Teleconference

High Drama in Brazil: The Lula Ruling and Its Aftermath

Wednesday, January 24 was a day of high political drama in Brazil, as a federal appeals court issued its ruling on the conviction that sentenced former President Luiz Inácio Lula da Silva to nearly 10 years in prison for corruption and money laundering.

As legal and political analysts expected, the appeals court upheld the lower court’s decision. It is less clear, however, how such a ruling will impact Lula’s plan to run for the presidency this autumn. Participants joined us BY PHONE immediately following the announcement of the court’s decision, as three experts discussed the implications for Brazil’s political landscape during a critical election year.  

Transcript of Discussion: 

 
Moderator:  Paulo Sotero
January 24, 2018
4:05 pm CT
 
Coordinator: Welcome and thank you for standing by.  All participants will be on listen-only mode until the question and answer session of today’s conference.  At that time if you would like to ask a question please dial Star 1.  Also today’s conference is being recorded.  If you have any objections you may disconnect at this time.  I’d now like to turn the call over to your host, Paulo Sotero you may begin.
 
Paulo Sotero: Good afternoon to you all.  Paulo Sotero here, Director of the Brazil Institute at the Woodrow Wilson Center.  An important decision was just announced by the Federal Court of Appeals in Porto Alegre regarding the case involving accusations of passive corruption and money laundering against former President Luiz Inácio Lula da Silva and others.  And as you probably know the decision of the three judges in those panels was to affirm the verdict announced last July by Judge Sergio Moro in the first instance in Curitiba and modify the sentence adding to the 9 1/2 years he had of prison that he sentenced President Lula to, to 12 years and one month.  
 
Obviously this is a momentous decision in Brazil after all Lula was the most popular, one of the most successful presidents in Brazil’s history.  As you know, the Lava Jato case, which is this investigation, has been going on for four years.  This is probably a watershed moment.  The decision and the way it is presented and it was decided probably narrows a bit the road for appeals and creates a new situation here.  It was widely expected by the way that the decision would be what it was.  
 
I have with us here two dear friends and experts, [first is] Oscar Vilhena Vieira.  He is the Dean of the Getulio Vargas Law School in São Paolo, currently a global fellow at the Brazil Institute working on a book on the 30 years of the Brazilian constitution of 1988.  We also have with us on the line Matthew Taylor, Associate Professor of Political Science at American University, a former fellow of the Wilson Center.  And I would like to ask Oscar given the nature of this decision to go first and give us his first impressions about the decision itself and its implications.  Oscar go ahead.  
 
Oscar Vilhena Vieira: Hi, good afternoon.  It’s obviously a sad moment to have a leader of this magnitude being convicted by crimes of corruption and money laundering.  Legally speaking however it’s important to understand that this process is about a large operation that took place between the two governments of the PT involving mostly kickbacks coming from contracts with Petrobras.  And Lula has been convicted in July, as you said, by first instance justice, Judge Moro in Curitiba.  And now his sentence has been maintained by the second instance courts in Porto Alegre.  
 
In fact the sentence has not just been maintained, the conviction.  However the penalty has increased for 12 years.  The consequences are in two directions.  Obviously there is the criminal process.  Lula has the right to appeal.  There is a very singular appeal to the court itself called embargo de declaração.  In fact, this is an appeal where the lawyers can ask the court to answer some questions that eventually were not touched by the sentence.  Or that there is some incongruency inside of the sentence.  So there’s a short period of time to file this appeal and the court has to answer very rapidly also.  
 
This has no major consequence.  I think the important consequence is that until this appeal has not been evaluated by the court, the court itself, that took the decision today, the sentence cannot enter into force.  So Lula is not immediately imprisoned because we have two weeks until the evaluation of this appeal by the court.  After this evaluation he has two other appeals.  One that goes directly to the Superior Court of Justice and another one to the Supreme Court.  They have to be filed concomitantly.  
 
And they are not supposed to not be used to revoke the facts that were decided today.  That only they can question if the judges decided against the federal law at the Superior Court of Justice or against the Constitution.  So it’s an analysis about the legality.  The validity of the interpretation conferred by the court today to the statutes.  
 
