Brazil corruption

Former president Luiz Inácio Lula da Silva has announced he will continue campaigning despite his corruption conviction being upheld, with 15 August being the deadline to register his candidacy.

• Given the upholding of the conviction was unanimous, it is very unlikely that former president Luiz Inácio Lula da Silva will be allowed to run as candidate.
• The former president is now faced with two choices, endorse an alternative candidate within the Workers' Party (Partido dos Trabalhadores: PT) or endorse a candidate outside his party in a wide coalition with other left-wing forces.
• The centre-right's chances of gaining office increase without Lula in the dispute, but it still has to find a strong candidate with traction with voters and committed to defending a pro-business agenda.

On 24 January 2018, the Federal Regional Court of Appeal of the 4th Region (TRF-4) unanimously upheld the conviction of former president Luiz Inácio Lula da Silva for corruption and money laundering. Additionally, the court increased his prison sentence from 9.5 years to 12 years. The judges did not request Lula's immediate arrest, and he can still appeal, but the fact that the ruling was unanimous constitutes a serious setback for his efforts to stay free and able to run for president in October 2018. However, the Workers' Party (Partido dos Trabalhadores: PT) remains adamant that he would be its presidential candidate.

Lula is comfortably leading in the opinion polls with 36%, nearly double the score registered by Jair Bolsonaro, the right-wing candidate, who consistently has come up second in most polls. As stated by the electoral Clean Record Law (known as Ficha Limpa), any candidate tried and convicted of crime cannot run for public office.

PT to keep Lula on the road for now

Despite the setback, the PT, which deemed the ruling as "fraudulent and politically motivated, have said that they will push forward with Lula's candidacy regardless. Lula cannot be banned from running until he officially registers his candidacy with the Superior Electoral Court. He could run even if he is in prison. The deadline for applications is 15 August and the PT's plan is to wait until the very last day to register him.

The PT leaders' original plan was to keep appealing in all possible courts in the hope that they could buy enough time to postpone a final decision until after the presidential election on 7 October. But the unanimity of the latest ruling suggests a final and definitive ruling may have taken place before that. Furthermore, there are another six pending corruption charges against him.

Despite not acknowledging it publicly, Lula and the PT are already working on a "plan B". Two main options are available: option one, to find a candidate within PT to replace him; and option two, to assemble a left-wing coalition with the PT as the driving force.

Within the PT, there are two possible names to replace him: former governor of Bahia Jaques Wagner and former mayor of São Paulo Fernando Haddad. Both are close allies to Lula and could equally fit the bill – but Wagner is certainly more popular in the north-east of the country, a PT stronghold. However, Haddad comes from defeat when he tried to be re-elected as major of São Paulo in 2016. Even out of the race, Lula, who is far more popular than his own party, is likely to transfer votes to either Wagner or Haddad, making them competitive candidates.

If opinion polls indicate that there is no chance for Wagner or Haddad of reaching the second round of the election, Lula would most likely go for option two, but by delaying the decision, the possibility of assembling a robust coalition would significantly diminish. If it happens, the only viable name is former governor of Ciro Gomes, from the Democratic Labour Party (Partido Democrático Trabalhista: PDT). Gomes was a minister under Lula and they remain close despite past ideological differences. But if any support comes only at the final stages of the campaign, it will be much more difficult for him to have the backing from PT voters.

Marina Silva, from Sustainability Network (Rede Sustentabilidade), another former minister under Lula, is more popular than other left-leaning names. She would clearly benefit from the formal backing of Lula, but marked differences over economic and environment polices between the two make an alliance highly unlikely. However, even without endorsement, a large percentage of Lula voters may eventually migrate to her.

Effect on other candidates

The former president's conviction will have an effect on all other candidates. Recent opinion polls show that without Lula in the dispute, his votes would spread across several candidates. Even Federal Deputy Jair Bolsonaro, from the extreme-right, would benefit by attracting the anti-PT vote. He is second in the opinion polls and his stance on security and the fight against corruption would bring support. Lula's insistence to be a candidate –even after being convicted for corruption – would help Bolsonaro to consolidate his position with right-wing voters and other people dissatisfied with the current state of Brazilian politics.

Potential candidates from the centre-right like São Paulo Governor Geraldo Alckmin of the Brazilian Social Democracy Party (Partido da Social Democracia Brasileira: PSDB), Finance Minister Henrique Meirelles of the Social Democratic Party (Partido Social Democrático: PSD), and President of the Chamber of Deputies Rodrigo Maia also have a lot to gain from avoiding the dispute with Lula. But they know all too well that the former president would be a formidable opponent. Their main problem is their lack of popularity.

Outlook and implications

The near-certain removal of Lula from the race would radically change the landscape of Brazil's presidential election and increase the chance that the next president comes from the centre-right, which favours a pro-business agenda. The markets have reacted positively to the news, the stock exchange recorded new highs and the Brazilian real appreciated by approximately 3% against the US dollar. The initial beneficiary is likely to be Bolsonaro given the lack of clarity over who the main candidate from the centre is likely to be.

It is expected that the centre-right will focus on trying to undermine Bolsonaro as it becomes clearer that Lula will not run, and they are well placed to do that given Bolsonaro's lack of solid political machinery, absence of large funding, as well as limited access to TV propaganda. He will run for a minuscule party, the Social Liberal Party (Partido Social Liberal: PSL), without much airtime on TV; the latter has historically being critical in Brazil's presidential elections.

With a much better structure and a much more reasonable electoral platform than Bolsonaro, and without having to face the popularity of Lula, the centre-right would have a reasonable chance of gaining office. However, they still must find a way to present a competitive candidate, who additionally would commit to the continuity of the economic reform agenda being promoted by the incumbent Michel Temer government. Whoever the candidate is, they could benefit enormously if the economy picks up this year as seems to be the case thus far.