Brazil's Lula hit by crises, reform hopes fade

BRASILIA, Aug 10 (Reuters) Corruption scandals and his own poor handling of Brazil's worst air disaster have raised doubts about President Luiz Inacio Lula da Silva's leadership and hit hopes for economic reforms during his second term in office.

Lula remains popular, particularly among the poor, who saw better wages and expanded welfare programs during the leftist former union leader's first four years as president.

But the man who swept to power with a landslide election victory in 2002 and used to charm packed football stadiums with his folksy charisma has been booed at public events over the past month.

Lula, who began his second term in January, showed no sign of his famed common touch when he disappeared from public view for three days after an airliner crashed at Brazil's busiest airport in Sao Paulo on July 17, killing 199 people.

Despite detailed safety warnings from his defense minister as early as 2003 and another air crash that killed 154 people last September, Lula said last week he had not been aware of the extent of the aviation problems.

''It is frightening how ignorant President Lula is of events happening right under his nose,'' said Lucia Hippolito, a prominent commentator. ''Lula is the most poorly advised president in the history of this country''.

Critics say Lula's government failed to invest in new runways, more air traffic controllers and equipment, and that he packed top aviation posts with his friends and allies.

Under fire for his handling of the aviation crisis, which also caused massive flight cancellations and delays, Lula replaced his defense minister late last month.

POVERTY, CORRUPTION When he first came to power, Lula promised an assault on poverty and endemic corruption.

Helped by an export boom, the economy is growing at a 5 per cent clip, many of the poor are better off and Lula has won over foreign investors who had feared his socialist past.

But he has been put on the defensive by new scandals. His energy minister resigned in May over accusations that he took a kickback for government contracts and Senate leader Renan Calheiros, another close ally, faces similar charges.

Lula has lost some of the vigor of his first term in office and many business leaders are disappointed he doesn't use his support to push unpopular but necessary economic reforms.

''It's very worrying. With the economy driven by global demand, they no longer care about measures to ensure Brazil's long-term competitiveness,'' said Edgar Pereira, chief economist with the Sao Paulo-based industry think tank IEDI. ''It's a shame -- reforms are off the agenda again.'' Legislative proposals aimed at attracting investment are stuck in Congress, including new rules for the gas industry, regulatory agencies, and environmental permits.

''These are crucial for investment and long-term growth but I no longer see them being approved this year,'' said Chris Garman, Latin America director with New York consulting firm Eurasia Group. ''The government and Congress have been stuck in crisis management for months and reforms are stalled.'' Business groups wanted reforms to make labor laws more flexible but the government now says they are not a priority.

Although the scandals have taken the shine off his leadership, a new poll this week showed that 48 percent of people still believe the government is doing a good or a very good job.

Analysts say he is an expert at deflecting criticism and surviving scandal, and Lula has dismissed small but growing protests by mostly middle class voters.

''If some of them want to play with democracy, remember that in this country nobody can put more people in the street than I can,'' he said last week.

Many poor Brazilians are happy to have a working-class president and say that improved welfare programs, more jobs and tax cuts that made rice and beans cheaper have all helped improve living standards. As only the richest 8 percent of people can afford air travel, the chaos of the last year has only directly affected a small minority.

''The airports haven't been modernized in 40 years and now they want to blame Lula for it,'' said Jose Benedito Goncalves, a Brasilia taxi driver. ''At our income level, we don't use planes. We're doing better than we have with any other president.'' REUTERS AK VC0950