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Viewing cable 05BRASILIA2025, BRAZIL: CORRUPTION SCANDAL UPDATE, WEEK OF 25-29
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Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
05BRASILIA2025 | 2005-07-29 18:53 | 2011-07-11 00:00 | CONFIDENTIAL | Embassy Brasilia |
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 002025
SIPDIS
TREASURY FOR PARODI
STATE PASS TO USTR
E.O. 12958: DECL: 07/28/2015
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL: CORRUPTION SCANDAL UPDATE, WEEK OF 25-29
JULY 2005
REF: A. BRASILIA 1979
¶B. BRASILIA 1874
¶C. BRASILIA 1973
¶D. BRASILIA 1631
Classified By: Political Counselor Dennis Hearne. Reasons:
1.4(b)(d).
¶1. (C) SUMMARY. This week saw further developments in the
corruption scandals (reftels) that are roiling Brazilian
domestic politics: the wife of Marcio Valerio-- the PT's
money man in illicit financial schemes at the center of the
crisis --testified before the Postal Service Congressional
Inquiry Committee (CPI) (reftel A), supporting her husband's
allegation that former Presidential Chief of Staff Dirceu was
involved. The CPI requested a preventive detention of
Valerio, and a list of 46 names of persons who apparently had
withdrawn money from Valerio's accounts was released, with an
even longer list scheduled for delivery to judicial
authorities in Brasilia by the weekend. President Lula da
Silva's controversial public reactions to the continuing
crisis -- including his accusations that he is a victim of
persecution by "elites" -- have caused concern among not only
opposition politicians but sympathetic institutional figures,
such as Senator Jose Sarney, a former president and Lula's
most influential legislative ally. By week's end, however,
fears of the scandals' potential effects on Brazil's economic
stability seem to have focused minds, apparently leading Lula
to tone down his rhetoric amid reports and rumors of possible
efforts by administration, congressional and opposition
elements to work together to lower tensions and continue with
important government business. It is not clear, though,
whether the inexorable flow of stunning revelations of
impropriety and a significant desire among many here to get
at the full truth, whatever the stakes, will allow for such
deal-making. END SUMMARY.
VALERIO'S WIFE TESTIFIES BEFORE CPI
-----------------------------------
¶2. (U) On 26 July, Renilda Santiago, wife of advertising
executive and PT money man Marcos Valerio, testified before
the Postal Service CPI that her husband had told her that
former Presidential Chief of Staff Jose Dirceu knew about
off-the-books loans made to the Workers' Party (PT) by
Valerio, and also had meetings with bank managers about the
loans. In her tearful testimony, Santiago alleged that her
husband had not revealed everything when he testified before
the CPI earlier in the hope that "others would confess to
their actions." Dirceu, who resigned his cabinet post in
June, admitted this week to the meetings but denied that the
suspect financial transactions were discussed. Dirceu has
returned to occupy his seat in the Chamber of Deputies and is
scheduled to appear on 2 August before an congressional
ethics committee, and likely will be called before the CPI
soon. Dirceu was Lula's closest advisor, and the allegations
of Dirceu's direct involvement appear to many to weaken
Lula's claim that he was unaware of the schemes.
CPI REQUESTS VALERIO'S PREVENTIVE DETENTION
-------------------------------------------
¶3. (U) On 27 July, the Postal Service CPI requested judicial
orders for Valerio's preventive detention. The preventive
detention is intended to thwart the manipulation of witnesses
and the destruction of key documents (in recent days police
and prosecutors have discovered boxes of burned documents
from one of Valerio's companies).
THE LISTS KEEP COMING...
------------------------
¶4. (U) On 28 July, the Brazilian Supreme Court (STF)
released to the Postal Service CPI a list of 46 persons who
had withdrawn money from Valerio's accounts, highlighting
their possible involvement in a vote-buying scheme or other
suspect transactions. The list contained the names found in
documents the Federal Police had obtained from private and
federal banks, including congressmen from various parties and
others connected to them. No revelations were made, as the
list confirmed information leaked earlier to the media (refs)
and already in the CPI's possession. However, at week's end
a second set of documents was expected at the STF, reportedly
listing 120 persons who had made withdrawals from Valerio's
accounts. The breadth of such a list suggests it could be a
bombshell, and perhaps definitive evidence of a wide-spread
political bribery and illegal funding network established by
Valerio in complicity with senior PT officials. As of
Friday, 29 July, the second, long list had not been released
publicly or leaked to the media.
