Identifier
Created
Classification
Origin
05BRASILIA1631
2005-06-17 19:45:00
UNCLASSIFIED
Embassy Brasilia
Cable title:  

BRAZIL SCANDAL: DIRCEU RESIGNS, MORE CABINET MOVES

Tags:  PGOV KCRM SOCI PREL BR 
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UNCLAS SECTION 01 OF 03 BRASILIA 001631 

SIPDIS

E.O. 12958: N/A
TAGS: PGOV KCRM SOCI PREL BR
SUBJECT: BRAZIL SCANDAL: DIRCEU RESIGNS, MORE CABINET MOVES
TO COME

REF: A. BRASILIA 1494

B. BRASILIA 1544

C. BRASILIA 1602

D. BRASILIA 1622

E. BRASILIA 1290
UNCLAS SECTION 01 OF 03 BRASILIA 001631

SIPDIS

E.O. 12958: N/A
TAGS: PGOV KCRM SOCI PREL BR
SUBJECT: BRAZIL SCANDAL: DIRCEU RESIGNS, MORE CABINET MOVES
TO COME

REF: A. BRASILIA 1494

B. BRASILIA 1544

C. BRASILIA 1602

D. BRASILIA 1622

E. BRASILIA 1290

1.(SBU) SUMMARY. Late on June 16, Jose Dirceu, the Chief of
Staff and right-hand man to Brazilian President Lula da
Silva, resigned amid an unfolding corruption scandal (refs
A-D). The move has been rumored for days and should take
some of the heat off the Lula administration, which for four
weeks has been paralyzed by an interlocking series of
scandals. Dirceu submitted his resignation two days after
Congressman Roberto Jefferson, in testimony before Congress,
accused him of involvement in a scheme in which officials of
President Lula's Workers' Party (PT) allegedly paid thousands
of dollars per month to allied parties to secure their votes
in Congress. As Dirceu readies himself to take up a seat in
Congress next week, further cabinet changes are inevitable.
At the top of the list to lose their jobs are Central Bank
Director Henrique Meirelles, Social Security Minister Romero
Juca, and Lula's Political Coordinator Aldo Rebelo. Others
with their heads near the chopping block include Labor
Minister Ricardo Berzoini and Social Development Minister
Patrus Ananias. We have even heard uncorroborated rumors
that ForMin Amorim may be replaced by Lula's Foreign Affairs
Advisor, Marco Aurelio Garcia. The initial reaction to
Dirceu's resignation is relief, the sense that this will help
reduce the pressure on President Lula. The scandals will
continue to unfold in Congress at least through the end of
June. END SUMMARY.

DIRCEU'S DEPARTURE: THE STRUGGLE CONTINUES
--------------

2. (SBU) In a press conference held late on June 16,
President Lula's powerful Chief of Staff, Jose Dirceu,
announced his resignation. He will take up the congressional
seat (PT-Sao Paulo) that he won in the 2002 elections, but
says he has no plans to seek a Congressional leadership post,
as he will focus on defending himself and the administration
from the ongoing wave of corruption allegations (refs A-D).
While his long-term future remains cloudy, Dirceu will likely
have a large role in Lula's reelection campaign next year.
In his resignation letter, Dirceu thanked Lula for his
support, ending the letter with the PT slogan "The struggle

continues". He told the assembled press and staffers, "I'm
not ashamed of anything I did. I have clean hands and a
heart without bitterness. I leave with my head high".


3. (SBU) Dirceu has been by Lula's side since before they
co-founded the PT in 1980. As party president in the 1990s,
Dirceu engineered its reorientation towards the political
center. Since Lula took office in 2003, Dirceu has been his
indispensable right-hand man, sometimes even called "Prime
Minister." Dirceu managed to survive the "Waldomiro scandal"
in 2004, in which a senior advisor on his staff was caught
soliciting bribes, but the current crisis is more serious and
appears to implicate Dirceu personally. His replacement is
expected to be announced Monday. Among those in the running
are well-regarded Justice Minister Marcio Thomas Bastos (who
reportedly has no interest); the moderate PT governor of Acre
state, Jorge Viana; and the popular PT mayor of the
northeastern city of Aracaju, Marcelo Deda. A long-shot
possibility is Finance Minister Palocci. Dirceu's
replacement is not expected to be named before Monday.

