree that both leading presidential candidates--Dilma Rousseff from the governing Workers' Party (PT) and Sao Paulo Governor Jose Serra from the Social Democratic (PSDB) party-- are committed to maintaining economic stability for Brazil's growth. Pundek told Econoff that both candidates recognize the current economic model is reducing poverty and strengthening the middle class. Monetary Policy May Loosen --------------------------- 5. (SBU) One possible area of moderate divergence is monetary policy, where Serra has long been a critic of high Central Bank interest rates. While many in the private sector expect rates to rise over the next year, as much as four percent according to Citibank's President Gustavo Marin, PSDB contacts such as Federal Deputy Walter Feldman and independent analysts such as Moody's Latin America Director Luiz Tess tell us they expect a Serra administration would try to bring rates below Brazil's historic average to accelerate growth. Given the Central Bank's general autonomy in recent years and broad aversion to stoking inflation, our contacts agree inflation will remain under control, though the target range could be slightly higher under a Serra government. One key factor on monetary policy in the next GOB administration will be the leadership of the Central Bank. Numerous contacts in the financial sector, including Pundek at the Central Bank, have pointed to speculation that current Central Bank Governor Meirelles may stay on as BCB Governor under either administration, as evidence that monetary policy would not change dramatically. Economic Obstacles Likely to Remain ------------------------------------- 6. (SBU) Although strong investment inflows, stable economic policies, a favorable global climate for emerging markets, an expanding domestic market, and positive demographic trends, are likely to boost Brazilian economic growth, doubts remain about longterm sustainability, deep-rooted poverty and lagging competitiveness. President Lula has publicly predicted that Brazil's economy will grow to fifth largest in the world by 2016, and a study by PriceWaterhouseCoopers published on January 22, predicts this could happen by 2013. However, skepticism is prevalent among private sector contacts as to how growth will address income inequality, poverty, and competitiveness issues. In conversations with business association leaders such Roberto Costa de Teixeira from CEAL and Roberto Giannetti da Fonseca from FIESP, optimism about Brazil's economic outlook is tempered with concern that opaque and onerous tax and labor requirements, high transportation costs due to poor infrastructure, and weak investment in human capital will continue to constrain growth and poverty reduction. Despite broad consensus on the need for tax and labor reforms as well as greater investment in public infrastructure and education, views are mixed on whether the next GOB administration, whether led by Rousseff or Serra, is likely to tackle the challenge during the next five years. Pessimists, including Schwartsman, suggest that any GOB administration emerging from the 2010 elections is unlikely to have the political support to push sensitive tax and labor reforms. However, others, such as Luiz Fernando Figueiredo, Chief Portfolio Manager at Maua Investimentos, and Octavio de Barros, Chief Economist at Bradesco Bank, have told us they expect both candidates to recognize the limited political window to address these issues and propose at least partial reforms early in their tenure. According to Barros, reforming the tax and labor regimes would boost economic growth by at least 1.5 percent of GDP annually. Finally, near-term concerns exist that increased government spending may be eroding the GOB's recent record of solid fiscal management (ref C). Comment -------- 7. (SBU) Brazil has made impressive progress in achieving sustained economic growth and reducing poverty in recent years. Favorable economic conditions and a broad political consensus on preserving macroeconomic stability suggest Brazil, even without necessary reforms, will continue to grow respectably over the next decade at

rates comparable to the 2003-08 period. Nevertheless, the inefficiencies and infrastructure constraints identified by private sector contacts remain a significant hurdle to achieving the higher growth rates necessary to fully address Brazil's income inequality and raise the country to "developed" within the next decade. End Comment. White TRADUZIDO E COMENTANDO EM: http://mariafro.com.br/wordpress/?p=23815 24) CABLEGATE DE HEARNE
246840 2/2/2010 19:13 10RIODEJANEIRO32 Consulate Rio De Janeiro UNCLASSIFIED//FOR OFFICIAL USE ONLY

