Pacote 3 mensalão + dirceu


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Pacote 3 mensalão + dirceu

  1. 1. Mensalão + Jose Dirceu + PT <br />1139810/14/2003 19:3303BRASILIA3323Embassy BrasiliaUNCLASSIFIED//FOR OFFICIAL USE ONLY<br />UNCLAS SECTION 01 OF 02 BRASILIA 003323 SIPDIS SENSITIVE DEPT FOR WHA/BSC E.O. 12958: N/A TAGS: PGOV, PREL, PINR, BR SUBJECT: AMBASSADOR'S CAPTOR FIRST TO BOLT PT PARTY REF: A. BRASILIA 3125 B. BRASILIA 2655 1. (SBU) SUMMARY. Fernando Gabeira, a Brazilian Federal Deputy whose original claim to fame was as a revolutionary who kidnapped the US Ambassador in 1969, has become the first national figure to leave Lula's Workers' Party (PT) of his own volition since Lula took office. Over the years, Gabeira has been an outspoken environmentalist, and his break with the PT was triggered by Lula's recent decision to legalize genetically-modified soybeans (ref A). Gabeira's departure, along with the likelihood that three other Deputies will be expelled from the party for voting against a key reform bill, illustrates how the Workers' Party has changed in recent months and years. Policy decisions, even on bedrock substantive issues, are no longer made after discussion and consensus-building within the party. Instead, the Lula government is making decisions animated by the practical necessities of leading a country and a fractious coalition. These compromises are at odds with some of the PT's traditional positions and are unpalatable to many of the more determined leftists in the party, though no others seem inclined to leave the PT at present. END SUMMARY. WHAT'S UP, COMRADE? ------------------- 2. (U) Fernando Gabeira was a journalist who joined a small Brazilian revolutionary group called MR-8 that gained notoriety in 1969 when it kidnapped U.S. Ambassador to Brazil Charles Elbrick. The events were brought back to life in the 1997 movie "Four Days in September" --based on Gabeira's novel about the kidnapping, "O Que E Isso, Companheiro?" ("What's Up, Comrade?"). Elbrick was freed in exchange for the Brazilian regime releasing fifteen political prisoners and sending them into exile. Among the fifteen was Jose Dirceu, a Sao Paulo student leader who returned from exile in 1979 and co-founded the PT party with Lula the next year. Dirceu is now President Lula's Chief of Staff and most-trusted advisor. 3. (SBU) Gabeira was shot and captured during the Elbrick kidnapping, but himself was later freed and sent into exile in exchange for the release of the kidnapped German ambassador. Like Dirceu, he returned to Brazil with the 1979 amnesty. In addition to his journalism, Gabeira became active in human rights and environmental causes, co-founding the Green Party (PV) in 1986. In 1994, he became the Green Party's first Federal Deputy, winning a seat from Rio de Janeiro. He moved to the PT party in 2001 and was reelected to his third four-year term in 2002. Gabeira, now 62, serves on three Chamber committees: Environment, Human Rights, and the Ad Hoc Committee on FTAA negotiations. He is active in debates on biotechnology and free trade, being an outspoken skeptic of both. BIOTECH SOY CAUSES PT'S FIRST DEFECTION --------------------------------------- 4. (SBU) The PT is one of the few Brazilian political parties that requires some discipline of its members and frowns on party-switching. There have been 140 party changes in the Chamber in the past nine months, none involving the PT. Thus it is significant when a PT member decides to leave the party over a point of principle. Three Deputies are nearly certain to be expelled from the Workers' Party in November for voting against Lula's pension reform bill (ref B), and Gabeira's departure comes against the soul-searching engendered by that mini-crisis. But Gabeira is seen as a respected voice who has earned his leftist stripes through the years. In the words of one columnist, "Fernando Gabeira can't be accused of being a radical, furious, a political opportunist, nutty, undervalued, or hysterical" like some of the other PT rebels. 5. (SBU) Gabeira announced his intention to leave the PT on October 6, charging that Lula was no longer listening to the rank-and-file on key issues. He was incensed by the recent issuance of a presidential decree legalizing the upcoming crop of biotech soybeans (ref A). Many in the PT's environmental factions, including Environment Minister Marina Silva, were deeply troubled by the decree, and in particular by the fact that Lula made the decision without consulting the party. Historically, the PT developed policy positions through long debates at party congresses. In interviews, Gabeira also complained that Lula recently met with Castro in Cuba without denouncing his human rights record. 6. (SBU) Last week, the PT scrambled to try to keep Gabeira in the party and there were rumors that he alone would be allowed to vote against the Biotechnology bill when it comes to the floor. Jose Dirceu invited him to an October 10 meeting at the presidential palace to be joined by Marina Silva and party president Jose Genoino. But Dirceu was an hour late to the meeting )-trapped in Congress mediating a coalition dispute-- and a clearly-deflated Gabeira walked out before Dirceu arrived, grumbling to the press about Dirceu's "inelegance". Gabeira told the press that he will continue to vote for Lula's initiatives when he can, but will remain "without party" for the time being. It seems likely that he will eventually rejoin the Green Party and its six Federal Deputies, as long as the Greens do not vote to legalize biotech crops. COMMENT - "PT PRAGMATIC" ------------------------ 7. (SBU) If Lula has evolved from the old fire-breathing union leader into "Lula Lite", then the Workers' Party has similarly evolved into "PT Pragmatic". In his first few months in office, Lula established a dozen "councils" designed to forge consensus in nearly every policy sphere. But the councils seem nearly forgotten now. Increasingly, decisions are made by a small group including Lula, Dirceu, Finance Minister Palocci, and a handful of other PT insiders. The resulting policies --from fiscal austerity at the expense of social programs to pension reform to legalizing biotech soybeans-- are pragmatic and centrist, but are often sharply at odds with historical positions of the Workers' Party. Both the policies and the policy-making style are alienating to the party's leftists, who charge the administration with "incoherence", a Brazilian term roughly meaning "lack of continuity", suggesting Lula has turned his back on both his constituents and his past. In the wake of Gabeira's decision, even PT President Genoino, a moderate and a Lula insider, is calling for a review of the administration's decision-making style. "The government", he says, "needs to be more sensitive. The party has a tradition and an agenda. It has historical banners that can't be forgotten". 8. (SBU) With Gabeira's departure and the expulsion of the three rebels, the PT's Chamber caucus will slip to 90 members --it will remain the largest party in the Chamber by fifteen seats. In truth, those leaving the PT will move to parties farther on the left that are firmly in the PT-led coalition, so while they will be free to vote against the administration on any given bill, they will not really damage the government's already fractious coalition. Instead, the departures serve to underline the distance that the PT has traveled towards the center over the past year. This is an evolution of choice, Lula and Dirceu and the inner circle have made the conscious decision to jettison some of their leftist ideology in the name of governability. HRINAK <br />144163/1/2004 19:3504BRASILIA458Embassy BrasiliaUNCLASSIFIED//FOR OFFICIAL USE ONLY<br />UNCLAS SECTION 01 OF 03 BRASILIA 000458 SIPDIS SENSITIVE DEPT FOR WHA/BSC E.O. 12958: N/A TAGS: PGOV, PREL, KCRM, ECON, BR, Domestic Politics SUBJECT: SCANDAL CONTINUES TO RATTLE BRAZILIAN GOVERNMENT REF: BRASILIA 0402 1. (SBU) SUMMARY. The Waldomiro Diniz scandal that broke in Brazil on February 13 (reftel) continues to reverberate, and the end is not in sight. Diniz, a deputy to Lula's Chief of Staff, Jose Dirceu, was fired when it was revealed that, as head of the Rio de Janeiro lottery authority in 2002, he solicited bribes from a numbers operator and reportedly funneled that money into several Workers' Party (PT) election campaigns. With Brazil returning to work on March 1 from the Carnaval holidays, the story remains front-page news and has spun off in different directions. VEJA magazine ran a cover story alleging further PT campaign improprieties while other media reported that Diniz continued his influence peddling even after joining the Lula administration. In that instance, the press implies that in early 2003, Diniz intervened to benefit GTech, a US firm that provides computerized lottery services. In a February 20 statement, GTech stated that two of its officials met with Diniz and others in the new administration in early 2003, and that all such talks were transparent and professional. 2. (SBU) On the political front, President Lula issued a decree banning bingo games and slot machines throughout Brazil. Congress must now vote on this measure, which is controversial because it put hundreds of thousands of gaming employees out of work. This week, Congress will also decide whether to establish a congressional inquiry (CPI) into the Diniz scandal, or more likely, into the gaming sector in general. While Congress's normal legislative agenda may be slowed by the fallout from the Diniz scandal, a political reform bill that would, inter alia, reform campaign finance rules, is on a fast track. There is no hard proof that Jose Dirceu or other PT leaders filled party slush funds with money squeezed from legal and illegal gambling operators, but there are certainly a lot of unanswered questions. While Lula's personal approval numbers remain high, his government, his party, and his Chief of Staff are taking a beating. END SUMMARY. MORE CHARGES OF ILLEGAL PT CAMPAIGN FINANCING --------------------------------------------- 3. (SBU) The fallout from the Waldomiro Diniz scandal that broke on February 13 is far from over. In its 2/25 issue, VEJA magazine ran an article claiming that the alleged illegal campaign financing by the Workers' Party (PT) in 2002 was not isolated to Diniz and the money he claims to have solicited for gubernatorial races in Rio and Brasilia. The article reports that Jose Vicente Brizola, who in 2002 was Director of the Rio Grande do Sul state lottery authority, was pressured by that state's PT Senator Emilia Fernandes to solicit up to R$900,000 (about $300,000) from bingo operators for her failed reelection bid. (Fernandes was Secretary for Women's Affairs in Lula's government until losing her job in the January 2004 cabinet reshuffle.) If true, the story would be another black eye for the PT. On the other hand, Brizola, who provided the basis for VEJA's report, is the son of former Rio governor Leonel Brizola, whose PDT party is a shrill opponent of Lula's government, and PT leaders respond that he is merely seeking revenge for not being offered a job in the administration. 