Brazil braces for ruling that could bar Lula from 2018 race

PORTO ALEGRE - 24 January 2018: An appeals court will decide on Wednesday whether to uphold the corruption conviction of Brazil’s most influential politician, former President Luiz Inacio Lula da Silva, a decision that would likely bar him from running in the presidential race this year.

Tens of thousands of supporters rallied in the streets of Porto Alegre on Tuesday to protest against what they see as the political persecution of the leftist icon, who was sentenced to nine and a half years in prison for accepting a bribe.

Lula, 72, who oversaw a commodities boom a decade ago as Brazil’s first working-class president, would be declared ineligible for the Oct. 7 ballot if his appeal is denied as expected. He can still appeal to higher courts to delay a final decision and avoid going to jail.

His exclusion from the election would radically alter the political landscape ahead of a campaign in which Lula is the early favorite, with 36 percent of voter preferences according to pollster Datafolha. That is double the percentage of his nearest rival, the far-right congressman and former army captain Jair Bolsonaro, who has been energized by anti-Lula sentiment.

Lula accused his enemies of trying to oust him from the political arena as they had by impeaching his handpicked successor Dilma Rousseff in 2016, ending 13 years of Workers Party rule.

“I know I committed no crime,” he told supporters at a rally in downtown Porto Alegre on Tuesday evening. “They fear a Lula comeback in 2018. They fear the good things we achieved.”

Preparing for trouble, the city deployed several thousand police and mounted a four-block security perimeter around the appeals court to prevent any disruption of Wednesday’s session.

Lula was convicted of corruption and money laundering last year for accepting a beachside apartment from an engineering firm vying for contracts with state-run oil company Petroleo Brasileiro SA.

Prosecutors said the apartment and its refurbishing was a bribe worth 3.7 million reais ($1.1 million). Lula maintains he never owned the penthouse apartment, criticizing prosecutors for leaning on the plea bargain testimony of one witness.

The case has polarized Brazil, with Lula’s critics calling for him to be put behind bars and his Workers Party allies calling on supporters to resist any attempt to arrest him.

Lula left office in 2010 with an unprecedented 87 percent approval rating, boosted by social programs that lifted millions of Brazilians from poverty. His reputation has been tarnished by corruption scandals, but most political analysts agree he would still make it to a second-round run-off if allowed in the race.

Brazil’s benchmark Bovespa stock index has risen around 10 percent in the past month on the prospect of Lula being barred from the election.

That would increase the chances of a more business-friendly politician taking office in 2019 and continuing the reforms and fiscal austerity efforts of President Michel Temer, including his attempt to overhaul Brazil’s costly pension system.

However, a protracted appeals process could allow Lula to remain on the ballot, which would fuel political volatility that may delay approval of pension reform and weigh on Brazilian financial markets.

“The next president could take office on Jan. 1 against a backdrop of further credit ratings downgrades and a negative economic outlook,” said Jimena Blanco, head of Latin America risk analysis at Verisk Maplecroft.

Blanco expects a positive market reaction if Lula’s conviction is upheld, though any upside for the real and the Bovespa stock index will be limited, she said by email.

Arriving in Switzerland for the Davos business summit this week, Temer said Lula’s trial was “normal” and showed Brazil’s institutions were working properly.