In early October I was talking to someone closely involved with the São Paulo PSDB leadership who said that the Workers Party (PT) of President Luis Inácio Lula da Silva was wrong if it thought the ongoing political crisis was running out of steam. Something would occur which would show Lula that he would not have a clear run at a second mandate next year. I assumed he was referring to some ambush the PSDB was preparing for just before next year's election. "Oh no, it will happen sooner, perhaps this month", he said.

Events in the last few days of October show he may have been speaking the truth. These events included: an article by Veja magazine claiming that Lula's election campaign had been partially funded by Cuba; a PSDB call for a Congressional inquiry (CPI) into the double entry bookkeeping method of the PT's campaign (known as Caixa 2); and a call by a leading PSDB member, Tasso Jereissati, for impeachment proceedings to be considered against Lula.

However, not everything is going as smoothly as the PSDB leadership might have imagined at the start of October. Its president, Eduardo Azevedo, resigned on October 25 after admitting that he had used the Caixa 2 and received US$ 312,000 (700,000 reais) to pay off a debt from Marcos Valério, the "banker" at the center of the scandal.

This has given the PT plenty of ammunition with which to defend itself in the "war" which some sections of the media say has broken out. Whether it is a real "war" or a phony war we can be sure of one thing - it will be a dirty one.

The cover of the current issue of Isto É magazine shows tanks blasting away at each other and a headline declaring that the truce between the PT and the PSDB is over. This seems a rather exaggerated portrayal of the situation.

My feeling is that these latest developments are just skirmishes in a long struggle which will unfold over the coming year. Instead of a head-to-head contest involving just two parties slugging it out, we will see a conflict of attrition fought on various fronts, with shifting positions and alliances.

Both sides have strengths and weaknesses. The PT, for example, is still strong and has survived the onslaught of the last six months surprisingly well despite the fact that it has lost several of its top leaders. It is true that some members, including Congressmen, have defected to the recently-formed radical PSOL party but the overwhelmingly majority has remained loyal to Lula.

The party elected a former government minister, Ricardo Berzoini, as its new president rather than the more left-wing rival candidate. However, the loser has been made a vice president and the party executive as a whole has moved further to the left.

Instead of being a setback to Lula, this is actually an advantage since the more left-wing element now no longer has anything to complain about and will be duty bound to support him. Since any radical leftist candidate, such as the PSOL's Senator Heloísa Helena, would not make the second round her supporters would have no choice but Lula. Even if they are disillusioned with Lula, it is hard to see them voting for a PSDB candidate, for example.

Another point in the PT's favor is the fact that Lula is its undisputed leader and no other PT candidate is conceivable at this moment. Lula can also use his position as president to his advantage and ensure the continued support of the tens of millions of poorer and working class Brazilians who identify with him.

Many, if not most of these staunch supporters, do not read the press and are uninterested in the ins and outs of the political machinations in Brasília. Brazilian voters do not necessarily hold past misdeeds against their political leaders. We only have to look at the likes of Antonio Carlos Magalhães, Paulo Maluf or Jader Barbalho who have been re-elected in the past despite serious allegations against them.

No Easy Ride for Lula Next Time

Despite these strengths, the PT is weak in several areas. First of all, Lula no longer enjoys the commanding lead he had before the scandal broke in May. This was when the first allegations appeared that the PT had been paying bribes to members of allied parties to ensure their votes in Congress. Polls show a big drop in his popularity and it is unlikely that he will ever regain his previous position.

He and the PT have certainly lost the votes of many members of the middle class and business sector which backed him in 2002. This means he will have a tougher time during the campaign. We will have no repetition of the last campaign when his lead was so commanding that all he had to do in the TV debates with the other candidates was turn up.

He will not be able to dodge the issue of corruption, particularly if there are further revelations or no satisfactory conclusions to the various Congressional inquiries.

He will also have to be careful not to appear holier than thou. The PT has lost any reputation it had of being more honorable and ethical than the other parties. Although individual PT members do not appear to have benefited financially from the corrupt goings-on, the party has been seen to be as unprincipled as any other.

Lula will have to persuade voters that the PT has learned its lesson and will be more responsible if it gains a new mandate. That will be a hard task since his running mate will probably be a candidate from another party, such as the PMDB or PSB.

