Lula is free. What happens now in Brazil?

Lula is free. What happens now in Brazil? Lula leaves prison in Curitiba. Photo: CUT-PR

After 580 days, Lula is free.

The former president who left office in 2010 as the most popular politician in Brazilian history was barred from taking part in the 2018 elections thanks to his legal situation, even though polls indicated he was the favored candidate. Without Lula, his center-left Workers’ Party lost most of its mojo, falling into near-irrelevance in the Brazil of far-right President Jair Bolsonaro.

The clock flashed 5:43 pm when Lula left the Federal Police headquarters in Curitiba. He was one of the roughly 5,000 convicted felons who benefited from Thursday’s Supreme Court ruling to prevent prison sentences from being enforced before all appeal routes are exhausted.

</p> <p>Out of jail, Lula plans to revive the opposition against Mr. Bolsonaro, lead his party in the 2020 municipal elections, and pass the torch to someone in his party to run in 2022. Despite being at liberty, Lula still has an appeals court conviction against his name, making him ineligible for public office.</p> <h2>Lula&#8217;s first words out of prison</h2> <p>Welcomed by hundreds of militants, Lula delivered a short, yet highly characteristic <a href="">speech</a>. He claimed former São Paulo mayor Fernando Haddad—who ran for president as a stand-in after Lula was barred from standing as a candidate—would have <a href="">beaten Mr. Bolsonaro last year</a> &#8220;if the election hadn&#8217;t been stolen.&#8221;</p> <p>Despite saying his heart &#8220;only has room for love,&#8221; Lula had plenty of vitriol for members of the Justice system, and of the Federal Prosecution Office, saying that a &#8220;rotten group&#8221; is trying to criminalize the left with &#8220;treachery&#8221; and &#8220;villainy.&#8221; Lula also bashed TV Globo—a point at which he converges with Jair Bolsonaro—<a href="">Justice Minister Sergio Moro</a>, and Federal Prosecutor Deltan Dallagnol, who were both leading figures of Operation Car Wash and his criminal case.</p> <p>Of course, Jair Bolsonaro wasn&#8217;t spared. Lula called the sitting president a &#8220;liar,&#8221; and said the current administration is trying to destroy Brazil&#8217;s education system. He also blamed Brazil&#8217;s high unemployment rate on Mr. Bolsonaro—conveniently forgetting that his handpicked successor, Dilma Rousseff, was the president whose economic policies <a href="">led Brazil into a recession</a> in the first place.</p> <p>Those who were expecting a &#8220;peace and love&#8221; version of Lula were left disappointed. He called President Bolsonaro—a politician who thrives in conflict—to the ring.</p> <p>Lula talked about rallying the left around a project to win back the presidency in 2022. He mentioned several left, and center-left, parties—with one notable exception: the Democratic Labor Party (PDT). Lula&#8217;s Workers&#8217; Party and the PDT got into a feud last year, and the party didn&#8217;t support Mr. Haddad in the runoff stage against Mr. Bolsonaro. The support wouldn&#8217;t be enough to sway the election but marked a rupture between two sizeable left-wing forces.</p> <h2>Congress to strike back</h2> <p>After the Supreme Court&#8217;s decision, leaders both in the House and Senate argued that Congress could approve a bill allowing prison sentences to be carried out after the a single failed appeal. Senator Simone Tebet said the matter will be at the top of the Senate&#8217;s Constitution and Justice Committee docket.</p> <p>Senate President Davi Alcolumbre, however, has shown resistance to the move.</p> <h2>For the markets, its business as usual</h2> <p>By the time judge Danilo Pereira Júnior signed the order to release former President Lula, Brazil&#8217;s benchmark stock index Ibovespa accelerated its downward trend for the day, closing 1.8 percent down—the steepest drop since October 7. Meanwhile, the U.S. dollar was traded at BRL 4.1636, up 1.5 percent.</p> <p>Judging by the market euphoria seen on January 24, 2018 when Lula was convicted by an appeals court, investors’ moodiness could be interpreted as steep risk aversion. However, though the spectrum of the Workers&#8217; Party-sponsored economic policies still causes jitters among investors, markets don&#8217;t see Lula as a factor capable of interfering with the government&#8217;s economic agenda.