# From Revolution to Rouba Mas Faz?

## Lula's Reelection Campaign in Brazil

By Scott Desposato

President Lula came to office promising mudança, or change. He delivered, but in a very unexpected way.

Many observers were hopeful that the inauguration of Luiz Inacio da Silva as President of Brazil would usher in a new, modern, and socially just era of Brazilian politics. His personal history of labor militancy and his party’s reputation for disciplined, progressive, and clean governance suggested a dramatic departure from Brazilian politics as usual.

Lula’s rise from poverty to become president of the fifth largest country in the world is a well-known and inspiring story. Born into poverty in the northeastern state of Pernambuco, Lula came to São Paulo with his family at the age of seven. With just a fourth grade education, he entered the workforce at 12 years old, and eventually became a metal worker. During the military regime, he rose to become president of his metal workers’ union. In 1980, he was a founding member of a new Workers’ Party (PT). Although imprisoned by the military, he continued his activism, playing a leading role in the direct elections movement. He was elected to his first public office, federal deputy, in 1986.

The party he helped found—the PT—is unique among major Brazilian parties. Brazil is widely known as “the anti-party system,” beset by party-switching, corruption, and personality politics. The PT offered a new and ultimately very successful model for Brazil. The party is programmatic, has a large mass following and dedicated network of activists, is highly disciplined, and avoids public dissension. And the PT has projected a strong and clear message against the Washington Consensus or neoliberal model of development, opposing debt repayment, agreements with the IMF, privatization, and globalization.

Lula spent the last decade running for president and losing. He has been the PT’s presidential candidate four times (1989, 1994, 1998, 2002). He ran a close second in 1989 to Fernando Collor, but was easily defeated twice by Fernando Henrique Cardoso (1994 and 1998). However, in 2002, the PT chose a new strategy. A major component was a complete transformation of Lula's appearance and discourse. Gone were the sweaty t-shirts and anti-capitalism rants, replaced with designer suits and courting trips to Wall Street, and promises to comply with IMF agreements. He continued to criticize the neoliberal model, but vaguely promised a third way, which would start from scratch. His campaign improved as the outgoing Cardoso administration's popularity slipped during an economic slowdown, and Cardoso’s successor, José Serra, did not have the charisma to overcome this electoral-economic deficit. Lula won easily in a second round with 61 percent of the vote.