4. (SBU) Also last week, Luiz Eduardo Soares, who in 2003 was fired as head of the Federal Police for hiring his wife and ex-wife as consultants, announced that while working in the Rio state government in 2002, he learned of Waldomiro Diniz's illegal fundraising for the PT, but when he brought it to the attention of party leaders, nothing was done and Diniz was left in place as head of the Rio lottery authority. DINIZ'S ONGOING CORRUPTION -- US FIRM NAMED ------------------------------------------- 5. (SBU) Another set of allegations has sprung up suggesting that Diniz's corrupt activities did not end when he joined President Lula's staff. The press is reporting that in 2003, while serving as a senior advisor to Lula's Chief of Staff, Diniz met with officials of US firm GTech, which holds the contract to operate Brazil's 9,000 computerized lottery parlors. Press reports indicate that Diniz met with numbers racketeer Carlinhos Cachoeira ("Charlie Waterfall") not only in the infamous 2002 videotapes (ref A), but also in early 2003, when they met with GTech officials to discuss a 25-month extension of the firm's contract. If Diniz's actions were improper, it would belie Lula's statements that Diniz's improprieties occurred before he joined the administration --it would put his corruption inside Lula's Planalto Palace. In a February 20 statement, GTech stated that its officials met with Diniz and other officials of the new administration in early 2003, and that all such talks were transparent and professional. GTECH - WORLDWIDE LOTTERY OPERATOR ---------------------------------- 6. (SBU) In 1997, Brazilian firm Racimec, owned by Carlinhos Cachoeira --the lottery operator who made the videotapes of himself negotiating bribes with Waldomiro Diniz-- won a five-year contract to operate the federal lottery. Racimec was then bought by GTech, a Rhode Island company with 2003 revenues of $979 million that operates lotteries around the world. This contract was extended through April 2003, and then re-extended for 25 more months. The GoB is GTech's single largest customer, accounting for 10% of the firm's revenues. In 2002, GTech filed a still-unresolved lawsuit against the GoB to prevent it from segmenting the lottery contract into four separate operations and thus reducing its need for GTech's services. The stakes are high, lottery proceeds are about R$5 billion (about $1.7 billion) annually and, of this, about one-third is earmarked for GoB social programs. CONGRESS TO DECIDE ON DECREE ON BINGO'S STATUS --------------------------------------------- - 7. (SBU) Aside from the direct legal consequences of the scandal, there are political ramifications on at least three tracks: the legal status of national bingo games, the possibility of a congressional inquiry (CPI), and efforts to reform campaign finance laws. The first of these, the bingo games, was the subject of the President's first direct response to the scandal. On February 20, seeking to exert control over the loosely-regulated bingo games, Lula issued a presidential decree (MP 168) banning all bingo and slot machines (but not lotteries) throughout Brazil. Lula's office announced that the decree would remain in force until "a definitive solution is found". In fact, to remain in force, the decree must be voted into law by Congress within 60 days. In its first week, MP 168 survived six legal challenges filed by bingo operators, and the wave of lawsuits is not likely to abate as the police continue seizure operations that have already netted 1,200 machines. 8. (SBU) MP 168 is tricky business for Congress. While the Diniz scandal has heightened public suspicions of the gaming sector, it is estimated that between 120,000 and 320,000 gaming employees have been put out of work by the decree, and they have begun marching in the streets (one placard in Brasilia read, "Jose Dirceu, Your Job Cost Me Mine!"). This is tough medicine for an administration committed to reducing a rising tide of unemployment. The GoB concern is that bingo parlors are used to launder money, but a PT Deputy (Gilmar Machado) already had administration support for a bill that would legalize and regulate the bingo games. Further, there is a lingering suspicion that the Diniz scandal was orchestrated in part by numbers racketeers hoping to create pressure for greater legalization of gambling. With so many competing inerests, it seems likely that the administration will push to get MP 168 ratified by Congress in the coming weeks, at least in part to reinforce Lula's political authority and to demonstrate that the administration and PT are moving forcefully against gambling. That might then open the door for debate on a follow-on bill, such as Machado's, to re-legalize some sort of federal bingo. CONGRESSIONAL INQUIRY STILL IN THE AIR -------------------------------------- 9. (SBU) In the days after the scandal broke, party leaders in Congress argued over whether to open a congressional inquiry (CPI). The PT leadership and administration oppose a CPI in part to avoid more public shaming at the hands of opposition politicians, but also because the GoB wants to refocus attention on its legislative agenda. There were indications before Carnaval that intense lobbying by the PT and its coalition partners had rallied enough opposition votes to kill the CPI, but a threat by a PT Senator to investigate illegal campaign financing by other parties infuriated the opposition and left the issue to be settled this week. One possible compromise is to open a CPI to look into the gaming sector in general, rather than any specific case. The Diniz case is being investigated by the Federal Police and the Federal Prosecutor's office (both of whom will take Diniz's deposition this week), and the Rio state assembly. CAMPAIGN FINANCE REFORM GETS A BOOST ------------------------------------ 10. (SBU) While some of the GoB's legislative agenda is likely to be slowed by the Diniz scandal, a political reform bill has received a shot in the arm. Political reform (meaning rules changes for parties, elections, and campaign financing) was on the back burner because in this, an election year, it seemed unlikely to pass. Now, a bill that has been a year in the drafting by an ad hoc committee in the Chamber has moved forward to the Justice Committee and put in "urgent procedure", to speed its way to the floor. However, the bill is controversial and will certainly undergo changes before passing into law. COMMENT - DIRCEU AND PT ARE DAMAGED ----------------------------------- 11. (SBU) There is no proof that Chief of Staff Jose Dirceu or other Workers' Party leaders filled party slush funds with money squeezed from legal and illegal gaming operators, but there are certainly a lot of unanswered questions. Dirceu has reportedly offered his resignation to Lula more than once since the scandal broke, but was rebuffed each time. Polling numbers not yet released publicly reportedly show Lula's personal approval numbers remain high, but that his government, his party, and his Chief of Staff are all suffering significantly in the public eye. 12. (SBU) It is the nature of Brazilian political scandals that leaks and revelations continue to emerge, but that weeks or months later, the whole thing goes away and only lower-level officials ever suffer legal sanction. That pattern may hold true in this case, but Dirceu, who only recently was called the "Prime Minister" and the "All Powerful" is clearly diminished, and the PT has lost much of its hard-earned reputation for probity. The separate case of Celso Daniel, the PT mayor murdered in 2002, and the reluctance by the party leadership to push a thorough investigation, also weighs against the PT. If hard evidence of large-scale campaign finance abuses is found and linked to the highest levels of the PT (Dirceu was party president during the 2002 elections), the scandal could drag on for months. The opposition parties, with their eyes on the October 2004 municipal elections, will also keep stirring the pot. Damage has been done, but it is too early to say how much worse it will get. VIRDEN<br />147553/9/2004 20:0704BRASILIA564Embassy BrasiliaUNCLASSIFIED<br />UNCLAS SECTION 01 OF 02 BRASILIA 000564 SIPDIS DEPT FOR WHA/BSC TAGS: PGOV, SOCI, ECON, BR, Domestic Politics SUBJECT: LULA'S PERSONAL APPROVAL UNSCATHED BY RECENT SCANDAL REFS: A) BRASILIA 0458 B) BRASILIA 0402 1. SUMMARY: The administration of Brazilian President Lula da Silva is facing the worst crisis of its fifteen months in power, yet Lula's personal approval rating remains at 60%, according to a recent poll. However, his government's approval number stands at 38%, suggesting that Lula will have to expend greater personal and political effort to move legislation and to maintain popular support for his agenda. The difference in the numbers also demonstrates Lula's personal charisma, though this alone is unlikely to be enough to ensure his administration's success. As it now appears the worst of the scandal is abating, Lula and his government emerge with a tarnished reputation and reduced political capital, both in Congress and with the public. END SUMMARY. LULA AT 60%, BUT HIS GOVERNMENT AT 38% -------------------------------------- 2. The personal popularity of President Lula da Silva remains high (60%) despite the rash of bad press from the recent "Waldomiro Diniz scandal" involving a senior aide caught soliciting bribes from a numbers racketeer (refs A and B). A nationwide poll released March 2 by Datafolha showed that Lula's personal approval remains at the same level as it was in October 2003 (and nearly the same as the 61% of the popular vote he received in the October 2002 elections). Most Brazilians do not believe that Lula is linked to or knew about Diniz's corruption. 3. As always, Lula personally is much more popular than his administration. The approval numbers for Lula's government have slipped steadily since taking office, dropping again from 42% in December 2003 to 38% on March 2 (though this change is within the margin of error). In response to specific questions about the Diniz scandal, 81% of respondents believe there should be a congressional inquiry (which Lula's PT party vigorously opposed and managed to kill on March 4); 43% think Lula's powerful Chief of Staff, Jose Dirceu (for whom Diniz worked) should step aside during the investigation; and 24% believe Dirceu should step down permanently. Lula has reportedly refused Dirceu's offered resignation. 4. The scandal is not the only thing weighing down the government's approval numbers. An economy that remains sluggish despite fiscal belt-tightening (and controversial pension reforms passed in December) has not helped the administration's popularity. The Datafolha poll also notes that many Brazilians (36%) do not see President Lula as a hard worker, an increase over the 21% who held this opinion last year. This may be a function of his frequent international travels. Yet Ricardo Antunes, a Professor of Sociology at the University of Campinas in Sao Paulo, commented to the press that Lula's populist style enables him to communicate effectively with the working class, and therefore this segment of the population will give him more time to show results, in a sense give him a longer honeymoon. 5. The March 2 polling numbers also show that the popularity of the government has fallen regardless of region. In the prosperous southeast (which includes the economic centers of Sao Paulo and Rio) the government's approval fell from 37% in December to 31% on March 2. In the poorer northeast, the numbers slipped from 47% to 42% in the same period. COMMENT ------- 6. Waldomiro Diniz was a senior advisor to Jose Dirceu, Lula's closest and most powerful advisor. Dirceu has been diminished by the scandal, though he is not personally implicated. Yet Lula continues to rise above the image of his party and his administration. The Datafolha numbers show that his personal popularity is a remarkable 22 points higher than that of his government. This dynamic has caused press and pundits to speculate on how long Lula's popularity balloon can sustain the deadweight of a sluggish economy and controversial political reforms. With the Diniz scandal making matters even worse for the government, some believe that the GoB may be forced to make concessions, either on fiscal austerity or on controversial pieces of legislation, in order to maintain popular and congressional support. To date, this is just speculation, and Lula has given no sign that he will cave in to political pressures. In fact, even in the wake of the latest dismal GDP figures, Lula again reasserted his long-term commitment to Finance Minister Palocci's austerity program. RVIRDEN<br />148143/10/2004 20:2004BRASILIA572Embassy BrasiliaCONFIDENTIAL<br />C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 000572 SIPDIS DEPT FOR WHA/BSC E.O. 12958: DECL: 03/10/2014 TAGS: PGOV, ECON, SOCI, KCRM, BR, Domestic Politics SUBJECT: WORST OF BRAZILIAN SCANDAL HAS PASSED REF: A. BRASILIA 402 B. BRASILIA 458 C. BRASILIA 564 D. SAO PAULO 378 Classified By: POLOFF RICHARD REITER, FOR REASONS 1.5 B AND D. 1. (C) SUMMARY. On March 4, Brazil's Workers' Party (PT) quashed efforts to set up a congressional inquiry (CPI) into the gaming sector and the "Waldomiro Diniz" scandal (refs A,B). This, coupled with the fact that no new allegations pointing to wrongdoing by PT leaders have emerged in recent days, suggests that the worst of the scandal has passed. Lula's Chief of Staff, Jose Dirceu, was emboldened to give a defiant press interview in VEJA magazine. The post-mortem shows that the winners include PMDB Senator Jose Sarney, who gave key support to the administration in quashing the CPI. Losers, aside from Dirceu, include PT Senator Aloizio Mercadante and PL Senator Magno Malta. Other big losers are the nation's more than 120,000 bingo parlor employees put out of work when Lula closed the parlors February 20. 