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Financial News: BRAZIL: What Is At Stake At Former President

BRAZIL: What Is At Stake At Former President Lula's Trial On January 24

01/16/2018 - 14:32:00 (RTTNews)

(RTTNews) - Former Brazilian president Luiz Inácio Lula da Silva, arguably the most prominent and controversial politician in the country, wants to run for office again this year, but a trial next week could jeopardize his campaign and dictate the local stock market direction.

In July 2016, Lula was sentenced to nine years and a half in jail for corruption and money laundering. According to justice Sérgio Moro, the construction company OAS bribed the former president with a penthouse apartment in the coastal city of Guarujá, in São Paulo state. Lula denied the accusation and appealed from the decision to a higher court.

A new trial was scheduled for January 24 and is drawing attention both from investors and politicians, because if the higher court upholds Moro's decision, then Lula may face hurdles to run for president this year.

Most investors believe that Lula's victory in the presidential election would be harmful to the Brazilian economy because the former president has been a vocal critic of the fiscal reforms adopted by the current administration.

In fact, Lula said that he would call a referendum to undo those reforms if he is elected. Voters seemed to like the idea. The latest Datafolha poll, from December, showed that 36% of the electorate would support the former president in the first round of elections. The far-right candidate Jair Bolsonaro had the second largest support, of 18%. On a potential second round, Lula would win in all the possible scenarios, said Datafolha.

Voters support the former president because, during his years as the head of the Executive, Lula managed to boost the country's economy and, at the same time, keep fiscal discipline, in spite of increasing social expenditure. It was during his mandate that Brazil established the Family Grant Program (Bolsa Família, in Portuguese), a conditional cash transfer program that benefits low-income families.

However, it was also during Lula's presidency that a major corruption scandal, known as "Mensalão," erupted. Prosecutors said that the former president's administration bribed lawmakers to pass government-proposed bills. José Dirceu, Lula's chief of staff, was sentenced to jail, as well as some lawmakers.

After the end of his mandate, Lula was accused of heading an even bigger corruption scheme, where Brazilian construction companies - including the largest in the country, Odebrecht - organized themselves into cartels and paid kickbacks to senior Petrobras executives and other government officials.

The January 24 trial relates to Lula's first corruption-related conviction. In Brazil, politicians convicted in higher courts lose their right to run for office.

If Lula is defeated next week, his lawyers could still appeal to the Superior Court and the Supreme Court to keep him alive in the presidential race. In that case, votes for him in the coming election would only be valid if those courts enable him to be a candidate.

The January 24 trial could also be delayed by one of the justices if more time is necessary to analyze the case. In that scenario, Lula could manage to register as a candidate before the higher court decides on that matter. In that case, a Supreme Court battle would unravel after the election if Lula is the winning candidate.

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