Post-election uncertainty surrounded the questions “which Lula had won?” the anti-IMF labor leader, or the pro-business pragmatic? In a prosperous year, he might have dodged the question and enjoyed a prolonged honeymoon period, but 2003 was difficult for Brazil. Inflation was threatening, Brazil’s debt was up to $250 billion U.S., or more than 50 percent of GDP, and fears of capital flight threatened to downgrade Brazil’s bond ratings and push up the cost of borrowing. Lula responded, as promised, with mudança. But the change was in his politics and those of his party—not in policy. In a dramatic departure from his twenty years of activism, he chose the neoliberal response to crisis. He appointed fiscal conservatives to key posts—the Finance Ministry and the Central Bank—and made fiscal discipline and inflation-fighting top priorities. Brazil voluntarily exceeded the IMF’s budget surplus targets—4.25 percent versus the IMF’s 3.75 percent. And in an even more obvious about-face, Lula chose to push pension and tax reform. Both sorely needed attention. Brazil’s inequitable pension plan provided unsustainably generous funding to public servants after short careers, and relatively small payouts to private sector workers. Brazil’s tax system is a complex mess of state and federal income, property, and value-added taxes. Lula proposed to raise the retirement age and qualifications, cap public pensions, reduce inheritability, and implement other cost-saving measures. On taxes, his proposal was less bold but still a step forward: simplifying and unifying the states’ 27 value-added taxes into a single VAT. Both the pension and tax reform were similar to initiatives pushed by the previous Cardoso administration, and fiercely opposed by Lula and the Workers’ Party. This was not the only time Lula was to essentially follow Cardoso’s lead. Most of Lula’s fiscal and social programs were closely modeled on policies previously introduced by the Cardoso administration, including his hunger and poverty program, land reform, environment, and foreign policy. The dramatic about-face in policy did not go unnoticed, generating discord within the Workers’ Party. The PT’s internal divisions are real and quite heated, but public disagreement is rare, especially when the party decides to present a united front. In Congress, PT legislators that disagree on policy will occasionally abstain on roll-call votes—subtly signaling opposition. But Lula faced rare public criticism from his own co-partisans. Ironically, the breaking point was Lula’s own pension reform package. Several PT deputies and a senator voted against Lula’s reform proposal, and were subsequently expelled from the party. Lula also faced opposition from social sectors normally closely allied with his party. Public employees have traditionally been strong supporters of the PT, but in response to pension reform, they demonstrated outside Congress, eventually vandalizing the building. The landless movement stepped up occupations of property in response to slow land reform, and labor protests accompanied rising unemployment. However, in spite of having a divided minority and some social opposition, Lula has been fairly effective at advancing his policy agenda through Congress. A disciplined majority of the PT and allied parties closed ranks in support of his agenda. In addition, Lula found votes for his proposals among the members of the PMDB, a centrist “catch-all” party. In exchange for pork—public works projects in their constituencies—the PMDB provided the votes for a three-fifths majority—enough to change the constitution. Finally, Lula successfully leveraged other actors’ influence when possible. For example, he symbolically delivered his proposed pension and tax reforms by walking to the Congress building with all 27 governors in tow. Governors in Brazil wield significant influence with their legislative delegations, and their presence was an important signal to legislators. Fiscal discipline eventually solved the economic crisis, but with serious short-term costs. Growth stalled, wages fell 6 percent, unemployment rose to 11.5 percent, and Brazil’s economy shrank 0.2 percent. The central bank kept interest rates high to head off inflation, putting pressure on businesses, agriculture, and consumers. The government also faced a corruption scandal. An aide to Lula’s chief of staff, José Dirceu, was found to have solicited campaign contributions from an illegal lottery boss. The scandal was never directly linked to Lula, and the alleged acts took place before his administration was installed, but it did tarnish the PT’s “clean government” image. A stalled economy plus disappointment with the PT’s about-face on policy contributed to a decline in popular support for the administration. From a record high 86 percent approval rate upon taking office, Lula’s approval rating fell to 60 percent by May of 2004 (see Figure 1). His net support (positive-negative evaluations) fell from almost 80 percent to about 15 percent during the same period. But by late 2004, an economic recovery was well under way. GDP grew by 5.2 percent that year, and an estimated 2.6 percent in 2005. Unemployment slipped below 10 percent, and inflation was held to a manageable 7.6 percent. The recovery plus a fading away of the campaign finance scandal combined to a rebound in popular support for Lula, with an enviable 60 percent approval and over 30 percent net approval by late 2004. In a December 2004 simulated election survey, Lula was projected to easily win re-election against any of the likely challengers. Thus, by early 2005, the PT’s re-election seemed reassured. The president was popular, the economy was growing, and the PT had “stolen” the center-right’s policies. It was hard to imagine a compelling message that the opposition could use against the administration. Pre-candidate evaluations put Lula 20 percent ahead of the leading opposition candidate, José Serra. However, the PT’s mudança was not yet complete. The party had transitioned from opposition to government, and from left to center-right, but had one more major change in store. In 2005, a corruption scandal was tied directly to the president’s closest advisors. The scandal rocked Brazil, tarnished the president and his party, and has opened at least the possibility of an opposition victory. The scandal broke when two businessmen seeking government contracts were asked for kickbacks by the procurement director of the mail service, Maurício Marinho. They secretly taped the encounter, during which Marinho directly implicated PTB president and Lula ally, Roberto Jefferson. Initially Senator Jefferson tried deflecting prosecutorial attention with vague hints of a grand corruption scheme and implicit threats to “tell all.” However, once cornered, he started naming names, and the scheme he described was impressive in its scope and audacity. Barry Ames wrote in 1995 that “pork buys deputies”—that legislators’ support can be bought by building bridges, roads, medical clinics for legislators’ constituencies. Apparently, cash works well too. Senator Jefferson reported that many deputies in the governing coalition were on the president’s payroll, receiving side payments of$30,000 R per month in exchange for their support. The funds were skimmed from state-owned companies and through kickbacks from government contractors, then funneled to legislators. In exchange, the “bought” legislators were to provide loyal support for the president’s legislative initiatives. Dubbed the mensalão or, literally, big monthly, alleged recipients included PT deputies as well as members of allied parties. Apparently, opposition legislators were also offered payments if they switched party into the president’s coalition. More damning, Jefferson named Lula’s chief of staff, José Dirceu, as the puppet master.

A bumbling administration seemed determined to look as guilty as possible. The president quickly gave full support to Jefferson. When it became clear that the allegations were probably true and Congress prepared to create an investigating committee, the administration resisted. Lula tried to buy enough congressional votes to prevent the investigation by releasing millions in federal funds to deputies’ constituencies. PT legislators that supported the investigation were suspended from the party for 60 days. To the parties’ credit, the investigation proposal received multi-party support, including members of the governing coalition (PT, PMDB, PP, PL, PCdoB, PTB, and PSB). The administration’s efforts to squash the inquiry failed, and many of the allegations were substantiated in a subsequent investigation by the Federal Police. Eventually, Lula apologized publicly to the Brazilian people in December of 2005, claiming ignorance about the mensalãoscheme, and promising to punish all involved.

