Brazil's Lula seeks reconciliation after victory

[Ron Burgundy]

Reuters - Fresh from a landslide re-election victory, Brazil's President Luiz Inacio Lula da Silva was set to start talks on Monday to forge a legislative agenda and a broad-based coalition in Congress.

Lula, as Brazil's first working-class president is universally known, on Sunday won a strong mandate with 60.8 percent of votes against rival Geraldo Alckmin of the centrist Brazilian Social Democracy Party, who took 39.2 percent.

The victory is a remarkable comeback from a series of corruption scandals involving Lula's Workers' Party over the past two years, which had threatened to end the political career of the former union leader.

Lula is expected to meet with Aecio Neves, governor of Minas Gerais state and a key player in Alckmin's party in an attempt to seek common ground. Lula has said his legislative priorities are to overhaul unwieldy taxes and a corruption-prone party system.

"Behind the headline victory, Lula faces a long and tough negotiation before he can begin governing," said Jose Luciano Dias, a political analyst in Brasilia. "The problem is agreeing on an agenda -- Lula during the campaign distanced himself from market-friendly reforms the country needs."

Lula said in a victory speech on Sunday night in Sao Paulo that he would seek broad-based support. "I'm going to call everyone in to talk. No one will be turned away," he said.

Neves told Globo TV on Sunday night that the make-up of the president's new cabinet would be a first indication whether Lula was serious about consensus politics.

CAUTIOUS MARKETS

Financial markets reacted cautiously on Monday, with the currency opening marginally lower and Sao Paulo's Bovespa stock index inching higher.

Sandra Utsumi, chief economist of BES Investments, said the market would compare Lula's renewed pledges for economic austerity during his acceptance speech with "friendly fire" from top government aides, who said on Sunday Lula should ease conservative policies.

Some investors say Lula's landslide victory could help defuse opposition attempts to challenge the election's legitimacy over dirty-tricks campaigning by his party.

"Against this backdrop, political noise is likely to recede significantly, which in turn bodes well for (market) sentiment," Nuno Camara, economist with investment bank Dresdner Kleinwort, said in research note on Monday.

When Lula took office in 2002, panicky investors feared a wave of anti-business, populist policies. Instead, he emerged as a moderate alternative to more firebrand leftists like Venezuelan President Hugo Chavez.

The president's focus in coming weeks, Lula aides say, will be to lock in support from the centrist Brazilian Democratic Movement Party (PMDB), which in recent years has been split between government and opposition. The PMDB, the country's largest party, would give Lula's current six-party alliance from left to center-right a narrow majority in the Lower House.

In the Senate, the government's position is weaker. There, the opposition could win the presidency and potentially stonewall government initiatives, Dias said.

Lula can count on support from more than half of the 27 elected governors, compared to support from only three governors after his 2002 victory. Governors wield much influence over their parties in Congress and will be key to approve a tax reform.