UNCLAS RIO DE JANEIRO 000032 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV, PREL, BR SUBJECT: VIEWS ON POSSIBLE VP CANDIDATES FOR JOSE SERRA REF: 09 BRASILIA 1486 SUMMARY 1. (SBU) Political observers and party actors across the country contend there is a possibility of the Brazilian Social Democratic Party (PSDB) presumed presidential candidate and frontrunner Jose Serra asking Green Party (PV) candidate Marina da Silva to be his vice presidential candidate. While it seems unlikely at this point that Silva would accept such a role, most believe she would at least support Serra in a second round runoff with Worker Party (PT) candidate Dilma Rousseff. The Marina possibility notwithstanding, political insiders see as the most likely scenario that Minas Gerais governor Aecio Neves (PSDB) will eventually join Serra as his VP candidate, in spite of Neves' public statements he will run for Senate. Although the narrowing gap between Serra and Dilma Rousseff in the latest polls has renewed speculation that Serra might bow out in favor of Neves as the PSDB candidate, Serra remains the most likely candidate, and many of our interlocutors state a Serra-Neves ticket would be the surest way for Serra to successfully challenge President Lula's efforts to translate his own popularity into votes for Dilma Rousseff as his successor. End Summary. RIO OBSERVERS DISCUSS VP OPTIONS 2. (SBU) During a private January 12 lunch, prominent Veja magazine political columnist Diogo Mainardi told Rio Principal Officer that Mainardi's recent column proposing Green Party (PV) presidential candidate and former Lula environment minister Marina Silva as the ideal vice presidential candidate on Jose Serra's (PSDB) ticket was based on a long conversation between Serra and Mainardi, in which Serra said Marina Silva would be his "dream running mate." Serra outlined in that conversation with Mainardi the same advantages that Mainardi later listed in his column: Marina's life story and impeccable leftist credentials would trump Lula's personal appeal to poor Brazilians and place Dilma Rouseff (PT) at a disadvantage with the left, while helping Serra mitigate the association with the government of Fernando Henrique Cardoso which Lula/Dilma hope to use as a point of attack in the campaign. That said, Mainardi does not expect Marina to sign on with Serra, as she wants to establish her own credibility by running for president. However, Mainardi said he thinks - as does Serra - that Marina might well support Serra in a second round runoff with Dilma. 3. (SBU) On a more realistic level, Mainardi indicated to PO that Minas Gerais Governor Aecio Neves told Mainardi earlier this month that Neves remains "completely open" to the possibility of running as vice presidential candidate with Serra. (Note: On December 17, 2009 Neves officially terminated his "pre-candidacy" for the Presidency and indicated he had no interest in running for vice president - reported reftel. End Note). Despite Neves' public statements that he will run for Senate, Mainardi said Neves plans to wait for a scenario in which PSDB, perhaps by March, asks Neves to join the ticket, to assure the strongest possible chance against Dilma. Neves' own ambitions and his inextricably linked desire not to be a spoiler for the PSDB in the

coming race would lead Neves to join the ticket, in Mainardi's opinion. This was echoed by Merval Pereira, columnist for Rio's newspaper of record "O Globo," who recounted to PO on January 21 a conversation Pereira had with Neves the day before, in which Neves said he was "firmly committed" to helping Serra in any way, including joining the ticket. A Serra-Neves ticket, opined Pereira, would win, and Pereira personally believed that not only would Neves run with Serra, but that Marina Silva would also support Serra in a runoff. 4. (SBU) Rio Federal Deputy Marcelo Itagiba (PSDB), who is closely involved with the Serra campaign, told Rio Poloff that Marina was his clear preference as Serra's VP. He cited the practical benefits to the Serra campaign, most notably the increase in television airtime he would gain by tapping into Marina's share (Comment: Given that party campaign airtime is based on legislative seats won in 2006 and the PV's minimal showing in that election, increased airtime for a Serra-Marina ticket would be negligible. End Comment). At the same time, Itagiba shared Mainardi's assessment of Neves, stating Neves would likely join the Serra ticket, if a Serra first round victory does not appear assured. "If this is the will of the party, Neves will accept," he said. 5. (SBU) While Rio Deputy Otavio Leite (PSDB), minority leader in the House of Deputies (Camara), told Poloff he did not believe Marina would accept any VP offer from Serra, he stated, the PSDB was counting on her support in a second round. On Neves, Leite offered a dissenting view from the other Rio interlocutors, saying Neves' election to the Senate was a foregone conclusion and would be a much more attractive option than VP, considering Neves' presidential ambitions, especially if the Senate term carried with it the Senate presidency, as many believe it will. Leite assessed that a mixed ticket with allied opposition party DEM would be a real possibility, naming Senator Jose Agripino from Rio Grande do Norte as a leading contender. Rio Federal Deputy Rodrigo Maia, president of the DEM party, also confirmed to Poloff that Agripino's name was on a shortlist of Serra VP candidates and discounted Marina's willingness to join a Serra ticket or even support him in a second round. "She will go back to Lula in the end," Maia said. "We cannot count on her." (Comment: Maia's opinion of Marina Silva reflects a significant difference between long-time allies PSDB and DEM. PSDB members are by and large comfortable with Marina while DEM, which has an agrarian base, sees her as philosophically incompatible and a potential threat to their economic