2. (C) And of course the Workers' Party has lost political capital. It is too early to say whether the scandal will hurt the PT in October's municipal elections, but it is likely to slow the legislative agenda in an already compressed congressional year. The PT may also emerge more dependant on its coalition partners (who will extract maximum benefits in return), particularly the PMDB, which was instrumental in saving the PT from worse disgrace. The PT's poor response to the crisis is in part due to its inexperience with ethics scandals, but the party is likely to discover that learning these lessons is politically expensive. END SUMMARY. CONGRESSIONAL INQUIRY GETS PUT IN A DRAWER ------------------------------------------ 3. (SBU) On March 4, three weeks after the "Waldomiro Diniz" scandal broke --in which a senior advisor on President Lula's staff was caught soliciting bribes from a numbers racketeer-- the Workers' Party used a parliamentary tactic to quash efforts to establish a congressional inquiry (CPI). The CPI was sponsored by Senator Magno Malta, of the coalition's Liberal Party. On March 4, Malta filed his petition with the Senate leadership, but the fix was already in. Senate President Jose Sarney, a leader of the coalition's PMDB party, went ahead and authorized the CPI, but then neither the PT nor the PMDB nominated their members to the committee. Without a quorum, the committee could not be established and, in the lexicon, was "put in a drawer". Investigations by the Federal Police, the Federal Prosecutor, and the Rio state assembly still continue. With the CPI threat gone, and the fact that no new allegations against PT leaders have emerged in recent days, the worst of the scandal appears to have blown over. JOSE DIRCEU FINALLY GOES PUBLIC ------------------------------- 4. (U) In fact, Lula's embattled Chief of Staff Jose Dirceu, for whom Waldomiro Diniz worked, felt emboldened enough to make his first public statement when he gave a long interview for the March 10 issue of VEJA magazine. Defiant, Dirceu wondered why the opposition politicians who now say they have known about Diniz's malfeasance for over a year did not raise the issue earlier. Saying that he made a mistake in trusting Diniz but committed no crime, Dirceu confirmed that Lula refused his offer to resign. He insisted that the scandal is not an "institutional crisis" and that the Workers' Party maintains its "standard of ethical behavior and transparency". LEGISLATIVE AGENDA A TOUGH SELL ------------------------------- 5. (C) The Lula administration and the PT have not emerged unscathed. Lula's personal approval remains at a teflon 60%, but his government's popularity has slipped to 38% (ref C). Even PT politicians tell us that the administration will have to work harder to sell its bills in Congress and may have to offer more pork to coalition allies. Congress is now turning to its legislative agenda (one PT Federal Deputy told us that when the PT caucus in the lower house held its weekly meeting on March 9, crisis management was not even on the agenda), which in the coming weeks will include the Energy Model, Public-Private Partnerships, a Bankruptcy Law, follow-on legislation for last year's tax and pension reforms and possibly judicial reforms. (A bill to reform campaign financing, which got an early boost from the scandal, has once again been put on the back burner.) The legislative plate is full of tough bills, and with municipal elections set for October, Congress will essentially stop working when it goes into recess on June 30. WINNERS... ----------- 6. (SBU) The post-mortem on the scandal is still being written, but there are some clear winners and losers. Among the winners are Senate President Jose Sarney (PMDB) who provided sound advice and procedural support in helping the administration quash the CPI. Rumors that Sarney will be rewarded by getting to name the next head of Electrobras have resurfaced, and it is rumored that the PT will support Sarney's bid to amend the constitution to allow him to remain as Senate President through 2006. Similarly, leading PMDB Senator Renan Calheiros and Chamber Speaker Joao Paulo Cunha (PT) worked hard on the administration's behalf and will expect recognition. Meanwhile, former-Rio Governor Anthony Garotinho, who came in third in the 2002 presidential elections, is positioning himself for another presidential run in 2006. Though Garotinho heads Rio's PMDB branch --and the PMDB is part of Lula's coalition-- he did not miss the opportunity to slam the administration over the Diniz scandal. ...AND LOSERS ------------- 7. (C) The list of losers from the Diniz scandal must start with Chief of Staff Jose Dirceu. He appears to have dodged the bullet, in that there is no evidence that he was personally involved in corrupt activities. But Diniz worked for him, and there are still unanswered questions about Dirceu's role in both the Diniz and Celso Daniel (ref D) cases. Dirceu is convinced that another member of Lula's inner circle, Communications Secretary Luiz Gushiken, tried to undermine him with tactical leaks over the past weeks, and Lula reportedly had to mediate their dispute. In a March 2 poll (ref C), two-thirds of Brazilians said Dirceu should step down, either temporarily or permanently, from his post. 8. (SBU) Leading PT Senator Aloizio Mercadante also came out badly. It was he who gave disastrous tactical guidance to the PT caucus in the Senate that nearly resulted in the CPI being established. (There is some speculation that Mercadante may be replaced by Calheiros as the coalition's floor leader in the Senate.) Liberal Party Senator Magno Malta, leader of the PL's Senate caucus, was badly damaged by his insistence on requesting the CPI, despite the fact that the administration and PL leadership were opposed. (The PL is a coalition member and the party of Vice President Alencar.) Malta gave a tearful mea culpa on the Senate floor on March 9, but he may be forced out of his leadership position, if not out of the party altogether. BINGO PARLORS OUT OF LUCK ------------------------- 9. (C) Bingo parlors are losers, and an estimated 120,000 or more gaming employees are out of work. On February 20, Lula issued a decree closing all bingo games and slot machines in Brazil. Bingo was originally legalized in 1993 to allow gaming houses to affiliate with sports clubs and donate 7% of their revenues to the clubs' upkeep. However, many clubs complain that they never received the promised bingo revenues. PT Federal Deputy Jose Eduardo Cardozo told us the system is "a fraud", and the bingo parlors are simply money laundering operations. PT floor leader Arlindo Chinaglia assured us that Congress will support Lula's decree (which must be approved by Congress to remain in force), and no thought is being given to reopening the parlors anytime soon. WORKERS' PARTY IMAGE TARNISHED ------------------------------ 10. (C) And of course the Workers' Party has lost political capital. It is too early to say whether the scandal will have an impact on October's municipal elections, and there are still seven months for the party to recover, but the declining popularity of the PT-led administration indicates that the party has suffered a black eye. The PT's code of ethics is more than just image (of 76 members of Congress who are currently defendants in criminal or electoral cases, none is a PT member), but the spate of bad press is damaging, and PT candidates will be hard-pressed to point fingers at their opponents' misdeeds in the election run-up. 11. (C) The PT showed itself inexperienced in crisis management, precisely because it is rarely faced with ethical crises. The fact that it was saved by behind-the-scenes support from figures like Senators Jose Sarney and Antonio Carlos Magalhaes, both widely perceived as ethically-challenged, but who have therefore developed superb crisis management skills, is surely not lost on the public or the Workers' Party rank-and-file. The PT learned some tough lessons that it hoped never to need, and finds itself diminished as a result. COMMENT - PT NOW A HOSTAGE? --------------------------- 12. (C) Pundits here wonder whether, and to what extent, the PT now finds itself held hostage by its coalition allies. The large PMDB party, in particular, is never shy about demanding pork, the right to fill federal job vacancies, compromises on controversial legislation, and now deals on local-level coalitions in the upcoming elections. One PT Deputy told us with a sigh that campaign finance reform and labor reform will not pass this year because the PT will have to limit its exposure on controversial bills. There still may be time and political capital to pass important legislation, but the expectations have been sharply reduced by the scandal. This is surely not how Lula and the PT wanted to begin their second year. VIRDEN<br />155503/31/2004 19:1004BRASILIA776Embassy BrasiliaCONFIDENTIAL<br />C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 000776 SIPDIS DEPT FOR WHA/BSC E.O. 12958: DECL: 03/31/2014 TAGS: PGOV, PREL, ECON, BR, Domestic Politics SUBJECT: LULA TAKING FRIENDLY FIRE FROM COALITION PARTIES REF: A. BRASILIA 0564 B. BRASILIA 0572 C. BRASILIA 0458 Classified By: POLOFF RICHARD REITER, FOR 1.5B AND D. 1. (C) SUMMARY. The Lula administration has fumbled its response to February's "Waldomiro scandal", resulting in non-stop criticism from the Brazilian press and opposition. Worse for the administration, many of the parties in the governing coalition have responded to the crisis not by rallying behind the government, but by ratcheting up their complaints about GoB economic policies and their demands for special favors. The PL, PMDB, PTB, and PP have been particuarly contentious allies. As a result, the coalition is frayed and Lula's ability to push legislation to reestablish his momentum will be constrained unless he can rebuild the coalition's unity --a difficult task given that this is an election year in which the parties have individual agendas and added incentive to squabble. The first step in the process occurred on March 30, when Lula promised to disburse some R$500 million to fund legislators' pet projects in return for their support on a key congressional vote. END SUMMARY. GOVERNING COALITION SHOWS FRAYED EDGES -------------------------------------- 2. (C) The Waldomiro Diniz scandal (in which a senior advisor on President Lula's staff was caught on videotape soliciting bribes from a numbers racketeer) broke on February 13. Since then, the administration has careened from perplexity to difficulty, as Chief of Staff Jose Dirceu's reputation has plummeted, the GoB's approval numbers have slipped (ref A), and the parties in the ruling coalition have begun to sound more like opposition critics than Lula supporters. Of note, a national poll released on March 25 reveals that 52% of respondents had never even heard of the Waldomiro scandal, and only 9% said it changed their opinion of the government. Thus, it is the perception of ineffectiveness (coupled with Brazil's stubborn economic problems), rather than the scandal itself, that has contributed to the government's slump. 