The scandal disillusioned and depressed Brazil. In a 2004 Latinobarómetro survey, only 37 percent of Brazilians agreed that “Democracy is preferable to any other kind of government.” Support for Lula and his government slipped as well. His positive approval rating dropped below 50 percent and net support fell from 30 percent before the scandal broke to 2.5 percent by November of 2005 (see Figure 2). More importantly, for the first time since taking office, Lula was projected to lose a reelection bid in 2006. Before the mensalão scandal, Lula had a projected 20-point victory over the leading opposition candidate, and much higher margins against other possible challengers. By November 2005, Lula’s projected victory had turned to a projected defeat, with José Serra predicted to defeat Lula by 3.9 percent of the vote.

The decline in Lula’s popularity breathed new life into the opposition’s hopes to defeat Lula in 2006. Apparently, Lula had only two possible campaign strategies: he could either claim incompetence, being unaware of the massive support-buying going on all around him, or he could admit corruption. Neither is a compelling campaign message.

However, Lula is proving incredibly resilient. The most recent polls (February 2006) show his surprising recovery (see Figures 1 and 2), and even project a 15 point victory over his leading opponent. His recovery has several sources. First, Brazil’s macro economy still looks solid. Unemployment fell to just 8.5 percent with substantial job creation. The government’s inflation-fighting discipline may have been a bit too strict, but lower interest rates should boost growth in 2006. Second, Lula has implemented successful poverty-fighting programs, including a basic welfare program and a substantial increase in the minimum wage.

How do these accomplishments “make up” for the corruption scandal? A popular saying in Brazil is—he steals, but he gets things done. Historically, this has only been used to describe clientelistic old-style Brazilian politicians, but now it may be the PT’s reelection theme. From the perspective of the poor, the PT administration may have been corrupt, but it has also delivered. Lula’s programs—though largely continuations of the previous administration—have yielded results, improving the quality of life for many Brazilians. Further, his personal charisma and impoverished origins resonate with the poor. For many voters, Lula’s behavior doesn’t actually look that bad. Many see the entire political class as corrupt, and recent scandals in Congress have served to reinforce that image, including a money laundering scheme involving a politician’s aide caught at the airport with \$100,000 U.S. in his underwear. Compared to these, the administration’s buying support for substantive policy proposals doesn’t look quite so bad.

One side effect of the administration’s policies and scandal is increasing political polarization between rich and poor. Figure 3 tracks approval-disapproval scores by income, for 2003-06. Net approval for each of the three groups tracks together very well for Lula’s first two years, showing the honeymoon period of 2003, the decline in support with the economic slowdown and Waldomiro Diniz campaign finance scandal, and rise in net support during the economic recovery. However, the three groups diverge in response to the mensalão scandal. Net approval among poor Brazilians slips, but remains positive—poor Brazilians have consistently supported Lula. Middle-class voters slip into disapproval, with net approval just below zero. And net approval plummets for more affluent Brazilians, down to almost minus 30 in December of 2005. But as more than 60 percent of Brazilians fall into the poorest category, rouba mais faz should reelect Lula in October of 2006.

The opposition PSDB currently has just a few options for the campaign. Criticizing PT policy or flip-flops will be difficult, because the PT largely adopted the PSDB’s own policy program. The opposition can attack Lula on the corruption charge. While Lula looks very resilient right now, the right campaign message might turn public opinion against him, or at least make the race more competitive. There are a few wild cards that could change things quickly. One is the economy. The latest figures show a rise in unemployment and slower GDP growth. A significant slowdown in the economy would hurt Lula’s chances, but we can expect the administration to do everything in its power to avoid any economic disruption. The tight fiscal discipline of the last three years will give Lula room to spend more this year on public works and programs that are welcomed by the poor. And we can expect to see interest rates lowered to encourage growth and facilitate consumer spending. Another possibility that could derail Lula is additional corruption scandals. Should Lula be tied directly to themensalão or another scandal, that might hurt him. But there don’t appear to be many of these wild cards near the top of the deck.

Regardless of the electoral outcome in October, what will be the impact of the dramatic mudança in Brazilian politics? For Brazil, the first Lula administration has certainly had mixed results for the consolidation of democracy. On a positive note, the PT has shown that there is a broad consensus among elites that fiscal discipline and markets work, suggesting a maturation of political discourse and the expectation that Brazil may create the conditions for stable, long-term growth. The PT’s fiscal discipline has worked, and has improved the lives of many Brazilians.

On the other hand, the PT’s abandonment of its historical discourse won’t help consolidate Brazilian democracy. In Brazil, party positions and identification are not clear, and its identity is unstable – except for the PT. That party had promoted a clear policy message in the past: opposition to the neoliberal economic model. They promptly abandoned that message upon taking office, replacing it with a vague centrist ideology wrapped in progressive adjectives. This may indicate a maturation of Brazilian politics to a narrow, centrist, capitalist ideology. Or it may indicate that Brazil still is the “anti-party system.”

Scott Desposato is an Assistant Professor in the Department of Political Science at the University of California, San Diego, and a Harvard Academy Scholar. His research focuses on democratic institutions in Latin America and the United States.