This record is a partial extract of the original cable. The full text of the original cable is not available.

142115Z Jun 05

UNCLAS SECTION 01 OF 02 BRASILIA 001602 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PGOV SOCI KCRM PREL BR
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