So the problem is that these appeals will take a while until they can be decided.  And they do not suspend the validity of this decision that was taken today.  So if nothing changes immediately in a short period of time yes Lula can be sent to prison.  Brazil has a very liberal legislation.  You can substitute prison by other means.  But then the sentence has to be lower than eight years.  From four to eight years of sentence you could start in what we call open system.  So you sleep in a special prison and you can leave to work.  And if it’s less than four years and if you have never been convicted before you can go to home sentence.  
 
So this is not the case of Lula.  It was more than 12 years so he has to begin in prison.  So this is the criminal side of the process.  If Paulo allows me I will just say a little bit about the electoral consequences and then I’ll pass it to Matthew.  
 
The Brazilian legislation adopted in 2010 regarding eligibility, it establishes that a person who has been convicted by a crime against the public administration and this sentence has been confirmed by a second-tier court which happened today.  This person cannot run for office.  So then there is a question of the timing of when the decision will happen.  The political parties have until August 15 to register their candidate.  And then there will be a period for challenging this list of potential candidates and the court will decide about them.  
 
So if we imagine that the Partido dos Trabalhadores [PT] will put Lula as its candidate will register him as its candidate his name will be challenged and the superior electoral court will have a short period of time to decide.  So we are imagining that this would happen in the first or second week of September.  
 
So the consequence is that the probabilities are very high that in September Lula’s name will be taken off the list of the candidates.  He obviously would appeal to the Supreme Court and then it’s another decision.
 
Paulo Sotero: Okay Oscar thank you very much.  I will ask now Matthew Taylor to give us a little bit of the political implications. Obviously, as you probably know, the first round of the presidential election in Brazil is scheduled for I believe October 7.  So time here is very important and I would like to ask Matthew then to give us his assessment of the political scene of President Lula’s position, the PT, in light of this decision.   
 
Matthew Taylor: Okay well thank you Paulo and Oscar for your very useful comments.  I think the first thing I would just say is even though this was an expected decision it’s really shocking nonetheless.  And it’s a very sad day and a sad end to a really iconic politician.  I think vis-a-vis the politics of it, Oscar just pointed to the likelihood that this is going to drag on for some time at least in the electoral courts and in the electoral scenario for this election year.  And there are good reasons for that.  
 
I think all sides are going to try to use this decision for political advantage.  Lula obviously hopes to gin up support and sympathy for himself.  But I think more importantly there’s a very strategic decision by the worker’s party to use this decision as a way to build support for the party especially among the left.  
 
And, you know, as we’re looking forward to the election in October the PT, you know, is potentially facing a drubbing by keeping Lula in the news and potentially raising doubts about his removal.  You know I think that there’s a solid third of the Brazilian population who they may attract, be able to attract, and even if they are unable to vote for Lula because Lula is removed by the electoral courts they can still vote for the PT.  So I think that there’s a solid political calculation there.  
 
But what we don’t know is what their backup plan is.  And, you know, recently there had been speculation that Haddad could be, the former Mayor of São Paulo, could be a candidate.  He has been, you know, accused of some illegal campaign financing of his own.  It’s hard to know if he will also rise in the polls.  
 
And then you could also imagine that the PT could if Lula were not permitted to participate and they couldn’t find a good candidate perhaps boycott.  So this is the left.  This is the PT.  
 
On the right and the center right it’s hard to know how this is going to play out.  I think that the longer that Lula remains in the fields the better for the right.  They can sort of place themselves as the polar opposites to Lula.  
 
But, you know, I think a lot will depend on how people behave today.  There are demonstrations percolating in Sao Paulo and other cities.  It will be interesting to see how that plays out.  But I think that there’s still an enormous amount of uncertainty there.  
 
I would just wrap up by pointing out two other things that I think we need to be thinking about.  One is I thought it was very interesting in the decision today and I’m sure Oscar has a reaction to this.  But I thought it was very interesting the degree of rancor in the judge’s comments on the case.  And the rapporteur in particular took a long time to respond to criticism of the court that had been coming from the left and to try to demonstrate why that criticism was ill founded.  
 
