US embassy cable - 05BRASILIA1602

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 
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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