This means any second Lula mandate will be another broad alliance and it is precisely this overstretched alliance which has caused the current crisis. The scandal has revealed that the glue which bound this odd combination of interests, which ranged from Communists to Evangelicals, was money.

At the same time, the PSDB is not in quite as strong a position as is often assumed. First of all, it is not the only party which will put forward a presidential candidate. Secondly, it does not have a definite candidate which the whole party is behind and, thirdly, the resignation of Azevedo has weakened it strategically and morally.

Although the PSDB will probably provide the opponent to Lula, should he seek re-election, this is not a foregone conclusion. The two other large parties, the PMDB and PFL, have strong potential candidates in Anthony Garotinho and Cesar Maia respectively.

The PFL provided Fernando Henrique Cardoso's vice president, Marco Maciel, during his two mandates but this does not mean it will automatically sign up this time. The PFL has been the main official opposition party along with the PSDB but has not always seen eye to eye with it.

The PMDB, although officially an ally of the government, has a large anti-government wing which will insist on the party putting forward its own candidate, probably Garotinho.

PSDB Faces Internal Battle Over Candidate

Unlike these other parties, the PSDB still does not have a definite or outstanding candidate. It has two big names - José Serra, the mayor of São Paulo, who lost to Lula in the last election, and Geraldo Alckmin, the state governor of São Paulo.

Opinions polls show that Serra would do better against Lula than Alckmin but Serra is still in his first year of office and would have to step down, thereby breaking a pledge to voters that he would complete his mandate. Alckmin, on the other hand, faces no such moral dilemma.

It is doubtful that voters would be particularly annoyed if Serra were to resign and run for the presidency again and there is a good chance that this will happen. This would not go down well with the Alckmin camp since Alckmin is not as experienced as Serra or as well known nationally. He is rather faceless and has little charisma.

However, there are signs that he is using (if not abusing) his contacts in the media to help gain the PSDB nomination. The current issue of Exame magazine has a flattering cover story claiming that the business sector would overwhelmingly back Alckmin against Lula.

How an obvious assumption like this merits such extensive coverage is beyond my understanding but it must have made Alckmin pleased. A week earlier, the São Paulo leisure supplement of Veja had a gushing cover story about Alckmin's photogenic wife and portrayed her as paragon of social virtue.

The resignation of the PSDB national president, Eduardo Azevedo, has not only damaged the party's reputation for probity but also upset the Minas Gerais section. The funds he received were for his campaign for the governorship of Minas Gerais in 1998.

Before this scandal erupted, the current governor of Minas Gerais, Aécio Neves, was one of the PSDB's rising stars and a possible presidential candidate. However, much of the financing of the scandal was done through two banks based in Minas Gerais, Banco Rural and BMG.

As a result Neves has lost his impetus and is no longer in the running. Neves has publicly criticized the "São Paulo power struggle" and has called on the party to tone down its attacks on Lula.

Unfortunately for Neves, Serra is now interim president until November 18 when he is likely to be replaced by none other than Senator Tasso Jereissati who raised the issue of impeachment. Sorting out the Minas Gerais faction is another issue the PSDB will have to deal with in choosing its candidate.

It may also find it has to defend itself against allegations of corruption during the administration of Fernando Henrique Cardoso. Members of the PT and other parties have suggested that bribes were paid to Congressmen to ensure their support for the constitutional amendment which allowed Cardoso to seek (and win) a second term of office.

They have also claimed that the privatization program, which the PT fiercely opposed, was marked by corruption. The PT has also been trying to revive allegations that senior members of the previous administration, including Cardoso, were involved in setting up illegal bank accounts abroad. Although these allegations are almost 10 years old and have been discredited this will not stop the PT using them if it suits its purpose.

In conclusion, the Veja article alleging that the PT received illegal funds from Cuba has been met with widespread skepticism even among the anti-Lula section of the press. The story is thin, to say the least, and one of the main figures alleged to have been involved in the operation is dead.

The two people who make the allegations differ over how much was involved, with one claiming US$ 3 million and the other US$ 1.3 million. Whether it is true or not, it is another example of the kind of "revelation" we can expect in the months to come.

John Fitzpatrick is a Scottish writer and consultant with long experience of Brazil. He is based in São Paulo and runs his own company Celtic Comunicações. This article originally appeared on his site www.brazilpoliticalcomment.com.br. He can be contacted at jf@celt.com.br.

© John Fitzpatrick 2005

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