The other thing I think we need to be thinking about though is that there is this second, Oscar mentioned the criminal and the electoral consequences.  As we’re thinking about the electoral consequences this is going to be punted up to the electoral court.  And I don’t expect a major change in electoral ineligibility but there is always the possibility of some surprise there.  So I’ll wrap it up there and maybe we can talk more later.  
 
Paulo Sotero:  Well, Oscar and Matthew, the last few days there was some indications of problems in the left coalition that was prepared to denounce this sort of outcome and say that it is an election without Lula as a candidate should be considered a fraud.  But lately there is a variation on that.  Even members of the coalition had started to voice some dissatisfaction with that calculation.  I just want to ask [you about this].  We'll ask the callers on line to prepare for the first question and please dial Star 1 and then unmute your phone. But [Matthew and Oscar] just if you can very briefly answer this question and then we go to the callers.  
 
Matthew Taylor: Oscar I’ll take that unless you’d rather jump in.  
 
Oscar Vilhena Vieira: Go ahead.
 
Matthew Taylor: I’ll go ahead.  I mean, I think you raise a good point Paulo.  The big issue I think is that the other candidates on the left are much less well known than Lula.  And so the longer it takes them to become candidates the less of a chance they have.  So the prospect of Lula actually spending the next eight months running for a seat that he probably will not be allowed to hold is causing certain despair.  
 
And so, you know, if you’re Ciro Gomes and you have actually gone out there and said I will not run if Lula is running you’re in a very difficult position.  And so, as they say in Portuguese, you’re probably going to begin to espernear, you’re going to begin to demonstrate a certain unwillingness to put up with a campaign that is destined to go nowhere.  
 
So I think you’re absolutely right Paulo that there’s likely to be further efforts by candidates and especially the less well known candidates to fish or cut bait to make a decision about who the candidate is, who will represent the left.  And of course you could have multiple candidates but they need to begin their campaign soon and having Lula there as a potential candidate is going to damage the left or the prospects for the left.  
 
Paulo Sotero: Okay Matthew thank you very much.  I have two callers on line waiting.  Could you please identify yourself and ask your question and then mute your phone?  Hello.
 
(Estelita): Hi.
 
Paulo Sotero: Hi go ahead.
 
(Estelita): Hi this is Estelita.  I’m with Folha de São Paulo.  I’m a correspondent here in Washington.  I would like to hear from you especially from Professor Taylor about the legitimacy of the election with this decision today.  There’s a lot of discussions on this as the judiciary meddling in the electoral process and the possible damages to Brazilian democracy with this judgment especially from Lula supporters.  But today actually Judge João Pedro Gebran, the first vote today, said it’s not the trial itself that weakens the democracy but the use of illegal resources by parties and politicians that imbalance the voting process.  
 
So I would like basically to hear from you, is the Brazilian democracy weaker with this decision in the eyes of the world or on the contrary?  
 
Paulo Sotero: Thank you.  Who wants to take this?  Matthew.  
 
Matthew Taylor: Well I will take it but I will ask Oscar to answer it as well because I think ultimately this is a judgment call that Brazilians will make.  But, you know, as a foreigner looking at this there’s certainly been a great deal of controversy about Lava Jato and the unbalanced way in which it appears to have targeted politicians from the left.  The obvious response is that it was the PT that was governing at the time of the scandal.  And so it would make sense that the PT and its allies, the PMDB and the PP would be the one suffering the most here.  
 
I do though, you know, think that there’s also an element here which is as simultaneous as Oscar really very well pointed out this is both a simultaneous political and legal battle.  And the PT has been very skillfully working down both of these paths simultaneously.  Prosecutors and judges obviously can only go on one path.  
 
But, you know, I guess overall this has been a very difficult five-year period for Brazilian democracy.  And it appears that, you know, there’s plenty of blame to go around.  But I would say that there is no indication that this trial has proceeded in any way that was particularly partisan but rather has kind of followed the evidence where it led.  So I’ll leave it there but I think it’s ultimately a judgment call by Brazilians.  
 
