Luiz Inacio Lula da Silva, former president of Brazil, speaks during a presidential pre-campaign rally outside the Petroleo Brasileiro SA (Petrobras) Petrochemical Complex in Itaborai, Brazil. (Photographer: Dado Galdieri/Bloomberg)

Lula's Hopes of a Comeback Crushed By Unanimous Court Ruling

(Bloomberg) -- A Brazilian appeals court unanimously upheld a graft sentence against former President Luiz Inacio Lula da Silva, all but killing his chances of bidding for the country’s top job.

All three judges voted to deny Lula his appeal against a criminal conviction for accepting an upgrade to a beach-side apartment along with other benefits from a construction company in exchange for favors. They also voted unanimously to increase his prison sentence from nine and a half years to over 12.

In a speech to supporters in Sao Paulo on Wednesday night after the verdict Lula proclaimed his innocence, compared himself to Nelson Mandela and said his conviction was a conspiracy by those opposed to the rise of the poor. At a separate press conference, his lawyers said they would use all legal means to overturn the court’s decision.

Lula’s Worker’s Party issued a statement saying it would fight in defense of democracy "in the courts and principally on the streets". While there have been demonstrations both for and against the former president across the country, there have been no reports of violence.

At stake is not only the legacy of the 72-year-old former union leader, but the future of Latin America’s largest economy. With elections scheduled in October, Lula currently leads the opinion polls and has pledged to roll back the market-friendly reforms of President Michel Temer, including spending caps and the deregulation of the labor market.

Lula's Hopes of a Comeback Crushed By Unanimous Court Ruling

While Wednesday’s verdict doesn’t rule him out of the running for good, it does represent a significant blow to his chances. “With this decision, the market sees the chances of Lula’s participation in the election as very low," said Pedro Paulo Silveira, the chief economist of brokerage Nova Futura.

The ruling is also likely to fragment the left, according to Marcos Montes, leader of the pro-government PSD party in the lower house of Congress. "Many people who were by his side in the search for power are starting to distance themselves as they don’t see him returning to power," he said.

Lula's Hopes of a Comeback Crushed By Unanimous Court Ruling

The Sao Paulo stock exchange closed on a record high and the real was up 3 percent. While Lula was a Wall Street favorite during his two terms in office from 2003 to 2010, he recently turned to his more radical group of supporters for political survival.

Security has been tight around the courthouse in Porto Alegre, with sharpshooters on rooftops, naval ships patrolling nearby waters, and police cordoning off an area some 2.5 kilometers wide to keep protesters at arms length. Thousands of Lula’s supporters camped out in Porto Alegre during the trial, but dispersed shortly after the verdict came in.

Lula's Hopes of a Comeback Crushed By Unanimous Court Ruling

Brazilian society is deeply divided over Lula, a savior of the poor to some and a reckless populist to others. The latest Datafolha survey showed 36 percent of voters would back him in October’s election, roughly double that of his nearest rival, right-wing Deputy Jair Bolsonaro. But 39 percent of those questioned in the same survey said they would not consider voting for him under any circumstances.

Brazilian law determines that anyone with a criminal conviction that has been upheld in an appellate court cannot run for elected office, but Lula’s likely appeal will buy him time.
Leaders of the Workers’ Party say they will launch his presidential candidacy on Thursday.

©2018 Bloomberg L.P.