Unlovely Landslide; Scandal-scarred Lula is heading for victory, but his honeymoon could be short.

Byline: Mac Margolis

As scandals go, this one had a little of everything. There was the shadowy backwoods businessman flogging a purportedly explosive secret "dossier." Standing by were two bagmen holed up in a cheap hotel room with bricks of cash in their luggage. Backstage was a covey of campaign spinmeisters whispering scoops to eager reporters and, lurking behind them all, a special aide to the president himself who answered to the name of Freud. A script for a B movie? No, merely another Brazilian political imbroglio airing just in time for the Oct. 1 nationwide elections in Latin America's biggest, and perhaps unruliest, democracy.

Scandal is hardly new to the government of President Luiz InAcio Lula da Silva, which has been rocked by one impropriety after another over the past 20 months. Like an escape artist, he has survived them all. But the latest crisis has fallen like a cluster bomb: on Sept. 14, federal agents arrested two operatives from the ruling Workers Party (PT) who planned to buy documents to implicate rivals from the Social Democratic Party in a massive kickback scheme. The ploy backfired, wreaking havoc all the way to the presidential palace. Lula's campaign manager Ricardo Berzoini, special assistant Freud Godoy, a senior government banker and a political troubleshooter who doubled as a chef at presidential barbecues all have fallen. Is Lula next?

Remarkably, probably not. Barring more damning revelations, Latin America's most charmed leader seems poised to win one of the most sensational landslides in Brazilian electoral history. A survey by Brazil's Datafolha released just eight days before Sunday's election showed Lula with 49 percent support among likely voters against a mere 31 percent for his nearest challenger, former Sao Paulo governor Geraldo Alckmin. Brazil's political rainmakers may not be so forgiving. Both the federal police and the electoral court have launched investigations into what the media have dubbed "Dossiergate." And the damage has spread beyond Brasilia; stocks and bonds tumbled on the Sao Paulo stock exchange last week while the dollar rose sharply against the Brazilian real. The irony has not been lost on political analysts, who foretell glory for Lula at the polls and grief for the mandate to come. "Any way you look at it," says Bolivar Lamounier, a senior Brazilian political scientist, "Lula's second term will be a battle."

Lula's Teflon aura is already legend, but he also has helped make his luck. Despite all the market tremors in recent days, he has stewarded the Brazilian economy to a period of stability that is enviable by Latin American standards. Inflation has plunged to 4 percent a year, the Central Bank is flush with $60 billion in hard-currency reserves, and since Brazil settled up with the International Monetary Fund (IMF) last year, foreign debt has all but disappeared. Even the country's infamous interest rates, which at 10 percent a year above inflation are still among the world's highest, have fallen sharply since the beginning of Lula's term.

Whether the good times can last is another matter. Although Lula is not a classic populist, in the run-up to the election he has granted record increases in the minimum wage, hiked pensions well above inflation and plumped the public payroll. Thanks to the bonuses and stable prices, the poor have seen their disposable income soar. Yet for months now, economists have been cautioning about busting the Brazilian budget. Though the spendthrift Constitution is partly to blame, Brasilia's discretionary spending is growing at 9 percent a year, more than double the inflation rate.

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