3. (C) Physiologism ("fisiologismo") is a Brazilian term roughly translatable as "crass opportunism", applied to politicians with no core beliefs who switch allegiances for short-term advantage. The administration's problems have been amplified by the fact that some coalition members are hardly true-believers in the vision of Lula and the Workers' Party (PT). They joined the coalition to be on the side of power, and they will threaten to leave just as quickly if they sense the coalition losing authority. This is particularly true since nationwide municipal elections will be held in October, meaning the parties are jockeying against each other to win mayorships and city council seats. LIBERAL PARTY TURNS MEAN ------------------------ 4. (C) Waldemar Costa Neto, President of the Liberal Party (PL), gave a stinging March 14 press interview in which he said, "The greatest problem is that nobody at the core of the government understands economics". He said that both Finance Minister Palocci and Central Bank President Meirelles should be fired and economic policy turned over to Vice President Jose Alencar (of the PL). When Lula expressed his displeasure with Costa Neto's comments, other party leaders walked them back. The PL is a right-of-center party that Lula wooed into the coalition to increase his appeal to both the business and evangelical communities. Costa Neto is not the only unhappy Liberal. When the scandal broke in February, PL Senator Magno Malta vainly tried to set up a congressional inquiry (ref B) that would have dragged out the scandal for months. Meanwhile, VP Alencar has periodically (most recently on March 29) criticized the administration's fiscal austerity policies. PMDB JOINS THE FRAY ------------------- 5. (C) The PL is not the coalition's only headache. The chronically-divided PMDB abruptly changed course at a party leadership meeting on March 14, dealing a defeat to the pro-Lula wing led by Senator Jose Sarney. It was Sarney's parliamentary tactic that saved the GoB further angst by killing Magno Malta's attempt to set up a scandal inquiry in the Senate. Lula was grateful, but the move left Sarney exposed within his own party. At the March 14 meeting, Sao Paulo Federal Deputy Michel Temer, a Lula critic, was reelected PMDB president with the support of the first couple of Rio de Janeiro: Governor Rosinha and Anthony Garotinho. Even with Temer's resurgence, the PMDB is too "physiologist" to leave the coalition on principle, for that would mean giving up its cabinet posts and other perks (though some PMDB Deputies released a letter on March 24 threatening to pull out of the coalition if their economic advice were not followed). Instead, the party will increase its criticism of the administration and demand more perks (and influence over policy) in return for its tepid support. 6. (C) Sarney's influence within the PMDB will be reduced, at least until he figures out a way to fight back. Anthony Garotinho is already positioning himself to run in the 2006 presidential elections, often slamming the administration in public statements. Garotinho appears to have forgotten that the PMDB is in the ruling coalition, noting on March 27, "We are not radicals. We're building a 'constructive opposition'. This is not targeting the President, but is designed to help him. Even though the government mistreats us, we feel no rancor." If the anti-Lula faction retains control over the party through 2005, it might then leave the coalition to open more daylight for Garotinho's presidential run. In the meantime, the PMDB will be looking to negotiate with the PT on candidate slates in key towns for October's municipal elections. LULA GETS NO JOY FROM OWN PARTY ------------------------------- 7. (C) On March 5, without consulting Lula, the Workers' Party (PT) Executive Committee issued a statement critical of the administration's economic policies. Lula complained to party President Jose Genoino, who quickly walked back the statement. But two weeks later, PT "radicals" (the leftist wings of the party) met in Sao Paulo and also demanded economic policy changes. While these episodes did not cause serious damage, they underscore two phenomena: a) the ideological differences that fester within the PT (and the constant work Lula must do to keep his own troops in line); and b) that many in the PT are politically tone-deaf. The March 5 statement was issued during a particularly tough week (Magno Malta's attempt to set up a scandal inquiry in the Senate was a huge concern for the administration at the time). The fact that PT leaders would publicly criticize Lula when he most needed their unified support illustrates the impulse by some members to behave as an opposition party --even a year after Lula's inauguration-- when they should have developed better governing skills. SMALLER PARTIES ALL OVER THE BOARD ---------------------------------- 8. (C) The smaller parties in the coalition have also spoken out, both for and against the administration. The conservative PP and populist PTB have threatened to pull out of the coalition, though both are highly "physiologist" and their threats are not taken seriously, except as they are designed to attract administration attention to their demands for pork barrel spending and second- and third-tier government job appointments. The week of March 22, the two parties led a mini-rebellion that delayed voting on Lula's Presidential Decree to ban bingo parlors (refs B, C). Meanwhile, the left-of-center Popular Socialist Party (PPS) --always a loyal, low-maintenance coalition member-- on March 28 reelected as party president Federal Deputy Roberto Freire who promptly announced that the PPS will continue to support Lula and "does not want to take advantage of the political crisis". The socialist PSB has similarly been quietly supportive of the administration. COMMENT - WINNING OVER THE ALLIES --------------------------------- 9. (C) The government's doldrums have been nourished not only by an undisciplined coalition, but also its own poor response to the Waldomiro scandal (exacerbated by the fact that Chief of Staff Jose Dirceu, the administration's best tactician, was at the center of the storm and not in a position to provide good advice. Septel will examine Dirceu's role in the crisis and the government.) The administration is now appealing to coalition leaders' desire to hang together rather than hang separately, but it is not doing so empty-handed. Lula's new cabinet-rank Political Coordinator, Aldo Rebelo, is putting together a "political council" comprising leaders from all nine allied parties, and a coalition "code of conduct" is under discussion. Rebelo is also pledging to speed the nomination of precious federal job appointments (the tens of thousands of positions throughout the GoB's nationwide apparatus have always been among the sweetest of political plums). In terms of legislation, the administration has put on the back-burner plans for campaign finance reform and a bill that would have allowed the Senate and Chamber presidents to serve for four, rather than two, years. Both bills had stirred opposition inside the coalition. 10. (C) One legislative achievement, freighted with symbolism, occurred at midnight on March 30, when the Chamber of Deputies voted to ratify Lula's February 20 Presidential Decree that banned bingo and slot parlors throughout the country. That decree was Lula's first and strongest response to the Waldomiro scandal, but to remain in force it needed a congressional vote --a vote which, if Lula had lost, would have been a clear rebellion by the coalition and a heavy blow to his legislative authority. The PP and PTB parties managed to put off the Chamber vote for a week (para 8). In the hours before the vote, the administration managed to buy coalition unity by promising to disburse a R$300 million package of pork barrel spending already approved by Congress in this year's budget (as well as releasing another R$200 million undisbursed from last year). The bingo ban now goes to the Senate for a final vote. A further R$1.2 billion remains undisbursed and presumably available to buy more legislative victories as the end of Congress's session approaches on June 30. HRINAK<br />195278/6/2004 19:4004BRASILIA1987Embassy BrasiliaCONFIDENTIAL<br />C O N F I D E N T I A L SECTION 01 OF 02 BRASILIA 001987 SIPDIS TREASURY FOR OASIA - DAS LEE AND SSEGAL NSC FOR RENIGAR AND DEMPSEY USDOC FOR 3134/USFCS/OIO/EOLSON/DDEVITO USDOC FOR 4332/ITA/MAAC/WH/OLAC/DMCDOUGALL/ADRISCOLL USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSON/WBASTIAN STATE FOR EB/IFD/OMA - KMOSS E.O. 12958: DECL: 08/05/2014 TAGS: EFIN, ECON, PGOV, BR, Macroeconomics & Financial SUBJECT: MORE ALLEGATIONS AGAINST BRAZIL CENTRAL BANK GOVERNOR REF: A. BRASILIA 1906 B. 03 BRASILIA 1846 C. 03 BRASILIA 2365 D. 03 BRASILIA 3292 Classified by Economic Counselor Roman Wasilewski, Reasons 1.4 (b) and (d). 1. (SBU) Summary. A new charge of financial misconduct against Central Bank President Meirelles contributed to market unease on Thursday August 5, unlike previous allegations that he failed to properly disclose his finances (ref A). The new allegation involves a $50,000 payment by Meirelles in October 2002, before he became Central Bank Chairman, to an account allegedly associated with black market currency traders exposed in the Banestado case (refs B-D). As with the previous allegations, Meirelles has fought back quickly and publicly, stating in multiple interviews and press appearances since yesterday that the payment was an innocent one made for the renovation of his New York apartment. Meirelles has stated that he will not contemplate stepping down, and President Lula reportedly has said that he will not ask Meirelles to do so. The reassurances appear to have calmed financial markets, which by mid-day Friday were recovering nicely. We do not believe that the current charges will end in Meirelles' departure. Even if fresh revelations were ultimately to do so, given Lula's personal commitment to an orthodox economic policy agenda, we do not doubt that he would replace Meirelles with someone like-minded. End Summary. 2. (U) Veja Magazine published on Thursday August 5 charges that Meirelles had paid $50,000 into an offshore account associated with a well known black market currency trader and failed to report the existence of the account from which the payment was made on his 2002 tax return. This followed on the heels of allegations each of the last two weeks about income-tax improprieties prior to 2003 (ref A). Unlike the previous instances, the latest accusation affected financial markets, by traders' accounts, exacerbating worries over record high oil prices. The Sao Paulo stock exchange (BOVESPA) fell 3.82% on the day, the Real depreciated 0.5% and Brazil's country risk rose 3%, closing at 615. 3. (U) Meirelles once again fought back quickly, granting several interviews, issuing a Central Bank press release and appearing on the August 6 "Good Morning Brazil" to refute the charge. In denying any wrong-doing, Meirelles claimed that he had no personal connection with the currency trader and had simply paid a $50,000 bill owed to a third party in connection with the renovation of his New York apartment by transferring money to the (ultimately suspect) account named by that party. Regarding the second part of the charge, that he had failed to declare on his 2002 tax return the account from which the payment was made, Meirelles stated there was no such obligation because the account was closed before the end of 2002. 4. (U) The accusation sparked renewed opposition calls for Meirelles to step down, a step that Meirelles reiterated he is not contemplating. While not speaking out publicly, Lula is reported widely to have told confidants that he will not ask Meirelles to go and as being satisfied with Meirelles' explanations of the transactions. The reassurances appear to have calmed local financial markets, which by mid-day Friday had recovered almost half of Thursday's lost ground. 5. (C) The opposition PFL and PSDB parties are planning to make political hay out of the issue (despite the fact that Meirelles himself is a PSDB member who gave up his seat in the Federal Chamber of Deputies to take over at the Central Bank). PSDB Senator Antero Paes de Barros, who chairs the Senate's long-running inquiry into the Banestado money laundering scandal is believed by some to have leaked the information on Meirelles' bank accounts from the archives he has collected for the Banestado case. If so, this would not be the first time Paes de Barros has been suspected of politicized, anonymous leaks, having played a part in the emergence of the famous Waldomiro/Charlie Waterfall videotapes. 6. (SBU) There is some maneuvering now over whether Meirelles will be called before the Senate's Economic Affairs or Oversight Committee, but in the end the two committees may meet in joint session to question him. The opposition parties could seek to drag out the affair for weeks to avoid taking action on legislation that President Lula would like to see pass in the abbreviated Congressional sessions before the October municipal elections. Questioning Meirelles about alleged corruption would provide a headline-making alternative for an opposition that does not want to hand Lula any political victories that could help Workers' Party (PT) candidates in the elections. 