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

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