Global Insight Perspective

Significance

Lula continues in the lead ahead of the October election despite his government having been implicated in the most serious corruption scandal in over a decade; recent polls indicate that Lula could win outright in a first-round vote.

Implications

With polls putting Lula in the lead, he remains the candidate to beat.

Outlook

Even if Lula wins re-election in October, his Worker's Party (PT) is likely to lose seats, forcing him to form a coalition government.

President Unveils Programme for Government

President Lula this week unveiled his governing programme for 2007-10, outlining his policy objectives should he secure a second term in the October vote. The introductory paragraph to the document states that: “[t]he name of my second mandate will be development. Development with income distribution and quality education”.

The first few pages feature a strongly worded attack on Brazil's “conservative opposition” or “neo-liberal opposition” indicating that the Lula camp regards Geraldo Alckmin of the Brazilian Social Democratic Party (PSDB).as his main rival. The attack aims to discredit the PSDB-Liberal Front Party (PFL) campaign strategy by attempting to undermine the former government of Fernando Henrique Cardoso's record on the economy and trying to combat Alckmin's attempts to portray himself as the more “ethical” candidate in the wake of the corruption scandals that have cast a long shadow over the second half of Lula's first term. On the first count, the document blames the former government for the economic crisis Lula inherited when he took office in January 2003, failing to mention that it was the continuity of the macro-economic policies adopted by the previous government that helped to restore stability. In terms of ethics, the programme alludes to corruption allegations involving the opposition, criticises the former government's privatisation policies, and portrays Lula's “moral authority” resulting from his status as a man of the people rather than a member of the traditional ruling class.

Over the following 30-odd pages the President's model of development with social inclusion is laid out, but unlike Lula's 2002 programme there are no concrete targets and most legislative proposals are restricted to the approval of bills already in Congress, such as the trade union reform or an education bill. In this sense, it is less ambitious than his 2002 policy platform that had included specific targets on areas such as the adjustment of the minimum wage, job creation, and land redistribution, as well as identifying five reform priorities: political; agrarian; labour; tax; and social-security. Although the corruption scandals that have bogged down Brazilian politics for over a year mean that political reform does feature prominently in the programme, there appear to be no plans to complete the tax reform started with the legislation approved at the end of Lula's first year in government or to implement other controversial reforms such as the passage of a bill to grant the central bank independence. Instead, much of the programme consists of general objectives that do not necessarily require the approval of Congress, such as greater investment (both public and private) in infrastructure and social projects.

A number of topical issues are either directly or indirectly referred to, including concerns about public security in the wake of the recent waves of violence in the city of São Paulo, the crisis in the farm sector, the corruption scandals, and criticisms of Brazil's relatively high real interest rates. The programme calls for lower rates, and further increases of the minimum wage above the rate of inflation, but at the same time recognises that faster economic growth is needed to reduce income inequality and pledges to control inflation, promote investment, and follow responsible fiscal policies

President Lula Remains the Favourite to Win

Meanwhile, a poll released this week showed support for President Lula's re-election bid increase at the expense of his main rival Alckmin. According to a CNT/Sensus poll, Lula was ahead with 51.4% of the intended vote (up from 47.9% in a poll at the beginning of the month and 44.1% in July), compared with 19.6% for Alckmin and 8.6% for Heloísa Helena of the small left-wing Party of Socialism and Liberty (P-SOL). The poll conducted between 22 and 25 August had a margin of error of 3%. A Datafolha poll published last week also showed Lula within reach of a first-round victory.

The latest polls will be a blow to the Alckmin camp, which had been hopeful that earlier polls showing a rise for both Alckmin and Helena meant that the race was tightening and that the chance of the vote going to a second round had increased. Alckmin's supporters had also been hopeful that the launch of the official TV and radio campaign 11 days ago would help to increase his national visibility and enable him to erode Lula's lead.

Outlook and Implications

Although Lula's programme does not feature any major new initiatives it does represent continuity. Investors will be pleased to see the government's commitment to policies such as inflation control, fiscal responsibility, the reduction of the debt-to-GDP ratio, and greater infrastructure investment reaffirmed. None the less, more could be done to make Brazil more competitive and attractive to foreign investment, and there will be relief that President Lula does not want to undermine the gains in terms of economic stability achieved in his first term.

The vagueness of some of the policy proposals and the limited scope of the reform agenda appears to suggest that Lula is working on the assumption that building a consensus in Brazil's Congress for reform will be more difficult in a second term. Although Lula remains popular, the PT is expected to be punished for its involvement in the scandals and secure fewer seats in the upcoming elections than it did in 2002. This means that he will be even more reliant on allied parties to form a governing coalition with a working majority. The perception that the PT will not fare so well also comes from the reduced prominence of its red star on the programme document, showing that Lula is attempting to distance himself from the party he founded, but which has taken much of the blame for the scandals.

Raul Dary

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raul.dary@globalinsight.com

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