BRAZIL: FINANCE MINISTER PALOCCI REPORTEDLY UPSET

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
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