Paulo Sotero: Oscar go ahead.  
 
Oscar Vilhena Vieira: Yes okay.  So it was very interesting that the judge in the end of the trial made these comments.  The comment that those responsible for Lula not being on the election list is of the criminal judges.  The responsibility of those who were involved in the corruption.  So in a sense, the judges are trying to take the responsibility off their shoulders.  They were just making their job, the case arrived there, the case was well proved and there was no way out instead of convicting him.  
 
We don’t know how the repercussion will be in society.  It is a fact that the Operação Lava Jato, even though it is hitting several political parties. You have members of PMDB, as former President of the House Cunha in prison, and several members of the elite of the industrial and engineering company.  However the impact over PT is larger because it really hurts its major leader.  
 
So I don’t see as a conspiracy against democracy.  However the operation obviously is hurting much more the left than the right.  And also there are other processes moving on regarding leaders of PSDB and other parties which are moving much slower.  So this gives force to the perception that justice is not being implemented equally at least at the same pace for all of them.  
 
However, I think the Brazilian democracy has shown during these 30 years enormous resilience.  And we will see in the election political parties will reorganize their forces for the election.  Members of the left will certainly try to occupy the space of Lula and we will have a difficult year.  But I think in the end the election will take place and people will accept its results.
 
Paulo Sotero: Okay thank you very much Oscar.  Next caller please identify yourself and ask your question and then mute your phone.
 
(Julie Abrams): Yes this is Julie Abrams, Luminar Brasil, an impact investment fund and direct investments.  My question is for investors looking to have a social-environmental impact along with return and looking at Brazil who aren’t as familiar with the details of Brazil. What do you advise?  Should they stay on the sidelines and stay away or should they invest and how do you give this overview to them where, you know, it’s a very complicated political situation obviously?  Thank you.  
 
Paulo Sotero: Who would like to take this?
 
Oscar Vilhena Vieira: Go ahead, Matthew.  
 
Matthew Taylor: You go ahead.
 
Oscar Vilhena Vieira: I don’t see any changes from the last few months regarding the expectation of stability.  Most people knew already in advance these judges would maintain the decision not because they are partisan but because they have been maintaining most of the decisions of Judge Moro.  They are hardliners.  They are harder than him (unintelligible).  So I think it was already expected.  
 
And this makes obviously Lula’s candidacy more difficult.  He still has some chances. The superior electoral courts [could] in some way exclude from the sentence the consequences of the electoral process, but I think this will be very hard.  So the future probably will see as I said in my last question that the other parties will rearrange. They are trying to agglomerate now the small parties to gain time in television and we will have a candidate from the center right and Alckmin is probably the one in better position for that.  
 
And on the center left we will have to understand how Ciro Gomes, Marina Silva and eventually another figure from the PT party will appear.  But from where we see now we will still have an election being disputed by a center-left and a center-right in the future.  
 
Paulo Sotero:  Okay Oscar do you want to add to that?  
 
Matthew Taylor: I will add, this is Matthew--  
 
Paulo Sotero: Matthew I’m sorry.
 
Matthew Taylor: Not to worry.  Julie, I took your question to be about sort of social impact and if I were to take one lesson away from the past few years in this investigation it’s that most political parties in Brazil are compromised.  And there’s pretty strong evidence of corruption associated with political campaign finance across the board at least among the major parties.  
 
And so, you know, when we think about the fact that Bolsa Familía is a fraction of what we think the estimates of corruption are, the cost of corruption is in Brazil, and you’re thinking about social impact, I would be looking at which candidates, what sorts of promises are candidates making about the rule of law.  We’ve seen a certain effort to weaken and water down law enforcement institutions in Brazil under the current administration.  And I think going forward it would be interesting to see what sort of proposals candidates have for carrying forward some of the important reforms that are needed to enhance accountability in Brazil.  
 
Paulo Sotero:  Okay and next caller please go ahead.  Hello.  
 