7. (SBU) Comment: Meirelles' open discussion of the allegations with the press stands in marked contrast to Lula Chief of Staff Jose Dirceu's closed-mouth reaction to the Waldomiro Diniz scandal of early this year. Barring extensive new revelations, we continue to believe that GoB damage control efforts in this case and the relatively minor nature of the charges make it unlikely that Meirelles will be forced to leave. Moreover, the fact that a replacement would require Congressional confirmation gives Lula and the GoB even more incentive to defend Meirelles, since obtaining such confirmation ahead of the October municipal elections would be difficult and give disaffected congressmen a target at which to aim their discontent with interest rate policy, the GoB's avowed intent to seek Central Bank autonomy in 2005, and the broader GoB economic policy agenda. Even in the unlikely event that fresh future revelations do force Meirelles out, we have no doubt that Lula will choose a replacement from Brazil's ample field of qualified candidates who is equally dedicated to the orthodox policies that have marked Meirelles' tenure. The GoB's commitment to orthodox economic policy does not hinge on Meirelles, but rather on Lula himself. DANILOVICH<br />257081/21/2005 13:3505BRASILIA187Embassy BrasiliaUNCLASSIFIED//FOR OFFICIAL USE ONLY<br />UNCLAS SECTION 01 OF 03 BRASILIA 000187 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: PGOV, PINR, ECON, PREL, SOCI, BR SUBJECT: JOSE DIRCEU - LULA'S WING-MAN GETS BACK ON TRACK 1. (SBU) SUMMARY. Jose Dirceu is Chief of Staff and most trusted advisor to Brazilian President Lula da Silva. Dirceu's legendary, if peculiar, biography is a window on Brazil's recent history. His machiavellian political skills and decades of fierce loyalty to Lula and the Workers' Party (PT) have been crucial building blocks in their rise to power. But Dirceu is no ideologue, rather he is a skilled and sometimes cynical power-broker willing to change course as circumstances warrant. It was he who orchestrated the PT's move towards the center in recent years and he who has put together the administration's broad coalition in the name of governability. During the 2002 elections and throughout Lula's first year in office, Dirceu was seen as a powerful Svengali pulling strings in the shadows. But a scandal in Dirceu's office in early 2004, coupled with a reorganization of cabinet duties, sidelined him for months and nearly led to his resignation. In the past six months, Dirceu has regained his traction, and is once again involved in the administration's key projects. If he has lost some prestige and is less often in the spotlight, he remains heavily engaged in day-to-day policy making. Nobody is closer to President Lula than Jose Dirceu. END SUMMARY. FROM HAVANA TO BRASILIA ----------------------- 2. (U) The biography of Jose Dirceu, 58, is made-for-TV material. Attending PUC University in Sao Paulo in the 1960s, he was a leader of the National Student Union until his opposition to the military regime (including organizing massive demonstrations) got him jailed in 1968. He was then among fifteen political prisoners freed in September 1969 in exchange for the release of US Ambassador Charles Elbrick, who had been kidnapped and held for three days by an opposition group. Freed from jail, Dirceu went into exile in Cuba for six years, studying and training in guerilla warfare, befriending Fidel and altering his appearance with plastic surgery. When his enthusiasm for Cuba and armed revolution waned, he returned to Brazil clandestinely in 1975, living underground as a shopkeeper in Parana state. A general amnesty was declared in 1979, so Dirceu restored his appearance and gave up his underground life and family (his wife, whom he divorced, says she never suspected his true identity). In 1980, Dirceu and Sao Paulo union leader Lula da Silva founded the Workers' Party. 3. (U) In the early 1980s, Dirceu held PT leadership posts in Sao Paulo (the PT's center of gravity) at a time when the party was forging its identity amid the many labor, religious, and intellectual currents under its umbrella. He was a leader of the opposition "Diretas Ja!" movement in 1984 that pressed for direct presidential elections and led to the regime's handover of power the next year. In 1989 he coordinated Lula's credible but losing presidential campaign. In 1991-1994 he served in Congress and was active in the corruption inquiries that led to President Collor's resignation. After losing a 1994 race for Sao Paulo governor, he was elected president of the Workers' Party, leading a moderate internal faction called "Articulation" that remains in control of the party to this day. This period marked the beginning of the PT's evolution away from doctrinal rigidity and towards the political center, as Dirceu aggressively formed alliances with a range of parties --including those on the center and right-- depending on local conditions. (Dirceu noted in a recent interview, "When I talked about alliances in 1985, people almost threw me out of meetings. It was me who introduced these ideas to the PT".) "MODERATION IS A VIRTUE ONLY IF YOU HAVE ALTERNATIVES" --------------------------------------------- --------- 4. (SBU) Since the founding of the PT, Dirceu has never been far from Lula. They share a deep trust and complementary styles: where Lula is an optimistic and charismatic populist with a common touch, Dirceu is a micro-managing politico adept at tugging the levers of power. Both are expert public speakers and engaging in meetings. They share a worldview that is pragmatic and moderate, so they have consciously steered the PT away from its most radical members in the interests of first electability and then governability. This impulse was on display in the 2002 campaign as Lula softened his image ("Lula Lite") and made a concerted effort to connect with the business community. 5. (SBU) In July 2002, as the PT's strong poll numbers frightened the financial markets, it was Dirceu who visited Washington and New York to calm investors by committing a Lula administration to economic orthodoxy. PT leftists grumble that all of this is a sell-out of party traditions, but Dirceu has observed that there is no sense in losing elections through an insistence on clinging to outdated positions. Dirceu has never worn his personal motivations on his sleeve, and it is a challenge to understand what drives him. His explanations for his actions are couched in terms of political strategy rather than deep-felt passions: the line between the public and private Jose Dirceu has never been clearly-drawn. "PRIME MINISTER" IN YEAR ONE ---------------------------- 6. (SBU) Before Lula's January 2003 inauguration, Dirceu took charge of the transition team's Political Council, putting together the coalition and the cabinet. True to form, his behind-the-scenes dealings brought conservative parties (PP, PL, PTB) into Lula's camp, and eventually reeled in the large PMDB as well. The coalition is fractious but has a majority in Congress and a decent record of delivering Lula's priorities (in two years, the administration has passed six constitutional amendments requiring three-fifths majorities). 7. (SBU) As "Minister-Chief of the Civilian Household" (i.e., Chief of Staff) and first among equals in the cabinet, Dirceu spent the administration's first year with a broad mandate to push legislation through Congress, lead the GoB's innumerable policy councils (many of which have mercifully faded away), sort out turf battles between cabinet ministers, negotiate with mayors and governors, and whisper advice into Lula's ear. His portfolio was so broad that by late 2003, the press was calling him "Prime Minister", a profile that left him vulnerable to jealousies within the government, though the only GoB official to rival his stature is Finance Minister Palocci. Dirceu's heavy responsibilities, coupled with his tendency to micro-manage, left him overburdened. So as part of a wider cabinet shuffle in January 2004, Lula farmed out some of his duties, bringing in a second cabinet-level official, Aldo Rebelo, to be "Political Coordinator" (i.e., Lula's chief liaison with congress). WALDOMIRO CHANGES EVERYTHING ---------------------------- 8. (SBU) The new arrangement lasted only a few weeks. Dirceu's world was rocked on 13 February 2004 when a scandal broke revealing that a longtime friend and senior advisor on his staff, Waldomiro Diniz, had been soliciting bribes from a numbers racketeer and possibly funneling cash into PT slush funds. Waldomiro was fired and is still under police investigation. While apparently not involved in the misdeeds, Dirceu suffered grievously --both personally and politically. Some pundits pointed out that even if he was not implicated, they would not be surprised to find Dirceu involved in illicit campaign funding. (N.b., In a separate case, there are still unanswered questions about Dirceu's possible knowledge of a corruption scheme in the city of Santo Andre, Sao Paulo that led to the murder of Mayor Celso Daniel in 2002. Allegedly, some of the money skimmed off city contracts found its way into PT campaigns.) For seven weeks the Waldomiro scandal was front-page news, leaving Dirceu anguished. Lula reportedly turned down his offers to resign several times. Everyone from opposition politicians to the Chief Justice of the Supreme Court urged him to step down, and the scandal echoed for months, contributing to a steep dive in Lula's approval ratings and a series of defeats in Congress. BACK IN THE GAME ---------------- 9. (SBU) By July, Dirceu got back to work as attention turned to the October municipal elections. He actively stumped for PT mayoral candidates (including the son from his first marriage, Zeca Dirceu, who was elected mayor of the town where Dirceu lived clandestinely until 1979). His political recovery is an ongoing project, but over the past six months he has regained influence by a combination of hard work, attention to detail, and avoiding the limelight. As Chief of Staff, there are few policy areas in which he is not involved. For example, in late 2004, Dirceu could be found meeting with Goldman Sachs officials about Brazil's investment climate, assessing the Mideast peace process at Arafat's funeral, previewing the restructuring of Varig airline debt, and describing plans to create a unified GoB tax and collections agency. For next year, he is already pushing for a boost in the minimum wage and heading up a working group on agrarian reform (both hot topics here). Dirceu will address foreign investors at Davos. 