&nbsp;</p> <p>Consultancy group Eurasia pointed out that Lula’s release will have little impact on the reformist agenda carried out by Economy Ministry Paulo Guedes—though his Workers&#8217; Party remains one of the biggest in Congress.</p> <p>For Felipe Berenguer, a political analyst at Levante Investimentos, at the end of the day, investors did react negatively, but it was more of a psychological reflex than anything substantial. In his view, whereas the opposition may be more organized, support for President Bolsonaro and his agenda may also grow. “There will be a tug of war and the 2020 municipal elections will be a good thermometer for that. But it won&#8217;t necessarily be a winner-takes-all situation.”</p> <p>It is important to remember that Brazilian markets are highly sensitive to international news—and comments made by U.S. President Donald Trump, that he still has not agreed on ending his trade war with China, had already spooked investors.&nbsp;</p> <p>For Pablo Spyer, a director at brokerage firm Mirae Asset, the Brazilian market today followed the international mood. “Ibovespa has been hitting consecutive all-time records, I see today’s profit-taking as a natural move. Also, the U.S. dollar had already changed from BRL 4.00 to BRL 4.10 levels this week since the pre-sat oil auction, because the dollars that were expected did not come in.”</p> <p>Meanwhile, the country&#8217;s 5-year Credit Default Swap—considered to be the measure for Brazil&#8217;s risk of default—remained well-behaved at 116.1 base points, close to 2013 levels, when Brazil had an investment grade.&nbsp;</p> <h2>Lula&#8217;s laundry list of criminal cases</h2> <p>Despite being released from prison, Lula continues to face a total of seven criminal cases:</p> <ul><li><strong>Beachfront triplex apartment.</strong> This is the case that sent Lula to jail. In 2017, he was sentenced to nine and a half years for corruption and money laundering by then-Judge Sergio Moro. Lula was found guilty of receiving a beachfront triplex apartment as a kickback from a construction company. An <a href="">appellate court</a> raised the sentence to 12 years—but the Superior Court of Justice (Brazil&#8217;s second-highest court), reduced the sentence once again, to less than eight years.</li><li><strong>Atibaia ranch house.</strong> In January 2019, Lula was convicted to nearly 13 years in jail for allegedly taking a ranch house in the countryside of São Paulo as a bribe from construction firms. Less than 24 hours after the Supreme Court&#8217;s decision that freed Lula, the appellate court scheduled an appeal trial for November 27.</li><li><strong>Odebrecht.</strong> Lula is accused of pocketing BRL 12.9 million in bribes from the Odebrecht construction group. The case awaits the defense&#8217;s closing arguments before a verdict can be issued.</li><li><strong>Angola. </strong>The former president is suspected of receiving BRL 30 million in kickbacks for brokering a loan from Brazil&#8217;s Development Bank in Angola.</li><li><strong>Jets.</strong> Lula is accused of influence peddling, money laundering, and criminal association for allegedly tampering with a bidding process for <a href="">fighter jets</a> being purchased by Brazil&#8217;s Air Force, in favor of Sweden&#8217;s Saab company.</li><li><strong>Automakers.</strong> The former president is believed to have taken bribes—via one of his sons—to pass legislation giving tax breaks to automakers.</li><li><strong>&#8220;Workers&#8217; Party criminal gang.&#8221; </strong>Lula is accused of commanding a vast criminal enterprise to embezzle public money. Prosecutors asked for the case—known as the &#8220;Workers&#8217; Party criminal gang&#8221;—to be dismissed, which could happen soon.

Gustavo Ribeiro

An award-winning journalist, Gustavo has extensive experience covering Brazilian politics and international affairs. He has been featured across Brazilian and French media outlets and founded The Brazilian Report in 2017. He holds a master’s degree in Political Science and Latin American studies from Panthéon-Sorbonne University in Paris.

Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, she worked as an Editor for Trading News, the information division from the TradersClub investor community.

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