...And the Spotlight Spreads to Opposition Figures
--------------------------------------------- -----
¶5. (U) Valerio's system for borrowing money from banks using
for collateral his firm's contracts with state companies
apparently was modeled on earlier versions of the same
scheme. According to the 26 July edition of "O Globo", in
1998 Valerio's firms used this artifice for providing off-the
books financing not only to Lula's PT party but to the
opposition PSDB party in Valerio's home state of Minas
Gerais. The paper reported that Valerio made loans to the
unsuccessful gubernatorial campaign of Eduardo Azeredo, now a
federal senator and president of the national PSDB. Azeredo
denies wrongdoing, insisting that he had no knowledge of the
loans or Valerio, as such issues would have been handled by
others in the campaign. Azeredo will testify before the CPI,
but leading PSDB officials, including former president
Fernando Henrique Cardoso, insist that, while all facts
should be clarified, the focus of current investigations
should be ongoing and recent allegations, not historical
ones.
LULA'S POPULARITY
-----------------
¶6. (U) A poll released on July 23 showed that President
Lula's popularity has fallen amid the scandal, but he remains
the favorite in the 2006 election. Respondents in the poll
who believe Lula is honest fell to 62 percent from 73 percent
in a June survey. His government's approval rating fell to
35 percent from 36 percent, and its disapproval rating rose
to 23 percent from 19 percent. But the poll also showed that
Lula would defeat all challengers by wide margins if the
election were held today.
NOT BOWING HIS HEAD
-------------------
¶7. (SBU) In public appearances over recent days, Lula has
sounded defiant, even truculent, claiming that he is a victim
of a conspiracy of "elites," that "the Brazilian has yet to
be born who can give me morality lessons" and that his
enemies will not succeed in making him "bow his head." He has
appealed to lower socio-economic classes and laborers, among
whom his poll numbers remain strongest, to rally to his
defense. Lula's choice in using such chest-beating rhetoric,
rather than taking a calmer and more contrite tone, has led
some opposition figures and editorial writers to accuse Lula
of Chavez-style demagoguery and seeking to polarize the
population. Even the establishment's sympathetic figures are
worried. PMDB Senator and former president Jose Sarney --
arguably Lula's most powerful ally in congress -- is reported
by various sources to be convinced that Lula is committing
fatal errors in dealing with the crisis (both in associating
himself with a collapsing cover story that denies bribery
schemes and in using the class-conflict rhetoric), and may
not last out his term.
COMMENT:
-------
¶8. (C) Notwithstanding the revelations and fiery presidential
rhetoric of the first days of this week, fears that the
crisis is affecting Brazil's international image and economic
stability seem to be focusing minds. Lula called in his
Central Bank president for urgent consultations, made evident
efforts to appear attentive to his regular duties, and his
words in public events on 27 and 28 July moderated
noticeably, as he called for "punishment of the guilty" and
voiced concern about "fragility" of the economy. Lula also
dispatched his new minister for political coordination,
Jaques Wagner, and Justice Minister Thomaz Bastos to consult
with the president of the Chamber of Deputies, senior
opposition members, and the head of the Postal Service CPI
regarding the course of investigations and the need for a
cross-the-aisle strategy for moving key legislation even as
the CPIs continue work.
¶9. (C) Indeed, if there are any "conspiracies" afoot, they
appear to be not those of "elites" out to sack Lula, but
rather efforts by important political and institutional
figures across the spectrum to protect him and spare Brazil
the national trauma that a spiraling crisis -- and especially
impeachment proceedings -- would bring. Supreme Court
President Nelson Jobim is reported to have told interlocutors
this week that the disillusionment that would accompany an
impeachment of Lula -- a charismatic icon of Brazil's
democracy and new hope for its poorest citizen -- would cause
grave governance and social problems in Brazil for years to
come. Former president Fernando Henrique Cardoso -- a sharp
critic of his successor and an advocate of thorough
investigations -- is said to be deeply worried about the
impacts of the crisis on the country. Jorge Bornhausen,
leader of the opposition right PFL party, is reported (though
we have no way to confirm this) to have flown to Rio de
Janeiro to consult with the management of the Globo media
empire on the need for caution in reporting the unfolding
scandals. Whether these are signs of an attempt to quietly
forge a broad pact that that can successfully insulate Lula,
effect a moratorium on dramatic revelations and eventually
reduce the intensity of the crisis atmosphere remains to be
seen.
¶10. (C) But we also perceive a powerful countervailing
sentiment here to get at the full truth and deny impunity,
whatever the stakes. In leading newsmagazine VEJA and in
other editorial comment there is evidence of a proud
expectation that Brazil's institutions are strong enough to
accomplish their duty, leaving the country, in the wake of
the catharsis, more mature and more democratic than ever.
The rigor with which the Postal Service CPI has conducted its
work to date, the flood of generally high-quality
investigative reporting from Brazil's media, and the credible
work thus far of Brazil's federal-level police and judicial
entities in handling their roles are reinforcing this view.
Developments in the immediate days ahead will likely
determine the course Brazil's leaders and society will steer,
and we will continue to provide reporting and analysis on a
regular basis.
LINEHAN