(Sarah DiLorenzo): Hi I’m not sure if this is me.  Can you hear me?
 
Paulo Sotero: Yes, go ahead.
 
(Sarah DiLorenzo): Hi this is Sarah DiLorenzo from the Associated Press.  I think maybe Oscar you just answered this but I’m going to ask it again just to make sure that I got it.  Is there any scenario under which you see Lula being able to run? And then more broadly I’m wondering, you now, which is the more destabilizing prospect that he’s barred from running or that he’s allowed to run?  And are you expecting major protests and instability?
 
Oscar Vilhena Vieira: Okay so I will keep on my first part of the question first.  Is there any legal possibility that he is allowed to run, okay?  There are two alternatives.  The first one is an appeal to the superior electoral court, electoral appeal so it suspends the part of the sentence that impedes him to be a candidate.  Just for you to have an idea from the more than 5,000 mayors elected last year about 140 were convicted in the second instance.  And they were granted this appeal to be candidates and were elected.  
 
However, the situation of Lula is much more difficult because the kind of crime that he was sentenced – corruption and money laundering, is different than most of the crimes that these mayors were convicted.  So I don’t think that he will have a good chance to receive an authorization from the Superior Electoral Court to run.  It’s my perspective that the court will be very strict on this.  
 
And then he also has chances on the Supreme Court – the chances of appealing I’m sorry.  And at the Supreme Court if we take the record of the decision of the Supreme Court about this issue, about the validity of the Lava Jato law and the validity of the specific article that forbids a person who has been convicted of a second instance to run, I also would say that there is a consistent majority of the court that will not allow him.  
 
We could have, and that’s my final point on this, it’s an immediate injunction by one of the dissenters of the Supreme Court.  But this would be a very shortened view because the collegiate will annul this decision.  So my guess is that the decision taken today even if the consequences will only be seen in September when the registration will be analyzed finally.  But I think the sentence will impede Lula to become a candidate.  So that is the legal perspective of it. 
 
We don’t know, I don’t know at least if this will create a major movement in Brazilian society, a reaction to it.  It’s very hard to see.  Probably there will be manifestations [manifestações, i.e.,  protests and demonstrations] and if we take the last wave of large manifestations in Brazil even though if they started very smoothly, when the police reacted with brutality they gained force.  
 
So this is the kind of thing that we don’t know.  Probably there will be reactions.  I don’t see the reactions as massive.  However, you can create a short circuit by a specific act, by an act of violence.  And then movements can get bigger than they probably will be in this specific moment.
 
Paulo Sotero: Thank you very much. Matthew.  
 
Matthew Taylor: Yes I think going back to Sarah’s question about the destabilizing nature of all this.  As we’re thinking ahead until September and October I do wonder whether the patience may run thin if the PT decides to follow the strategy of maintaining a candidacy that is unlikely to prosper.  And, you know, I agree with Oscar and in fact I’m very informed by Oscar’s comments about the courts.  I think the courts are under considerable public pressure.  So we are less likely than usual to see some of the individual injunctions although that’s not, you know, impossible.  
 
I also think though that we have to remember that there are other cases. There are a handful of other cases pending against Lula which, you know, if patience is running thin with his strategy of remaining a candidate you could imagine if another case were to percolate and he were to be convicted in another trial court that would strain patience as well. 
 
So, you know, I think that the possibility of the PT either coalescing behind another candidate or choosing to boycott the election is also a possibility.  But, you know, of those two possibilities a boycott would be the worse thing for Brazilian democracy but I don’t think it’s inconceivable.  
 
And, you know, you may get a kind of organic boycott as well which is, you know, in Brazil you can vote null or void and so you can imagine a scenario where the PT coalesces behind somebody, like Ciro, but then, you know, leftist voters decide to nullify their vote.  
 
Paulo Sotero:  Yes thank you Matthew.  Just to add something here.  If you read the Brazilian media consistently you see that people are sort of tired of the political battle.  As some good analysts, some former politicians from various positions have been saying that the chances of sort of a social explosion, political explosion happening as a consequence of this verdict is very low.  The country is getting out of a recession, a very painful, a very long one and that probably for the reasons that include that Matthew mentioned.  The space for sort of creating a new situation based on movement on the streets probably unlikely.  
 
