US embassy cable - 04BRASILIA3048

UNCLAS SECTION 01 OF 02 BRASILIA 003048 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PGOV, PREL, SOCI, BR, Domestic Politics 
SUBJECT: LULA REACHES HALFWAY POINT WITH RISING APPROVAL 
RATINGS 
 
REF: A. BRASILIA 3031 
     B. BRASILIA 2447 
     C. BRASILIA 1048 
 
1. (SBU) SUMMARY.  After a two-year roller coaster ride, 
Brazilian President Lula da Silva has reached the halfway 
point of his term with his approval rating back up to 63%. 
His first year was marked by high approval numbers and 
unrealistic expectations, both by his administration and the 
public at large.  The second year opened with a dose of 
reality including economic pessimism, a scandal, and growing 
public impatience with the GoB's inability to deliver on its 
social agenda.  But as the economy has strengthened, Lula is 
regaining traction and early projections show him ahead of 
his likely challengers in the 2006 presidential race.  Lula's 
largest headache now is maintaining the governing coalition 
so that his administration can pass key bills and reforms 
through congress, and specifically to achieve greater results 
on the social agenda.  END SUMMARY. 
 
LULA'S APPROVAL UP TO 63% 
------------------------- 
2. (SBU) According to a just-released November 29 IBOPE 
survey, President Lula's approval numbers continue to tick 
upward after bottoming out in midyear.  Lula's personal 
approval rating now stands at 63%.  (By contrast, Lula was 
elected with 61% of the votes in October 2002, his approval 
briefly topped 80% in early 2003, and then fell to a nadir of 
54% in June 2004.)  The approval ratings for Lula's 
government are also improving, though they have always run 
lower than his personal numbers.  The government approval 
rating now stands at 41%, up from 29% in June.  The 
improvement is seen as primarily linked to Brazil's 
strengthening economy.  To the extent that Lula's problems in 
early 2004 were caused by a series of black eyes --from the 
"Waldomiro Scandal" to a brutal fight in Congress over the 
minimum wage to the "Red April" of land occupations by the 
Landless Movement (MST)-- Lula has benefited both from the 
fact that the worst of the bad news seems to have run its 
course, and from the fact that the municipal elections in 
October kept Congress out of session for months, leaving him 
free to legislate by decree and keeping opposition party 
leaders too distracted to attack him in floor speeches. 
 
LULA LEADS PROJECTIONS FOR 2006 RACE 
------------------------------------ 
3. (SBU) The same IBOPE survey shows that Lula has a strong 
lead in early projections for the 2006 presidential race.  If 
the election were held today, Lula would beat newly-elected 
Sao Paulo mayor Jose Serra (PSDB) by 42-33%.  During this 
year's mayoral campaign, Serra pledged to complete his term 
through 2008, but his 33% showing in this poll is ten points 
better than he did in the first round of the 2002 
presidential race.  According to the IBOPE poll, Lula would 
easily beat the other two PSDB stars: Sao Paulo Governor 
Geraldo Alckmin (47-15%) and Minas Gerais Governor Aecio 
Neves (49-9%).  PMDB gadfly Anthony Garotinho polls between 
8% and 16% in the various projections --about how he fared in 
the 2002 race. 
 
ECONOMY MAY AFFORD HEALTHY MINIMUM WAGE HIKE 
-------------------------------------------- 
4. (SBU) Lula's popularity has recovered mostly on the 
strength of an improving economy, as GDP growth and 
employment have showed significant strength in recent months. 
 2004 GDP growth will likely be about 5% (ref B).  One way 
the president may be looking to consolidate both economic 
optimism and greater popularity is by deciding sooner rather 
than later on the size of the annual increase in the minimum 
wage.  Lula reportedly hopes this week to approve a hike from 
the current 260 to possibly as much as 300 reals per month. 
(Comment: While still a long way from Lula's unrealistic 
campaign promise to double the real minimum wage during his 
first term, the increase would be a significant 8% above 
inflation.)  Proposing a healthy increase before Congress 
comes back in mid-February could avert a repeat of last 
April's political blood-letting when the opposition and many 
in Lula's own Workers' Party (PT) bitterly opposed his 
minimum wage adjustment proposal, which was only 1.2% above 
inflation (ref C).  Strong 2004 fiscal results make a bigger 
adjustment possible. 
 
PMDB AND PPS PULL OUT OF COALITION 
---------------------------------- 
5. (SBU) In the past three days, two parties have pulled out 
of Lula's coalition --the large PMDB and the medium-sized 
PPS-- to better position themselves in opposition to Lula's 
PT in advance of the 2006 elections (ref A).  Either or both 
of these parties may fracture in the coming weeks, meaning 
that it is too soon to assess how many Congressional votes 
Lula will lose by their defections.  But the early math 
suggests the administration should be able to cobble together 
narrow majorities on most, but perhaps not all, votes.  The 
two parties hold three cabinet posts (Communications, Social 
Security, and National Integration), and by January or 
February, Lula will have to decide whether to swap out those 
three ministers and whether that becomes part of a larger 
cabinet shuffle. 
 
CONGRESS TO PASS BUDGET AND GO INTO RECESS 
------------------------------------------ 
6. (SBU) Congress had a subpar year, failing to pass or make 
much progress on most key bills and reforms on its agenda. 
Congress spent the first half of the year in bitter partisan 
fights over how to handle the "Waldomiro Scandal" and the 
minimum wage.  In July, legislators returned to their states 
to stump for their parties' candidates in the October 
municipal elections.  And after the elections, the PMDB 
--caught up in its internal disputes-- blocked committee and 
floor votes for weeks.  By year's end, the Joint Budget 
Committee will have passed its mandatory budget, while key 
sections of the Judicial Reform passed in early December. 
But left undone and on next year's agenda are:  labor 
reforms, final pieces of the 2003 tax and pension reforms, 
Public-Private Partnerships (to fund infrastructure 
projects), the Biosafety Law (to regulate biotechnology), and 
the Bankruptcy Law. 
 
COMMENT - "THIS COUNTRY NEEDS DEVELOPMENT" 
------------------------------------------ 
7. (SBU) Last week, Lula held the final full cabinet meeting 
of the year, a strategy session to close the book on the 
first half of his term and look forward to the next two 
years.  He set the tone in his opening remarks: "After 
decades of stagnation, this country needs development".  When 
Congress returns in February, it will choose new leadership 
in both the Senate and Chamber and in all the committees. 
These changes will be closely watched for clues to evolving 
dynamics in the administration and congress and to see if the 
new cabinet lineup and congressional leaders are able to 
improve the administration's efficiency and its congressional 
floor tactics, which ranged from fair to poor over the past 
two years.  Beyond the hike in the minimum wage, Lula is 
clearly animated to turn greater attention to the social 
agenda --everything from road and port improvements to 
strengthening the Zero Hunger program-- and economic growth 
may give him a bit more maneuvering room to do so.  He told 
the cabinet meeting that "We have two years to go.  It's time 
to reap what we sowed (i.e., after two years of fiscal 
austerity).  Today, everything starts to change." 
DANILOVICH