interests. End Comment). VIEWS FROM SAO PAULO 6. (SBU) Sao Paulo Federal Deputy (PSDB) and City Secretary for Sports Walter Feldman told Sao Paulo Econoff that a unified PSDB presidential ticket with Neves would strengthen Serra's chances in the October elections. Describing Serra and Neves as Brazil's two best governors, Feldman expressed confidence that their combined record of administrative achievement in elected office would resonate with voters underwhelmed by Dilma Rousseff's performance at Minister in President Lula's cabinet. In subsequent discussions with PSDB Sao Paulo State PSDB President and Federal Deputy Antonio Carlos Mendes Thame and Sao Paulo Municipal Secretary of Government and local PSDB insider Clovis Carvalho, both told Econoff that Neves was choice of the party leaders for the VP slot and they were confident he would answer the call. Both emphasized that PSDB must deliver Minas Gerais and Sao Paulo states to win the presidency and that the best way to do that was to bring Neves onto the Serra ticket. Separately, Bolivar Lamounier, cofounder of the Sao Paulo Institute for Economic and Political Studies (IDESP), and Ricardo Sennes, Director of international affairs consulting firm Prospectiva Consultoria Brasileira told Econoff they expected Marina to carry through with her own campaign but throw her support behind Serra in a second round after having "burned bridges" with her exit from the PT. PSDB OUTLOOK IN BRASILIA 7. (SBU) Other PSDB players discount the likelihood of a mixed ticket. While acknowledging that Serra strongly prefers a coalition ticket and that Neves wants to run for senate, Senators Eduardo Azeredo (Minas Gerais) and Alvaro Dias (Parana) told Brasilia Poloff that the party faithful want a pure PSDB

ticket, and claimed such an outcome was likely. Pernambuco Federal Deputy and PSDB vice leader in the House of Deputies Bruno Araujo also downplayed the possibility of Serra tapping a DEM representative, implying the DEM's diminishing popularity left Serra with little to gain from such a ticket, even in the northeast, where the DEM party has the most seats. In conversations with Poloff this week, two senior PSDB staff members acknowledged Serra' interest in Marina as a VP candidate, and described her as the latest big idea among a large minority within the party, especially in Rio and Sao Paulo. Neither believed Marina would ever accept such an offer but both were optimistic about gaining her support in the second round. RECIFE: THE NORTHEASTERN PERSPECTIVE 8. (SBU) Recife political analyst Andre Regis (also a lawyer, Federal University of Pernambuco professor and active PSDB member) told post recently that PSDB believes a Serra-Aecio ticket would do well in the Northeast. While he acknowledged that Dilma's poll numbers have gradually improved in the region, Serra still has some advantages over her with voters enthralled by President Lula's charisma and history. Admitting that Serra also suffers from an image as more of a technocrat than a politician, he asserted that Aecio would help shore up the opposition ticket if he accepted the nomination for vice president. 9. (SBU) Pernambuco PV president Sergio Xavier confided to post last week that, in his opinion, Marina Silva will maintain her own candidacy, but is certain to support Serra in a second round. He added that PSDB, being very weak in Rio, needs an alliance with PV there to benefit from a Fernando Gabeira candidacy for governor (Note: On January 26, the PSDB and PV announced Marcelo Fortes, PSDB's VP in Rio, would be Gabeira's running mate for governor of Rio state. End Note). Regarding possible DEM running mate Agripino, contacts in Natal told PO this month that he may not even win re-election to the Senate, due to his old-style image and lack of charisma. Serra would not get the needed boost in the Northeast if he were to tap Agripino, who was once implicated in a vote-buying scandal in Rio Grande do Norte. COMMENT 10. (SBU) With Dilma's recent ascent in the polls, Lula's unwavering popularity, and significant ground to yet cover between now and the PSDB's Convention in June, the factors that determine Serra's choice for VP candidate are still too fluid even for Serra himself to know who the best candidate will be. With the latest polls showing a single-digit margin between Serra and Dilma, speculation has even surfaced again that Serra might bow out in favor Neves as the PSDB candidate if he thinks the race too close at the end of March. Nonetheless, Serra is still the most likely candidate and his hunt for the strongest VP candidate continues. Given the long shot prospect of a Serra-Marina ticket and the politically inexpedient possibility of a PSDB-DEM coalition, current indicators point to a pure PSDB ticket. Neves' ambition, star power, and loyalty to the party make a Serra-Neves ticket a real possibility, in spite of Neves' public comments to the contrary. Neves' popularity in the Northeast (Lula's power base) and the votes Neves would bring Serra in Minas Gerais, the country's second largest voter state, would constitute a very powerful challenge to Lula's efforts to crown Dilma as his successor. End Comment. 11. (U) This cable was coordinated with and cleared by Embassy Brasilia and Consulates Sao Paulo and Recife. HEARNE