THE INEVITABLE CABINET SHUFFLE - MEIRELLES...
--------------

4. (SBU) Dirceu's departure is expected to be the first step
in a broader cabinet shuffle slated for the coming days. The
two previous times (in January 2004 and March 2005) that Lula
shuffled his cabinet, he did so in an excruciatingly long and
public process --but this round should go more quickly.
Among the changes deemed to be near-certain: the departure
of Central Bank President Henrique Meirelles (ref E),under
investigation by the Supreme Court on tax evasion charges
unrelated to the current scandals. Like Dirceu, Meirelles
won a Congressional seat in 2002, but he renounced it (rather
than taking a leave of absence) when he joined the Central
Bank, meaning he probably can not return to Congress and the
immunity it offers. Meirelles has long planned to leave the
Central Bank in August to prepare his 2006 campaign for
governor of Goias state. Events may simply be forcing him
out earlier (and pouring cold water on his campaign). The
GoB has already positioned Murilo Portugal, its former
Executive Director at the IMF and current Vice-Minister of
Finance, to take over Meirelles' job. Financial markets,
which have largely discounted Mereilles' departure, do not
expect any shift in monetary policy.

JUCA AND REBELO LIKELY TO GO
--------------

5. (SBU) Another deemed near-certain to lose his cabinet post
is Social Security Minister Romero Juca, who has a set of
serious criminal charges (unrelated to the current scandal)
pending before the Supreme Court. If Juca resigns, he will
return to the Senate seat from whence he came. But Juca is a
nominee from the PMDB party, Lula's largest and most unwieldy
coalition partner (ref D). Thus if Juca goes, Lula will have
to negotiate who from the PMDB will join the cabinet in his
stead. One possibility is well-regarded Senator Pedro Simon
who hails from the PMDB's "anti-Lula" wing. If Simon joins
the cabinet, it would signal that the PMDB is uniting behind
Lula --and the party will demand a correspondingly larger
role in policy-making and in the cabinet. The PMDB could
also demand the Vice-Presidential slot on Lula's 2006 slate.



6. (SBU) Lula's cabinet-rank Political Coordinator, Aldo
Rebelo, will probably resign and return to the Chamber of
Deputies. Rebelo has failed to coordinate the
administration's agenda in Congress, and Lula reportedly
regrets that he split this portfolio off from Dirceu's job in
early 2004. Rebelo, from the Communist Party, has also
suffered incessant back-stabbing from PT party insiders. If
Rebelo goes, this position will be downsized and folded back
into the Chief of Staff position. More broadly, if the
unwieldy 36-member cabinet is downsized, look for the three
Secretaries of Human Rights, Racial Equality, and Women's

SIPDIS
Affairs to be folded into the Justice Ministry; and the
Secretary for Fishing to be folded into the Agriculture

SIPDIS
Ministry.

OTHER POSSIBLE CABINET CHANGES
--------------

7. (SBU) Among the Ministers deemed possible, but not
certain, to lose their jobs are Labor Minister Ricardo
Berzoini. Berzoini has done a creditable job and is one of
the few representatives of the PT's left wing in the cabinet,
but Lula could be looking to create space both the PMDB and
the PP party. (The rightist PP is in Lula's coalition but
has never had a formal cabinet slot. Its stock rose
dramatically in February when PP Deputy Severino Cavalcanti
became Speaker of the Chamber of Deputies.) PP Deputy
Francisco Dornelles, who was Labor Minister under President
Cardoso, could take Berzoini's job. Elsewhere, press reports
suggest that Social Development Minister Patrus Ananias could
be replaced by businessman Abilio Diniz of the Pao de Acucar
supermarket chain. In addition, Lula will encourage those
Ministers who plan to run for elective office in 2006 to step
down. These may include Science Minister Eduardo Campos and
Health Minister Humberto Costa. Almost every cabinet
minister's name seems to be in play (though JusMin Bastos and
FinMin Palocci are certain to stay in the cabinet even if
they change portfolios). We have even heard uncorroborated
speculation from Foreign Ministry diplomats that Foreign
Minister Celso Amorim may get sent out to an important
embassy so Lula can make Marco Aurelio Garcia, currently his
Foreign Affairs Advisor, the new Foreign Minister.

COMMENT - TAKING THE HEAT OFF
--------------

8. (SBU) Dirceu's departure will reduce the pressure on Lula.
The scandal has attached to Dirceu and the PT party rather
than Lula himself, and it seems likely to continue to boil in
Congress at least until the legislature goes into its
month-long recess on July 1 --and even longer as the
congressional inquiry committees (CPIs) get down to work.
The cabinet shuffle is very much the stuff of speculation at
this point, but the serial scandals have no doubt focused
Lula's mind wonderfully and impressed upon him the importance
of a quick and decisive shuffle.
DANILOVICH