Now please we have time for one more question.  Caller go ahead please identify yourself and ask your question.
 
(Paulo Prochno): Hello.
 
Paulo Sotero: Hi.
 
(Paulo Prochno): Hi it’s Paulo Prochno from the University of Maryland.  So it seems that the stock markets were not it seems – stock markets had a very positive reaction to the result today.  But at the same time my perception is that maybe Lula would be one of the most friendly possibilities for the stock markets, for the markets in Brazil, if you consider what he did in the past, also his eight years.  
 
So our stock markets may be too optimistic given that the alternatives would probably be worse?
 
Paulo Sotero:  So let me just take a crack at this.  The reaction of the stock market, obviously positive, [is] very predictable.  The questions that Brazil faces right now will require very tough decisions regardless of the electoral process.  They involve measures to control the structural fiscal deficit of the country. They have to be confronted.  I think you are right that once Lula was seen as very friendly of the market.  Bankers and others were very happy with him.  
 
The question, the problem now for him to go back to that position if he can run successfully which is not likely right now, he would have to undo a lot of statements that he has been repeating now as he fought this battle in the courts denouncing the markets, denouncing the elites, denouncing the media.  So although you are theoretically correct about Lula’s, you know, potential of reversing again and becoming the darling of the markets in Brazil if he manages to go ahead, it is a very unlikely scenario.  With that I would like to ask Matthew maybe to answer.
 
Matthew Taylor: Yes I agree with what you said, Paulo.  Paulo, I liked your question.  I would give three explanations.  One Paulo Sotero just mentioned, which is Lula’s rather incendiary comments recently that were read as very anti-austerity, very anti-market, a return to Lula pre-2002.  
 
A second explanation is that stock markets hate uncertainty and I think today’s decision really narrows the path forward, makes it clearer where things are headed.
 
And then the third which I think is probably the best explanation is it’s very hard to see a path by which Lula is elected to office and actually comes into office as president able to pull together a legislative coalition that can undertake the kind of really difficult reforms that Brazil needs right now.  He doesn’t have the support of the PMDB.  He’s broken with most of the centric parties that could support him.  And, you know, the left only would account for something on the order of 28% of the lower house.  Its current predictions are to be believed.
 
So I just think the market is perhaps reacting to the elimination of a candidate who isn’t likely to fare well on many of these investment-related issues.  
 
Paulo Sotero: Thank you very much Matthew.  Do you have a last word there Oscar because this will be the last intervention and then we have to wrap this up.  Thank you.
 
Oscar Vilhena Vieira: I agree with you both.  I just think that Lula is extremely - it’s a politician on the roots of his term so he’s very capable to inform himself.  His more radical discourse at this moment is obviously a discourse to his basis, to his party.  But in the eventuality that he’s allowed to get on the campagin, get on the ballot, he would probably transform his discourse.  He actually did in the past.  So it would not be the first time.  
 
But since I don’t believe that he will have an actual legal chance to be a candidate, the question is who will take over his area of influence.  Who will be the candidate from the left?  And as Matthew said before with the Bolsa Família and the legacy of the PT, it’s obvious that they have power, they will be very competitive in any election.
 
Paulo Sotero: Well with that I would like to thank you Matthew Taylor.  I’d like to thank you Oscar Vilhena for participating, all the colleagues that called to ask questions about this very momentous decision in Brazil.  We will continue doing this from time to time.  
 
I’d like to thank also Anna Prusa and Maria-Stella Gatzoulis who helped us set up this call.  There will be a recording of this call available.  We will post it.  Stay tuned for new dialogue, events at the Wilson Center, at the Brazil Institute.  Thank you very much and good day.
 
Matthew Taylor: Thank you.
 
Oscar Vilhena Vieira: Thank you.  
 
Coordinator: And that concludes today’s conference.  Thank you for participating.  You may disconnect at this time.  
 
END
 

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