10. (SBU) December found Dirceu back on top, taking charge of the administration's two key end-of-year political projects: negotiations about the schizophrenic PMDB's place in the coalition and piecing together the cabinet shuffle expected in late January. IstoE magazine came to the same conclusion in naming Dirceu its 2004 Man of the Year, as did journalists and pundits with whom we talked. And Lula --with his love for soccer metaphors-- recently called him "Captain of the Team". Despite the New York Times' view in December that Palocci has surpassed Dirceu in influence, the two Ministers inhabit different spheres that are not really comparable. Palocci, the technocrat, steers the macro-economy, including controversial issues such as interest rate policy, while Lula looks to Dirceu for guidance on everything else. The President's daily agendas reveal that when Dirceu and Lula are both in town, Dirceu has up to an hour alone with the boss nearly every day, as well as joining in most of his meetings. And he is no shrinking violet. Though his public profile is lower than in the past, Dirceu and PT party president Jose Genoino are the two people whom Lula sends out to engage in partisan battles and volley opposition barbs. COMMENT - "TAKING FORTUNE BY THE ARM" ------------------------------------- 11. (SBU) Jose Dirceu is a key, though controversial, figure in modern Brazilian history. Perhaps best viewed in the oblique half-light rather than head-on, somewhere behind Lula's surprising trajectory and the unseen machinations of party politics. Dirceu is not personally corrupt, but as questions about the Waldomiro and Celso Daniel cases illustrate, there is a lingering sense that he will stoop as low as necessary to achieve his goals --and the success of Lula and the Workers' Party have been his life's work. One observer commented that Dirceu seems blessed by fortune, as his choices invariably prove successful. But this oversimplifies: Dirceu often forces fate by simply outworking his opponents. An obsessive planner (he reportedly knew with uncanny accuracy which departments in which universities supported his 1969 bid to head the National Student Union); unsentimental (he jettisoned his first wife and child along with the rest of his clandestine identity when he was amnestied in 1979); and unafraid of change (Dirceu himself says that he has started his life over many times and can do it again if necessary). His success is no accident of fate. 12. (SBU) Jose Dirceu is clearly happy to be back in the mix. In a December 28 interview, he pronounced himself satisfied doing the administration's policy coordination. In the next two years he plans to focus on Lula's national development goals. There is little doubt that he will also be a key advisor in Lula's 2006 reelection campaign and in a possible second administration. Longer-term, some who know him say that Dirceu harbors presidential ambitions, though at age 58 and assuming Lula remains in office through 2010, he may be squeezed out by the PT's next generation. Yet nobody would count him out: if he is not President, perhaps when Lula's era is over, Dirceu will settle into a Congressional seat or try another run at Sao Paulo's governorship. DANILOVICH <br />342216/8/2005 18:3705BRASILIA1544Embassy BrasiliaUNCLASSIFIED//FOR OFFICIAL USE ONLY<br />UNCLAS BRASILIA 001544 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: PGOV, PREL, KCRM, SOCI, BR, External Relations SUBJECT: BRAZILIAN PRESIDENT AT GLOBAL FORUM VOWS TO CRACK DOWN ON CORRUPTION REF: BRASILIA 1494 1. (SBU) Brazilian President Lula da Silva used the occasion of the Fourth Global Forum Against Corruption, being held this week in Brasilia, to announce a firm response to the wave of corruption scandals that has been battering his administration in recent weeks. As noted in reftel, the GoB has been beset by corruption allegations reaching into several cabinet ministries and allied parties since mid-May. Lula's impulse has been to react slowly and not to "respond to the headlines". In the case of Congressman Roberto Jefferson, president of the allied PTB party, Lula became involved in machinations to quash a congressional inquiry into charges that Jefferson appointees at the Postal Service and the Brazilian Reinsurance Institute (IRB) took kickbacks and skimmed money for PTB party slush funds. Another bomb dropped this week as Jefferson, now in a purely defensive mode, alleged to the press that the treasurer of Lula's own Workers' Party (PT) paid US$12,000 per month to buy votes in Congress over the past year. 2. (SBU) This allegation appears to have been the final straw for President Lula. Giving the opening remarks at the Global Forum on June 7, Lula seemed galvanized to put an end to press criticism and the bickering within his administration and coalition. Speaking before his entire cabinet (who reportedly got last minute command invitations) and the hundreds of assembled Forum participants, Lula announced that the presidents and directors of both the Postal Service and the IRB have been sacked, and that he and the PT party will welcome Congressional and law enforcement investigations into all allegations. Lula's tepid response to the serial corruption had been alienating to many old-line PT members who are still committed to the party's reputation for probity. In an effort to regain their confidence, he announced that the government "will not protect anyone" even if that means "cutting its own flesh". Beyond the Postal Service and IRB officials fired, the PT party treasurer, Delubio Soares, seems likely to lose his job. Left hanging are the fates of two cabinet officers: Central Bank President Henrique Meirelles and Social Security Minister Romero Juca who, separately, have criminal corruption charges pending before the Supreme Court. Lula is reportedly reluctant to remove Meirelles for fear of the impact on financial markets; though he is looking for a deal with his coalition that would allow him to fire Juca, of the allied PMDB party. Post will follow with further reporting on Global Forum events via septel. DANILOVICH<br />346486/14/2005 21:1505BRASILIA1602Embassy BrasiliaUNCLASSIFIED//FOR OFFICIAL USE ONLY<br />UNCLAS SECTION 01 OF 02 BRASILIA 001602 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: PGOV, SOCI, KCRM, PREL, BR, Domestic Politics SUBJECT: BRAZIL SCANDAL - CONGRESSMAN TESTIFIES BEFORE CONGRESSIONAL ETHICS COMMITTEE REF: A. BRASILIA 1494 B. BRASILIA 1544 1. (SBU) SUMMARY. Brazilian congressman Roberto Jefferson, who is also president of the PTB party (an ally in President Lula's governing coalition), began his testimony before the Chamber of Deputies' Ethics Committee on June 14. He will continue testifying on June 15. Jefferson was summoned by the committee to clarify allegations that he has made in the press over the past two weeks that officials of Lula's Workers' Party (PT) have, for two years, paid out millions of dollars to allied parties to buy their votes in Congress. In his first day of testimony, Jefferson repeated these allegations but offered no bombshells and admitted that he has no evidence to support his claims. He said that the vote-buying scheme began at least in August 2003, with the knowledge of several administration officials, including the Lula's powerful Chief of Staff, Jose Dirceu. Brazil's entire political and financial classes are glued to their televisions today watching Jefferson testify. Depending on how much proof he can offer and how much these events damage the government, Lula may have to shake up his cabinet and fire Dirceu, may see his 2006 reelection chances take a hit, and may see his fragile coalition fall apart. 2. (SBU) In addition, Congress has decided to delay setting up a congressional inquiry (CPI) into separate but related corruption charges at the Postal Service and Brazilian Reinsurance Institute (IRB). Allegedly some of Jefferson's personal appointees at these agencies were taking bribes and skimming funds to funnel into PTB party slush funds. While Jefferson will continue to testify through Wednesday, at this early stage it does not appear he has the ammunition to make this already-grave crisis any worse. END SUMMARY. JEFFERSON'S TESTIMONY: NOTHING NEW ---------------------------------- 3. (SBU) Brazilian Congressman Roberto Jefferson (PTB-Rio de Janeiro) came to public attention last month when one of his political appointees at the Postal Service was videotaped taking a bribe (ref A). President Lula initially seemed inclined to defend his coalition ally, but as the scandal deepened, Jefferson began disclosing details about the alleged vote-buying by Lula's PT party. According to Jefferson, the two right-most parties in Lula's coalition (Vice President Alencar's Liberal Party (PL) and the Progressive Party (PP) of Chamber Speaker Cavalcanti) took thousands of dollars each month for as long as two years to vote for the administration's agenda in Congress. In response to Jefferson's charges, the PL filed a complaint against him for lying and violating congressional decorum. The Ethics Committee then called him to answer the PL's complaint, which is why he is testifying this week. After the first few hours of his testimony, Jefferson had not offered any new information. The testimony is being covered live by every major TV station in the country. CONGRESS INVESTIGATES THE POSTAL SERVICE ---------------------------------------- 4. (SBU) As a result of the attention riveted on the Ethics Committee today, Congress decided to postpone at least briefly the politically-charged establishment of a separate inquiry committee (CPI) to investigate corruption in the Brazilian Postal Service and the Brazilian Reinsurance Institute. The governing coalition is maneuvering to control the key seats on this CPI in order to protect Lula, the PT, and the administration from collateral damage. COMMENT - TOO SOON TO TELL, BUT NO BOMBSHELLS --------------------------------------------- 5. (SBU) The serial scandals that have beset Brazil for the past four weeks are bad, but it is not clear that Jefferson's testimony will make them worse. Worst case for the GoB: Jefferson produces hard evidence implicating senior PT and administration officials in the vote-buying scheme. This could force Lula to fire Chief of Staff Dirceu --as well as Central Bank President Mereilles and Social Security Minister Juca, who each have unrelated corruption charges pending before the Supreme Court. The fallout could fracture the coalition and the PT party, and leave Lula politically wounded for the next eighteen months. Best case: Jefferson names names but is unable to produce hard evidence. In this case Lula will still be under pressure to clean house and reorganize his coalition, but can do so under considerably less public and opposition scrutiny. Lula may allow himself a small sigh of relief tonight that Jefferson seems to be out of ammunition. In any event, the next few days will go far toward defining the final eighteen months of Lula's first term. Post will continue to report as developments unfold. DANILOVICH<br />348666/16/2005 20:5705BRASILIA1622Embassy BrasiliaCONFIDENTIAL<br />C O N F I D E N T I A L SECTION 01 OF 02 BRASILIA 001622 SIPDIS E.O. 12958: DECL: 06/16/2015 TAGS: PGOV, KCRM, SOCI, PREL, BR, Domestic Politics SUBJECT: BRAZIL SCANDAL LIKELY TO GET WORSE BEFORE IT GETS BETTER REF: A. BRASILIA 1494 B. BRASILIA 1544 C. BRASILIA 1602 Classified By: POLOFF RICHARD REITER FOR REASONS 1.4B AND D. 1. (C) SUMMARY. While Brazilian Congressman Roberto Jefferson, in his testimony before the Congressional Ethics Committee this week, did not provide proof to support his charges that senior officials of President Lula's Workers' Party (PT) were involved in a scheme to buy votes in Congress from 2003 to 2005, his testimony was seen as credible and dramatic. If the Lula administration breathed a sigh of relief on seeing that Jefferson had no hard evidence, it could be short-lived, as further revelations may follow next week. Lula is reportedly planning to shuffle his cabinet in the coming days, with the resignation of powerful Chief of Staff Jose Dirceu seen as increasingly likely. Congress has set up a formal investigative committee (CPI) to look into the related Postal Service scandal and may set up another CPI for the vote-buying scheme. END SUMMARY. JEFFERSON'S TESTIMONY: THE DAY AFTER ------------------------------------ 2. (C) On June 14, Brazilian congressman and president of the PTB party Roberto Jefferson testified to the Chamber of Deputies' Ethics Committee about a scheme in which senior officials of Lula's Worker's Party (PT) allegedly paid thousands of dollars per month to secure the congressional votes of the allied PL and PP parties. While he did not offer a smoking gun, Jefferson (an experienced trial lawyer by background) was seen as dramatic and credible in his televised testimony. He noted that President Lula himself was not involved in the scheme, but that Lula's Chief of Staff, Jose Dirceu, was one of the PT members involved. He also named names of Deputies from the allied PL and PP parties. Citing exhaustion, Jefferson did not appear for his second day of testimony on June 15, scheduled to be a closed-door session. In surprise moves, leaders of Jefferson's PTB party decided to retain him as party president and also to maintain the party in the governing coalition. According to PTB leaders, their initial impulse to expel Jefferson weakened when polls revealed a positive reaction to his "convincing" June 14 testimony. THE WORST MAY BE YET TO COME ---------------------------- 3. (C) But the Lula administration is not out of the woods. We have heard from high-level sources that in the coming days, several members of Congress named by Jefferson as having received payoffs will publicly admit their role