Lula seeks broad coalition after election victory

BRASILIA, Brazil, Oct 31 (Reuters) After his re-election in a landslide, Brazil's President Luiz Inacio Lula da Silva faced the sobering challenge on Monday of forging a broad governing coalition and kick-starting stalled reforms.

Lula, as Brazil's first working-class president is known, said he would build a government based on the political forces that supported his re-election.

He denied rumors that would dismiss Finance Minister Guido Mantega or Central Bank President Henrique Meirelles right away.

''I have until the first of January,'' Lula said in a series of television interviews. ''Guido Mantega is my finance minister, Meirelles is central bank president ... until I decide to change that or not.'' Lula won a strong mandate on Sunday with 60.8 per cent of votes against rival Geraldo Alckmin of the centrist Brazilian Social Democracy Party, who took 39.2 per cent.

The victory marked a remarkable comeback from a series of corruption scandals involving Lula's left-leaning Workers' Party, which had threatened to end the political career of the former union leader.

Lula's large margin of victory should confer him some political capital, but some analysts cautioned he still faces an uphill battle to govern effectively.

''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.

Lula said he will convene a meeting next week with Brazil's state governors, who wield much influence over their parties in Congress.

He can count on support from over half of the 27 governors compared to only three after his 2002 victory.

ECONOMIC REFORMS Lula started calling on governors earlier Monday to seek common ground on economic reforms and help secure the clear majority in Congress that has eluded him so far.

SBT Television reported that the president spoke with Minas Gerais state Governor and key opposition figure Aecio Neves, who has said the make-up of Lula's new cabinet would indicate whether he was serious about consensus politics.

Lula gave no hints about whom he might name to his cabinet, but stressed the need for consensus. ''I'm going to put together a government based on technical competence, political commitment and commitment to the program that got us elected,'' he said.

Lula's top political advisor, Tarso Genro, said the president would personally lead coalition talks.

Genro will meet with congressional leaders on Tuesday to push a stalled tax reform bill.

''I think it's possible to get the tax reform approved by year-end,'' he told journalists.

Lula's other priority is to overhaul a corruption-prone party system, said Genro, and the president's focus will be to lock in support from the centrist Brazilian Democratic Movement Party (PMDB) in order to govern with a majority.

Backing from the PMDB, Brazil's largest party, would give Lula's current six-party alliance 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.

''The problem is agreeing on an agenda. Lula during the campaign distanced himself from market-friendly reforms the country needs,'' said Dias.

Financial markets reacted cautiously to the election result, with the currency drifting lower and Sao Paulo's Bovespa stock index ending down more than one per cent.

Lula repeated his commitment to economic austerity in his acceptance speech on Sunday and renewed the promise on TV last night, saying: ''We're not going to change the inflation target.'' Sandra Utsumi, chief economist at BES Investimentos in Sao Paulo, said the market would compare those pledges with ''friendly fire'' from top government aides, who said on Sunday Lula should ease tight fiscal and monetary policies.

Finance Minister Guido Mantega said ''we are now entering a new phase in which (economic) growth will be more intense.'' However, Genro insisted that nobody in the government was proposing ''a break'' with current economic policy.

REUTERS SRS BD0815