It's Judgment Day in Brazil as Lula Faces Court Verdict - Bloomberg

It's Judgment Day in Brazil as Lula Faces Court Verdict

By Simone Preissler Iglesias

January 24, 2018, 5:00 PM GMT+11 Updated on January 24, 2018, 10:08 PM GMT+11

Three judges in Porto Alegre to rule on corruption conviction

Adverse ruling will complicate Lula’s presidential candidacy

Demonstrators raise their hands during a rally in support of former President Luiz Inacio Lula da Silva, ahead of his appeal hearing in Porto Alegre, Brazil, on Jan. 23.

A Brazilian court on Wednesday started hearing an appeal of former president Luiz Inacio Lula da Silva’s criminal conviction, a case that could scupper his presidential ambitions and shape the outcome of October’s election.

Ahead of the ruling in the southern city of Porto Alegre, Lula’s Workers’ Party bused in tens of thousands of supporters in a show of strength for the 72-year old leftist, who leads the opinion polls by a wide margin and denies any wrongdoing. An adverse ruling would likely prevent Lula from running or taking office.

Regardless of the outcome of the trial, the former factory worker plans to launch his election campaign on Thursday, pledging to roll back the business-friendly reforms introduced by President Michel Temer. While some investors fear Lula’s candidacy and would prefer him out of the picture, many prominent politicians -- including Temer himself -- argue he should have the chance to run for the sake of Brazilian democracy.

"This is truly a lose-lose situation for all parties," said Christopher Sabatini, a professor of international relations from Columbia University. If Lula is ruled ineligible it could "look like a target political vendetta, but if he’s allowed to run it will look like impunity."

While Lula retains a passionate and solid support base, many Brazilians are outraged by the prospect of him returning to the presidential palace. With demonstrations planned by opponents as well as supporters, elite snipers are in position on city rooftops and naval patrol boats have been deployed. The airspace above the court house has also been shut down.

Investor Concern

Most investors are expecting all three judges to vote against Lula and will be disappointed if there is a dissenting vote, as this could increase chances for appeals.

"There are a lot of different possible outcomes from Lula’s judgment, but the markets aren’t working with a pessimistic scenario," said Joao Souza Fernandes, an economist at Quantitas Gestão de Recursos.

Lula supporters wave flags at a campsite in Porto Alegre, on Jan. 23.Photographer: Dado Galdieri/Bloomberg

In a defiant speech to a crowd of supporters in Porto Alegre on Tuesday, Lula minimized the importance of financial markets.

"The market’s afraid of Lula," he said. "I don’t need the market. What I need is for the people to take part."

Since his conviction in July last year, polls have shown a steady increase in support for Lula, with the latest Datafolha survey finding 36 percent of the electorate would vote for him. His nearest rival, far-right congressman Jair Bolsonaro, had the backing of 18 percent.

But the survey also found that 39 percent of the electorate would not consider voting for Lula under any circumstances.

Credited with hauling millions of Brazilians out of poverty during the commodities boom that characterized his years in power, Lula left the presidency in 2010 with an approval rating of around 80 percent. While he helped steer his hand-picked successor, Dilma Rousseff, to two election victories, his reputation soured as the economy tanked and corruption charges piled up.

Aside from his conviction for accepting 3.7 million reais ($1.2 million) -- principally in the form of a renovated beachside apartment -- from a construction company in return for favors, he faces six other criminal charges. Lula maintains his innocence and says the accusations are politically motivated.

— With assistance by Vinicius Andrade, and Matthew Malinowski