in the scheme and point fingers at PT officials, including Jose Dirceu. In addition, the payoffs may not have been limited to the PP and PL parties, but may gone to major media outlets as well. If true, these revelations could be explosive. CLEANING HOUSE IN THE CABINET ----------------------------- 4. (C) President Lula is reportedly planning to shuffle his cabinet and reorganize the fractious coalition. If he resigns from the cabinet, Dirceu would take up the Congressional seat he won in the 2002 elections. Others cited as possibles to resign are Central Bank President Mereilles and Social Security Minister Juca (both of whom have separate legal troubles), and possibly Lula's Political Coordinator Aldo Rebelo (who is not tarred by the scandal but who has signally failed to coordinate the coalition in Congress). Parallel to the cabinet shakeup would be a reorganization of the coalition. Jefferson's PTB, as well as the PP and PL that he charges with taking bribes, are all considered "parties for rent", without core beliefs or discipline. As they have evolved from unreliable allies into downright liabilities, Lula may choose to push them to arm's length. If so, he might look to replace their cabinet representatives (Tourism Minister Walfrido Mares Guia of the PTB and Transportation Minister Alfredo Nascimento of the PL), who themselves are performing creditably. GOVERNMENT IN CONTROL OF POSTAL SERVICE INVESTIGATIONS --------------------------------------------- ---------- 5. (C) In a move urged personally by Lula, the governing coalition secured control of the key seats in the joint congressional inquiry committee (CPI) that will look into corruption in the Brazilian Postal Service and the Brazilian Reinsurance Institute. It is alleged that officials at these agencies who had patronage jobs courtesy of Roberto Jefferson were involved in skimming funds and taking bribes. In a tight vote, PT Senator Delcidio Amaral was elected to chair the CPI. He quickly selected as rapporteur Deputy Osmar Serraglio (PMDB), an experienced attorney who is close to Jose Dirceu. The CPI, which has subpoena powers, will begin work next week and has six months to present its final report. Separately, Congress may set up another CPI to look into the vote-buying scheme being revealed by Roberto Jefferson. COMMENT ------- 6. (SBU) While most Brazilian scandals tend to "end in pizza", i.e., nobody is punished beyond a few days of negative press, this one feels different. If it is true that evidence supporting Jefferson's charges will be revealed in the coming days, then a cabinet shuffle --with Dirceu among the first to go-- seems nearly inevitable. It is far too early to gauge the long-term impact on Lula, his agenda, and his reelection chances, but even without the opposition stepping in to fan the flames, this crisis could get worse before it gets any better. DANILOVICH <br />349706/17/2005 19:4505BRASILIA1631Embassy BrasiliaUNCLASSIFIED<br />UNCLAS SECTION 01 OF 03 BRASILIA 001631 SIPDIS E.O. 12958: N/A TAGS: PGOV, KCRM, SOCI, PREL, BR, Domestic Politics SUBJECT: BRAZIL SCANDAL: DIRCEU RESIGNS, MORE CABINET MOVES TO COME REF: A. BRASILIA 1494 B. BRASILIA 1544 C. BRASILIA 1602 D. BRASILIA 1622 E. BRASILIA 1290 1.(SBU) SUMMARY. Late on June 16, Jose Dirceu, the Chief of Staff and right-hand man to Brazilian President Lula da Silva, resigned amid an unfolding corruption scandal (refs A-D). The move has been rumored for days and should take some of the heat off the Lula administration, which for four weeks has been paralyzed by an interlocking series of scandals. Dirceu submitted his resignation two days after Congressman Roberto Jefferson, in testimony before Congress, accused him of involvement in a scheme in which officials of President Lula's Workers' Party (PT) allegedly paid thousands of dollars per month to allied parties to secure their votes in Congress. As Dirceu readies himself to take up a seat in Congress next week, further cabinet changes are inevitable. At the top of the list to lose their jobs are Central Bank Director Henrique Meirelles, Social Security Minister Romero Juca, and Lula's Political Coordinator Aldo Rebelo. Others with their heads near the chopping block include Labor Minister Ricardo Berzoini and Social Development Minister Patrus Ananias. We have even heard uncorroborated rumors that ForMin Amorim may be replaced by Lula's Foreign Affairs Advisor, Marco Aurelio Garcia. The initial reaction to Dirceu's resignation is relief, the sense that this will help reduce the pressure on President Lula. The scandals will continue to unfold in Congress at least through the end of June. END SUMMARY. DIRCEU'S DEPARTURE: THE STRUGGLE CONTINUES ------------------------------------------ 2. (SBU) In a press conference held late on June 16, President Lula's powerful Chief of Staff, Jose Dirceu, announced his resignation. He will take up the congressional seat (PT-Sao Paulo) that he won in the 2002 elections, but says he has no plans to seek a Congressional leadership post, as he will focus on defending himself and the administration from the ongoing wave of corruption allegations (refs A-D). While his long-term future remains cloudy, Dirceu will likely have a large role in Lula's reelection campaign next year. In his resignation letter, Dirceu thanked Lula for his support, ending the letter with the PT slogan "The struggle continues". He told the assembled press and staffers, "I'm not ashamed of anything I did. I have clean hands and a heart without bitterness. I leave with my head high". 3. (SBU) Dirceu has been by Lula's side since before they co-founded the PT in 1980. As party president in the 1990s, Dirceu engineered its reorientation towards the political center. Since Lula took office in 2003, Dirceu has been his indispensable right-hand man, sometimes even called "Prime Minister." Dirceu managed to survive the "Waldomiro scandal" in 2004, in which a senior advisor on his staff was caught soliciting bribes, but the current crisis is more serious and appears to implicate Dirceu personally. His replacement is expected to be announced Monday. Among those in the running are well-regarded Justice Minister Marcio Thomas Bastos (who reportedly has no interest); the moderate PT governor of Acre state, Jorge Viana; and the popular PT mayor of the northeastern city of Aracaju, Marcelo Deda. A long-shot possibility is Finance Minister Palocci. Dirceu's replacement is not expected to be named before Monday. THE INEVITABLE CABINET SHUFFLE - MEIRELLES... --------------------------------------------- 4. (SBU) Dirceu's departure is expected to be the first step in a broader cabinet shuffle slated for the coming days. The two previous times (in January 2004 and March 2005) that Lula shuffled his cabinet, he did so in an excruciatingly long and public process --but this round should go more quickly. Among the changes deemed to be near-certain: the departure of Central Bank President Henrique Meirelles (ref E), under investigation by the Supreme Court on tax evasion charges unrelated to the current scandals. Like Dirceu, Meirelles won a Congressional seat in 2002, but he renounced it (rather than taking a leave of absence) when he joined the Central Bank, meaning he probably can not return to Congress and the immunity it offers. Meirelles has long planned to leave the Central Bank in August to prepare his 2006 campaign for governor of Goias state. Events may simply be forcing him out earlier (and pouring cold water on his campaign). The GoB has already positioned Murilo Portugal, its former Executive Director at the IMF and current Vice-Minister of Finance, to take over Meirelles' job. Financial markets, which have largely discounted Mereilles' departure, do not expect any shift in monetary policy. JUCA AND REBELO LIKELY TO GO ---------------------------- 5. (SBU) Another deemed near-certain to lose his cabinet post is Social Security Minister Romero Juca, who has a set of serious criminal charges (unrelated to the current scandal) pending before the Supreme Court. If Juca resigns, he will return to the Senate seat from whence he came. But Juca is a nominee from the PMDB party, Lula's largest and most unwieldy coalition partner (ref D). Thus if Juca goes, Lula will have to negotiate who from the PMDB will join the cabinet in his stead. One possibility is well-regarded Senator Pedro Simon who hails from the PMDB's "anti-Lula" wing. If Simon joins the cabinet, it would signal that the PMDB is uniting behind Lula --and the party will demand a correspondingly larger role in policy-making and in the cabinet. The PMDB could also demand the Vice-Presidential slot on Lula's 2006 slate. 6. (SBU) Lula's cabinet-rank Political Coordinator, Aldo Rebelo, will probably resign and return to the Chamber of Deputies. Rebelo has failed to coordinate the administration's agenda in Congress, and Lula reportedly regrets that he split this portfolio off from Dirceu's job in early 2004. Rebelo, from the Communist Party, has also suffered incessant back-stabbing from PT party insiders. If Rebelo goes, this position will be downsized and folded back into the Chief of Staff position. More broadly, if the unwieldy 36-member cabinet is downsized, look for the three Secretaries of Human Rights, Racial Equality, and Women's SIPDIS Affairs to be folded into the Justice Ministry; and the Secretary for Fishing to be folded into the Agriculture SIPDIS Ministry. OTHER POSSIBLE CABINET CHANGES ------------------------------ 7. (SBU) Among the Ministers deemed possible, but not certain, to lose their jobs are Labor Minister Ricardo Berzoini. Berzoini has done a creditable job and is one of the few representatives of the PT's left wing in the cabinet, but Lula could be looking to create space both the PMDB and the PP party. (The rightist PP is in Lula's coalition but has never had a formal cabinet slot. Its stock rose dramatically in February when PP Deputy Severino Cavalcanti became Speaker of the Chamber of Deputies.) PP Deputy Francisco Dornelles, who was Labor Minister under President Cardoso, could take Berzoini's job. Elsewhere, press reports suggest that Social Development Minister Patrus Ananias could be replaced by businessman Abilio Diniz of the Pao de Acucar supermarket chain. In addition, Lula will encourage those Ministers who plan to run for elective office in 2006 to step down. These may include Science Minister Eduardo Campos and Health Minister Humberto Costa. Almost every cabinet minister's name seems to be in play (though JusMin Bastos and FinMin Palocci are certain to stay in the cabinet even if they change portfolios). We have even heard uncorroborated speculation from Foreign Ministry diplomats that Foreign Minister Celso Amorim may get sent out to an important embassy so Lula can make Marco Aurelio Garcia, currently his Foreign Affairs Advisor, the new Foreign Minister. COMMENT - TAKING THE HEAT OFF ----------------------------- 8. (SBU) Dirceu's departure will reduce the pressure on Lula. The scandal has attached to Dirceu and the PT party rather than Lula himself, and it seems likely to continue to boil in Congress at least until the legislature goes into its month-long recess on July 1 --and even longer as the congressional inquiry committees (CPIs) get down to work. The cabinet shuffle is very much the stuff of speculation at this point, but the serial scandals have no doubt focused Lula's mind wonderfully and impressed upon him the importance of a quick and decisive shuffle. DANILOVICH <br />JA PUBLICADO <br />351886/22/2005 15:4105BRASILIA1660Embassy BrasiliaUNCLASSIFIED//FOR OFFICIAL USE ONLY<br />UNCLAS SECTION 01 OF 02 BRASILIA 001660 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: PGOV, PINR, PREL, ECON, BR, Domestic Politics SUBJECT: LULA'S RIGHT-HAND WOMAN - DILMA ROUSSEFF BECOMES CHIEF OF STAFF REF: BRASILIA 1631 1. (SBU) SUMMARY. On June 21, Brazilian President Lula da Silva named Minister of Mines and Energy Dilma Rousseff to be his new Chief of Staff, replacing Jose Dirceu, who resigned last week amid an unfolding corruption scandal. Rousseff was an opposition militant who was jailed and tortured by Brazil's military regime. She earned degrees in economics and spent years in senior posts in city and state governments in the state of Rio Grande do Sul. Rousseff joined Lula's Workers' Party in 2001 and worked on Lula's 2002 transition team. She is a blunt and demanding manager who will seek to improve the administration's policy implementation. She will be far less of a political lightning rod than Dirceu, more focused on pushing the bureaucracy than political infighting. More cabinet moves are expected in the coming days, with the allied PMDB party likely to get a larger role in the administration. END SUMMARY. "JOAN OF ARC OF SUBVERSION" BECOMES CHIEF OF STAFF --------------------------------------------- ----- 2. (SBU) On July 21, President Lula named Mines & Energy Minister Dilma Rousseff, 57, as his new Chief of Staff ("Minister-Chief of the Civilian Household"). She replaces Jose Dirceu, who stepped down last week because of an ongoing corruption scandal (reftel). Dirceu was deeply involved in all the administration's political strategies, but Rousseff announced at her swearing-in ceremony that she intends to focus more on moving the administration's policy agenda forward. She noted that --contrary to press assessments-- this does not mean she is a technocrat. "This is not a technical job, but a political one", she announced, "Political in the best sense of the word. I am no longer an executor (at the Ministry of Mines and Energy) but a facilitator of the projects of my cabinet colleagues." 