Whatever happened to Lula? The travails of Brazil's saviour-president

The landslide election win that produced left-wing President Luiz Inacio Lula da Silva promised the earth to the landless, and a new era for the country. But heavy debt and the growing stench of corruption is betraying his pledges to the people

When they searched the political aide's luggage they discovered $85,000 (£48,000) worth of reals in cash. When they looked more carefully, they found a further $100,000 stuffed into his underpants. Doubtless Mr da Silva was somewhat red-faced as he sought to explain to officials his unlikely cargo.

Yet behind the comical circumstances of the arrest of this low-level political aide last Friday lies a serious and spiralling bribes-for-votes scandal that has wreaked chaos within Brazil's ruling Workers Party (PT) and has threatened the future of the country's left-leaning President, Luiz Inacio Lula da Silva.

Now there are even suggestions that the inspirational Lula ­ who won the 2002 election by a landslide of more than 60 per cent - will no longer seek reelection next year.

At stake is not only the political future of Brazil's most charismatic left-wing politician in a generation. The crisis that threatens the credibility of the PT also threatens to derail the country at a crucial time in its economic, cultural and political development. For Brazil's left, which had such high hopes for the Lula years, the scandal is little short of a catastrophe.

At a broader, regional level it could also determine whether Brazil regains the momentum to inspire and lead other left-leaning governments throughout Latin America or whether the country will simply be forced to accept the US-backed austerity economics of Washington and the International Monetary Fund.

The crisis began to develop last month when a disgruntled politician, Roberto Jefferson, alleged that party officials had bribed politicians from coalition parties to vote for a series of pieces of government legislation. For a left-wing party that presented itself as a model of probity and a standard-bearer for the poor, these were incendiary charges. Mr Jefferson claimed that the owner of two advertising agencies, Marcos Valerio de Souza, had acted as an intermediary and may even have financed the payments to bribe the two politicians.

Initially, the PT shrugged its collective shoulders and denied the claims. But as the smell of corruption grew, several senior officials stepped down in an attempt to end the controversy. It might have been enough to end the matter if a weekly magazine, Veja, had not obtained and published documents that revealed Mr de Souza had guaranteed a bank loan of $1m to the PT. Alongside the advertising agency director's name on the document was the signature of the PT's chairman, Jose Genoino.

Mr Genoino, a former left-wing guerrilla who fought against Brazil's military dictatorships in the 1970s, was already under intense pressure before police made that picaresque arrest at Sao Paulo airport last Friday. Jose Vieira da Silva works for Mr Genoino's brother, a PT official in north-east Brazil. Although Mr Genoino said that he barely knew Mr da Silva, his position had become untenable. On Saturday he announced that he was stepping down.

"The Workers' Party does not buy and does not pay deputies ... we have made mistakes ... but we do not practise irregularities, we do not practise any illicit activities," he said as he announced his resignation. " At this moment, I give up my post as president of the Workers' Party to the [party's] National Directorate."

But even this is unlikely to be the end of the matter. The newly elected leader of the PT - the former education minister, Tarso Genro - has already announced the establishment of an ethics commission to investigate the corruption allegations. "We got the message from society saying that something was wrong within the party," he said. "We understand that we are in the middle of a political battle, we need to rebuild the party's political profile to improve our relationship with society."

But polls suggest rebuilding public trust may not be easy. Of perhaps even more concern, the numbers also show that people have serious doubts about the credibility of Lula. The poll in the conservative-leaning Veja magazine showed that 48 per cent of Brazilians did not consider the PT to be an " honest" party, and a full 55 per cent believed that Lula must have known his senior officials were involved in the bribery scandal.

The numbers were the worst in the 25-year history of the PT, which had long been seen as a bastion of political ethics, and analysts say that Lula's political future is on the line. "What this really means is that Lula will no longer be known as the 'Teflon President'," said Larry Birns, director of the Washington-based Council of Hemispheric Affairs. "Now he has scratches all over him. Once a Brazilian politician is wounded, very soon the hyenas can be expected to be at hand. I think it will be very difficult for him to politically right himself."

