US embassy cable - 05BRASILIA2467

UNCLAS BRASILIA 002467 
 
SIPDIS 
 
NSC FOR CRONIN 
TREASURY FOR OASIA - DAS LEE AND FPARODI 
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON 
AID/W FOR LAC/SA 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, PGOV, EFIN, Macroeconomics & Financial 
SUBJECT:  BRAZIL:  FINANCE MINISTER PALOCCI REPORTEDLY UPSET 
OVER INVESTIGATIVE SCRUTINY OF HIS BROTHER 
 
REF:  A) Brasilia 2242 
 
1. (U)  The September 16 "O Estado de Sao Paulo" reported 
that Finance Minister Antonio Palocci told two PT federal 
deputies that if his brother was called to testify before 
any of the congressional committees looking into influence 
peddling, Palocci would resign.  The Minister's brother -- 
Adhemar Palocci - serves as Director of Planning and 
Engineering for the state-owned utility Eletronorte. 
Apparently, congressional investigators believe that Adhemar 
may have information about possible irregularities in 
contracts involving Eletronorte and the firm InterBrazil. 
(InterBrazil was one of the companies contracted by the city 
of Ribeirao Preto to provide trash collection services;  in 
late August allegations surfaced, Ref A, that one such firm 
-- Leao and Leao - had paid  kickbacks to the PT.) 
 
2.  (U)  On September 14, Eletronorte issued a press release 
stating that the Eletronorte/InterBrazil contracts in 
question were signed two years prior to Adhemar joining the 
company's board and that Adhemar's job in no way involved 
administering these contracts.  Antonio Palocci, who was 
Mayor of Ribeirao Preto from 1993 to 1997 and 2000 to 2002, 
reportedly said that he would be disposed to testify, in his 
brother's place, and explain everything;  however, if his 
brother was called to testify, Palocci would have no choice 
but to resign.  It appears that for now opposition forces 
have been stymied in attempting to get the "Postal system" 
investigative committee (a misnomer, as in reality its ambit 
is much broader) to depose Adhemar.  However, according to 
the O Estado de Sao Paulo, opposition deputies will next try 
to get the "Bingo house" investigative committee to summon 
him sometime during the week of September 19. 
 
3. (SBU)  Comment.  So far, this story has not received a 
great deal of attention as the sheer volume of other scandal- 
related developments (i.e., the impeachment of Congressman 
Roberto Jefferson, the expected removal of Chamber of 
Deputies President Cavalcanti, etc.) has dominated the news. 
Indeed, as was the case a week ago when the press reported 
that two properties that Palocci owned in Ribeiro Preto were 
grossly undervalued for tax purposes, the market has barely 
responded.  As of late in the day September 16, the 
dollar/real exchange rate continued to hover around the 
relatively level of 2.3.  However, should this story expand 
over the September 17-18 weekend, it may be difficult for 
Minister Palocci to effectively respond (in contrast to 
August when he immediately and persuasively rebutted 
allegations that he steered kickbacks to PT confers.)  Upon 
contacting the Ministry of Finance for further details on 
this story, post learned that the Minister was due to leave 
the city for the weekend on a personal trip. 
 
Chicola