3. (SBU) Dilma Vana Rousseff Linhares was born 14 December 1947 in the state of Minas Gerais. Her father was a Bulgarian attorney who had naturalized Brazilian citizenship. She became actively involved in opposition to the military dictatorship in 1967, at age 19, while studying economics in Minas Gerais. Joining various underground groups, she organized three bank robberies and then co-founded the guerilla group "Armed Revolutionary Vanguard of Palmares". In 1969, she planned a legendary robbery popularized as the "Theft of Adhemar's Safe". The operation broke into the Rio apartment of the lover of former-Sao Paulo Governor Adhemar de Barros, netting US$2.5 million that Adhemar had stashed there. Rousseff separated from her first husband, Claudio Linhares, who in January 1970 hijacked a plane to Cuba and remained there. That same month, she was captured by the regime and jailed for over three years (the prosecutor called her "the Joan of Arc of Subversion"), including 22 days of brutal electro-shock torture. 4. (SBU) Freed in late 1973, Rousseff moved to the southern state of Rio Grande do Sul. When her rights were restored by the 1979 general amnesty, she joined the PDT party of leftist leader Leonel Brizola, serving in various city and state positions: Secretary of Finance of the city of Porto Alegre (1986-1988); President of the Economy and Statistics Foundation of the state of Rio Grande do Sul (1991-1993); State Secretary of Energy, Mines and Communications (1993-1994). She served again as State Secretary of Mines under Workers' Party (PT) Governor Olivio Dutra (1999-2002), and switched to the PT in 2001. She was a key member of Lula's transition team in the weeks before he took office in January 2003, and Lula named her Minister of Mines & Energy days after his inauguration. 5. (SBU) Rousseff has a Masters degree in economic theory from the University of Campinas and an uncompleted doctorate in economics. In 1992, she participated in an International Visitor program in the US. She is now separated from her second husband (who was also an opposition militant). She has a daughter, Paula, in Porto Alegre, where she spends her weekends. She enjoys movies and classical music. She has lost weight recently, reportedly after adopting President Lula's diet. NO-NONSENSE STYLE ----------------- 6. (SBU) With her technical background and no-nonsense style, Rousseff has earned grudging respect from the energy sector. While U.S. companies were initially wary when she was appointed Energy Minister, they now admit that she has done a competent job. In particular, they praise her for her willingness to listen and respond to their views, even when she is inclined to a different conclusion. She has a reputation as being stubborn, a tough negotiator, and detail-oriented. Adjectives used here by those who know her include "demanding" and "workaholic". Her greatest accomplishment as Minister has been the development of Brazil's new "Electricity Sector Model", which seeks to reduce consumer prices by establishing long-term supply contracts between generators and distributors. Other programs developed during her tenure include "Lights for Everyone" and a focus on biodiesel development. Unlike Jose Dirceu, Rousseff never held elective office and her contacts in Congress are limited, which suggests the administration's political coordination will be handled by others. The press notes that Lula hopes she will produce a "management shock" within the administration, which --because of managerial inefficiencies, bureaucratic gridlock, and most recently because of the raft of corruption scandals-- finds its agenda treading water. 7. (SBU) Some in Congress complain that Rousseff does not understand party politics. In April, the Senate rejected her nominee to head the national oil agency in retaliation for her opposition to a nominee from the allied PMDB party to head a subsidiary of Eletrobras, the state-owned electricity company. (Rousseff instead opted to give the position to Adhemar Palocci, brother of FinMin Antonio Palocci.) Her senior advisors tell us that she sometimes disregards hierarchy, directly tasking technical employees, bypassing their supervisors. In addition, they note, her event horizon at the Ministry has been no more than two to three weeks in the future, thus making long (or even medium) term planning difficult. COMMENT: MAKING ROOM FOR THE PMDB --------------------------------- 8.(SBU) The large allied PMDB party is likely to get a higher profile in the Lula administration as the cabinet shuffle continues to unfold in the coming days. One rumor has Rousseff being replaced at Mines & Energy by Silas Rondeau, currently the president of Eletrobras, whose political sponsor is influential PMDB Senator Jose Sarney. As for Lula's office, with Rousseff as Chief of Staff, it is unclear what will happen with the separate cabinet-level position of Political Coordinator. The incumbent, Aldo Rebelo, has not been successful in pushing the administration's agenda in Congress or unifying the fractious coalition. He is expected to step down and return to his congressional seat. Thus, Lula may either replace Rebelo or fold his duties into another office, such as that of Economic and Social Development Secretary Jaques Wagner. DANILOVICH<br />354466/27/2005 17:0505BRASILIA1714Embassy BrasiliaUNCLASSIFIED<br />UNCLAS SECTION 01 OF 04 BRASILIA 001714 SIPDIS ALDAC USAID FOR LAC/AA AND LAC/SAM E.O. 12958: N/A TAGS: ETRD, PGOV, ECON, BR, External Relations SUBJECT: FOURTH GLOBAL FORUM ON FIGHTING CORRUPTION BRASILIA, BRAZIL; JUNE 7-10, 2005 REF: A. BRASILIA 1494 B. BRASILIA 1544 1. Summary. The IV Global Forum on Fighting Corruption (GF IV): "From Words to Deeds" was held from June 7 to 10 in Brasilia, Brazil. An estimated 1800 representatives from 103 countries including government officials and representatives from international organizations and civil society participated in a series of workshops, panels, and special conferences to discuss the effectiveness of international conventions, money laundering, public procurement, e-government, corruption measurement, conflicts of interest, and corruption at the local level. GF IV was organized by the Brazilian government's Comptroller General's Office in cooperation with the United Nations Office on Drugs and Crime (UNDOC), and Brazilian NGO Transparencia Brasil. Despite the government of Brazil's organizational and planning shortcomings, GF IV was at the end of the day a respectable showing - a gathering of senior government experts to push the international anti-corruption agenda forward. The United States effectively advanced key national security objectives in strengthening political will globally to fight corruption. End Summary. -------------------- MINISTERIAL SESSIONS -------------------- 2. President Bush's Statement: GF IV provided a clear and demonstrable commitment to support President Bush's agenda on fighting corruption and the Bush administration's broad foreign policy on development, security, and good governance. On June 10, US. Ambassador to Brazil John Danilovich read a message from President Bush to GF IV delegates during the closing ceremony. In his message, the President indicated that the United States would stand by nations that fight corruption, embrace freedom, and promote the rule of law. The President also declared that his administration is committed to working with other partners to "deny safe haven to the corrupt, their corrupters, and their tainted assets." In the President's statement, Ambassador Danilovich also reaffirmed the Bush administration's commitment to cooperating with other countries to fight corruption and explained that the USG will play an active role in fighting corruption and fostering democracy through the Millennium Challenge Account. The United States delegation achieved the objectives it set out to accomplish at GF IV including globalizing the President's "No Safe Haven" Initiative and encouraging countries to sign, ratify, and implement the UN Convention Against Corruption. Both of these objectives are reflected in the Final GF IV Declaration. 3. President Lula's Keynote Remarks: During his opening remarks on June 7, Brazilian President Lula da Silva used the GF IV platform to seize the offensive in confronting corruption scandals that plagued his administration. (Note: Earlier that day, Lula fired a number of corrupt postal service and Brazilian Reinsurance Institute employees. During the final days of the conference, the treasurer of Lula's Workers' Party (PT) was accused of buying votes in Congress (reftels A and B). End Note). Despite corruption allegations, Lula promised to fight corruption in Brazil and stated that his administration would "cut its own flesh, if necessary" to root out corruption. 4. US Head of Delegation Adolfo Franco told local daily "Correio Brasiliense" that Lula showed his commitment to investigating corruption allegations thoroughly, even if those investigations included members of his own administration or political party. US Ambassador to Brazil Danilovich believed that Lula defined the problem of corruption clearly during his opening remarks and showed his personal commitment to the fight against corruption. ------------------------------------ HIGHLIGHTS FROM WORKSHOPS AND PANELS ------------------------------------ 5. The US delegation demonstrated the Bush administration's high-level commitment to prevent and combat corruption to advance its national security and foreign policy agenda; highlighted and helped advance key administration initiatives on fighting corruption and promoting good governance (e.g., the President's "No Safe Haven" policy, the G8 Anti-corruption and Transparency initiative, and the Millennium Challenge Account); provided other governments the experience of qualified US experts in specific measures against corruption; assured that conference result did not detract from US policies or positions on anti-corruption issues also addressed in other international fora; and conducted informal bilateral discussions with other governments. 6. Law Enforcement: Several panels on law enforcement and international instruments focused on the need for effective implementation of the United Nations Convention Against Corruption and the encouragement of developed countries to sign and ratify it. There was also discussion on the need to improve follow-up mechanisms on the various international anti-corruption frameworks around the world. 7. Civil Society: On June 8, US Delegation Head and USAID Assistant Administrator for Latin America and Caribbean Bureau Adolfo Franco moderated the "Civil Society: Improving Control Mechanisms workshop." Franco highlighted anti-corruption efforts in Azerbaijan, Indonesia, and Uganda. Franco stressed the importance of NGOs, churches, and the media, and challenged governments to improve their relationships with these institutions. Through cooperation with civil society institutions, Franco believed that governments could combat corruption effectively. 8. Money Laundering: T