The election of Lula, whose term as President started in January 2003, had been a cause for celebration for leftists across the region. The former union leader had campaigned on a platform of populist, egalitarian policies and environmental protection. He promised more resources for education and health and vowed to provide land for at least 400,000 landless peasants.

Brazil's first left-wing president for 40 years promised in his victory speech to build a "more just and brotherly nation". He said: " So far, it has been easy. The hard part begins now. We will work around the clock to fulfil every one of our campaign promises."

But Lula - himself a symbol of opposition to the military dictatorships during the 1970s and 1980s - has found it far harder to match his rhetoric with deeds. Saddled with an IMF loan of $30bn signed by his predecessor, he has had to enforce a series of stringent austerity demands and a requirement for Brazil to control the ratio between public debt and GDP, as well as to pay off its huge international debts.

By some measures, these economic policies have been a success and have turned around the failed economy. Having inherited a debilitating recession, Lula saw Brazil's economy grow by 5.2 per cent last year and economic forecasters predict it will grow by 3 per cent this year and by 3.5 per cent in 2006. But these figures tell only part of the story. Many who initially supported Lula have been disappointed that he has failed to deliver on his more populist campaign policies. And despite promises to create 10 million new jobs if elected, unemployment has been stuck in the double digits throughout his presidency, and at present stands at about 12 per cent.

One measure of the problems facing Brazil is the number of people trying to leave the country. Tens of thousands of Brazilians - many of them young and well-educated - are leaving every year for the US, Japan and Europe.

The growth in this exodus is so great that Brazilians are the second-largest group - after Mexicans - caught trying to enter the US across the Mexican border. In the first six months of this year, more than 12,000 Brazilians were caught trying to illegally cross the border, many of them from the more prosperous southern states who pay about $10,000 per person to smugglers to get them across the border.

An indication of the way in which this exodus has become part of the Brazilian experience is the popularity of country's latest soap opera, America, which tells the story of a young woman who illegally enters the United States and her subsequent life in Florida. In a country of 180 million people, an extraordinary 40 million watch the show every night.

"What we have to accept is that this flow [is about] lack of opportunity, not with poverty or unemployment," Ana Cristina Braga Martes, an analyst with the Sao Paulo-based Getulio Vargas Foundation, told The New York Times. "It's mainly the lower-middle class from prosperous states and not the poor who are going. And it's because they can't earn a fair wage here and have bought into the idea of the American dream."

Quite what Lula can do in the short to medium term to turn around public confidence and restore faith in both him and his party is unclear. One thing he has done is to order a reshuffle of his government. In a clear attempt to win back waning political support, he has given cabinet posts to members of the country's largest party, the Democratic Movement Party. He has also appointed Luiz Marinho, head of the powerful umbrella trade union CUT, as labour minister.

But analysts say the departure of Mr Genoino will be a serious blow. The former PT chairman represented that faction of the party most loyal to Lula and some believe his departure will complicate the President's relationship with the more left-leaning members.

Meanwhile, Lula's political opponents, led by the Social Democratic Party (PSDB), are biding their time. Observers say it is better for them to weaken Lula as much as possible and wait for next year's election, where his most likely opponents - if he runs for re-election - would be Geraldo Jose Rodrigues Alckmin Filho, governor of Sao Paulo state, or even the former president Fernando Cardoso, who refuses to rule out another run.

Meanwhile the embattled President, having returned from the G8 Summit in Scotland, is this week expected to launch a plan to reorganise public spending. Known as a choque de gestao or management shock, the plan will probably involve a cut in spending on pensions, health and transport, and entail changes to the cabinet.

Many believe the move is merely an effort to try to deflect attention from the scandal surrounding him and his party. Sometimes President Luiz Inacio Lula da Silva must wish he too could simply head to the airport and catch a plane out.