Big Decision to Shape Lula's Future, and Brazil's: QuickTake Q&A

(Bloomberg) -- Brazil’s economic and political future will be shaped by what happens in a courtroom in the southern city of Porto Alegre on Jan. 24. That’s the day a three-judge panel of the Fourth Federal District Court will decide whether to uphold former President Luiz Inacio Lula da Silva’s nine-and-a-half year sentence for graft and money laundering. The ruling will be instrumental in determining if Lula can run for president in October. He’s now leading in opinion polls.

1. Why is the outcome so important?

Despite the role of Lula’s Workers’ Party in the worst recession on record and the massive corruption scandal dubbed Carwash, he remains popular with about a third of the population for his efforts to help the poor and create a more equitable society. Lula also became popular on Wall Street when in office from 2003 to 2010, but now spooks many investors who see him catering to the far left to maintain support. Lula has said he would undo many of the market-friendly reforms adopted under the current administration, such as deregulation of the labor market and caps on government spending.

2. What’s become of Lula’s movement since he left office?

His departure in 2011 coincided with the end of the commodities boom that helped boost Brazil’s economy and fill government coffers. Attempts to revive the economy by subsidizing corporate loans and granting tax breaks led to larger deficits but little growth, and eventually a sovereign-debt downgrade to junk. In addition, several leaders of the Workers’ Party were jailed for their role in the Carwash affair, which involved a massive scheme of kickbacks from contracts at state companies like Petrobras. The final blow came in 2016 when his successor, Dilma Rousseff, was impeached on charges of breaking budget laws. With trust in politicians at an all-time low, some Brazilians are seeking for saviors in a TV star and a former army captain, while others reminisce about the good old times under Lula.

3. What happens if the court overturns his conviction?

Lula would face no restrictions on his candidacy, pending likely appeals by the public prosecutors’ office to the Supreme Court. Lula still faces criminal charges in six other cases, though these don’t imperil his ability to seek office in the same way. A final ruling in these cases would be unlikely before the October election and, if he were elected, they would be heard by the Supreme Court.

4. And what happens if his conviction is upheld?

Given the court has tended to uphold Judge Sergio Moro’s rulings, the expectation is that it will do the same with Lula. If so, that strongly increases the chances Lula will be barred from running or becoming president. If it’s a 2-1 verdict, Lula’s lawyers could appeal to a six-member panel of the same court, potentially delaying a final ruling by four or five months, according to Vladimir Passos de Freitas, a law professor and a former president of the court. If the verdict is unanimous, Lula’s lawyers could request clarification of the judgment, potentially delaying the sentence by only a week or so. They could also appeal to the next highest court, the Superior Court of Justice, and ultimately to the Supreme Court.

5. Will Lula go to prison if his conviction is upheld?

Possibly. If the court votes unanimously to uphold his verdict, Lula could be jailed within two to three weeks, according to Passos. However, the court could also decide to uphold his conviction and alter his sentence by reducing or even eliminating jail time.

6. If Lula loses his appeal, can he run for president?

Brazilian legislation and jurisprudence leave room for doubt. He could run but it would be difficult. And if he won, his victory could be annulled. The problem is this: A federal law, called the Clean Record Act, states that a criminal conviction upheld in an appellate court bars anybody from becoming a candidate. Yet a likely appeal by Lula may mean that the top electoral authorities allow him to run until the Supreme Court rules on the case. Even if Lula cannot run for president, he is likely to influence the result of October’s vote by campaigning for other members of his party.

7. What can we expect on the day of the ruling?

Lula, his entourage and crowds of both supporters and opponents of the ex-president will gather in Porto Alegre the day before the verdict, and clashes between both sides or with the police could happen. Around 8.30 a.m., the court will begin hearing arguments of no longer than 30 minutes from the prosecution and the defense. Unless one of the judges requests more time to study the case, the three men will cast their votes shortly afterward. Whatever the outcome, Lula plans to hold a rally later that day in Sao Paulo.

8. What are the arguments, pro and con?

The prosecution says Lula received benefits from a construction company, citing a beach- side apartment, in exchange for favors. The defense says the charges are trumped up as part of a broader political persecution designed to pull him out of the presidential race.

The Reference Shelf

• A QuickTake explainer on Brazil’s highs and lows.
• Bloomberg interviews Brazil’s President Michel Temer.
• A 2015 report by the Center for Economic and Policy Research says Brazil’s slump resulted more from policy choices than external conditions.
• A 2016 Congressional Research Service report provides background on Brazil’s politics.
• A Businessweek web comic on the Petrobras corruption scandal.

To contact the reporters on this story: Simone Iglesias in Brasília at spiglesias@bloomberg.net, Bruce Douglas in Brasilia Newsroom at bdouglas24@bloomberg.net.

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Raymond Colitt, Paula Dwyer

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