US embassy cable - 05BRASILIA1622

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