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

UNCLAS SECTION 01 OF 02 BRASILIA 001819 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USTR 
 
E.O. 12958: N/A 
TAGS: PGOV KCRM SOCI ENRG ECPS PREL BR
SUBJECT:  BRAZIL: LULA CONTINUES TO SHUFFLE CABINET AMIDST 
CRISIS 
 
REF: A.  BRASILIA 1660 
     ¶B.  BRASILIA 1602 
     ¶C.  BRASILIA 1631 
     ¶D.  BRASILIA 1682 
 
¶1.  SUMMARY.  On July 6, Brazilian President Lula da Silva 
announced a long-waited cabinet shuffle, his third.  Lula's 
hand was forced by a series of interlocking and expanding 
corruption scandals that have engulfed the GoB and paralyzed 
Congress since mid-May.  The current shuffle started on June 
16 with the resignation of Lula's Chief of Staff Jose Dirceu 
(ref A) and will continue to unfold in the coming days. 
With these moves, Lula seeks to reorganize his Congressional 
coalition, expel poor performers from the cabinet, and 
clarify the positions of candidates and parties in advance 
of the 2006 elections.  In an effort to bring the large, 
split PMDB party more firmly into his coalition, Lula named 
three PMDB members as Ministers:  Senator Helio Costa will 
replace Communications Minister Eunicio Oliveira (PMDB); 
Federal Deputy Saraiva Felipe replaces Health Minister 
Humberto Costa (from Lula's PT party); and Silas Rondeau, 
former president of Eletrobras, will take up the Ministry of 
Mines and Energy, vacant after the former Minister, Dilma 
Rousseff, became Lula's Chief of Staff on June 21.  In 
addition, on July 8 Lula announced that the president of the 
Worker's Union Luiz Marinho will replace Labor Minister 
Ricardo Berzoini.  The cabinet shuffle will not make Lula's 
political position any worse as the corruption scandals 
batter Brasilia.  But taken alone, it will not be enough to 
restore the GoB's credibility and momentum.  The mere fact 
that Lula has been forced to rely on the fractious PMDB 
party as a solution to his problems shows just how far the 
administration has to go before it returns to political 
normalcy.  END SUMMARY. 
 
BRINGING THE PMDB BACK IN 
------------------------- 
 
¶2.  On July 6, in an effort to address the corruption 
scandals battering his government and to bring the large, 
fractious PMDB party back into his coalition, President Lula 
announced the appointment of three PMDB party members as his 
new cabinet Ministers: 
 
- Senator Helio Costa, 65, one of PMDB's more influential 
congressmen, becomes the new Communications Minister.  A 
former TV reporter who spent 25 years in New York City 
reporting tabloid stories for "Globo" network, Costa 
currently chairs the congressional inquiry committee 
investigating illegal migration to the US.  Costa replaces 
Eunicio Oliveira (PMDB-Ceara), who will return to his seat 
as Federal Deputy and prepare his 2006 campaign for governor 
of Ceara state; 
 
- Deputy Saraiva Felipe, 53, a physician and university 
professor specialized in public health issues, takes over 
the Ministry of Health.  Felipe, who hails from the PMDB's 
"anti-Lula" wing, has strong links with presidential 
aspirant Anthony Garotinho and is pushing for the PMDB to 
launching its own presidential candidate against Lula in 
¶2006.  Felipe replaces Humberto Costa (PT), who will run for 
governor in Pernambuco in 2006; 
 
- Silas Rondeau, the former president of Eletrobras, becomes 
Minister of Mines & Energy.  Rondeau has a "technical", 
rather than political background, but his sponsor is 
influential Senator Jose Sarney, leader of the PMDB's "pro- 
Lula" wing. 
 
BESEIGED FROM ALL SIDES 
----------------------- 
 
¶3.  Despite its internal divisions, the PMDB expected to get 
at least four Ministries with the cabinet shuffle, 
maintaining control over Communications and Social Security 
while gaining two additional cabinet posts (Mines/Energy and 
Health).  However, since its leaders were unable to 
reconcile the party's opposing wings in support of the 
government (19 of the 23 Senator and 52 of the 85 deputies 
agreed to join the government's support base, while the 
seven PMDB state governors opposed the move outright), 
initially President Lula appeared reluctant to award the 
party a fourth Ministry.  Whether the PMDB ends up achieving 
its goal or not will depend upon whether it is able to 
retain control of Social Security, currently headed by 
Senator Romero Juca. Juca, who was nominated less than 4 
months ago, is likely to lose his job and return to his 
Senate seat, from where he will try to defend himself from a 
set of criminal charges (unrelated to the current scandal) 
pending before the Supreme Court. 
 
¶4.  Lula seemed hopeful that an increase in the PMDB's 
profile would bring its opposing wings to his support base; 
however, soon after the July 6 announcement was made, the 
seven PMDB governors and the leadership of the party's 
opposition wing threatened to expel the new Ministers, which 
may force Lula to keep the Social Security portfolio with 
the PMDB.  Meanwhile, the Speaker of the House's PP party 
made clear that its role in the Lula administration should 
be enhanced, perhaps requiring Lula to grant that party 
another Ministry. 
 
PRESIDENT OF THE WORKER'S UNION BECOMES LABOR MINISTER 
--------------------------------------------- ---------- 
 
¶5.   On July 8, Lula announced the nomination of Worker's 
Union (CUT) President Luiz Marinho as his new Labor 
Minister.  Marinho is close to President Lula and shares a 
common background: both were metalworkers, and both gained 
national recognition after being elected president of the 
worker's union for the Sao Paulo ABC region.  Marinho is 
supported by the labor movement, and his nomination appeases 
sectors of the PT that opposed the appointment of Aldo 
Rebelo, the Presidency's Political Coordinator, to the 
Ministry of Labor.  Marinho replaces Ricardo Berzoini, who 
will return to his Congressional seat. 
 
OTHER POSSIBLE CABINET CHANGES 
------------------------------ 
 
¶6.  President Lula's two previous cabinet shuffles were long 
and public processes, and given the crisis scenario, it was 
expected that this round would go more quickly.  However, 
the PMDB's inability to unite its wings has made the current 
process longer and more excruciating.  More cabinet moves 
are expected in the coming days: cabinet officers tainted by 
scandal or who intend to run for office in the 2006 national 
elections will likely be asked to step down.  Besides Social 
Security Minister Juca, those likely to leave include 
Central Bank President Meirelles (ref D), Planalto 
Communications Secretary Luiz Gushiken, who is gradually 
being drawn in to the corruption scandal, and Political 
Coordinator Aldo Rebelo, whose role might be reassigned to 
Jacques Wagner, the head of the Economic and Social Council. 
In addition, Lula might merge the Ministry of Cities and 
National Integration in a super-ministry under the control 
of Integration Minister Ciro Gomes, and install the Cities 
Minister Olivio Dutra as president of the Worker's Party 
(PT). 
 
COMMENT: CABINET SHUFFLE NOT ENOUGH TO RESTORE CREDIBILITY 
--------------------------------------------- ------------- 
 
¶7.  The cabinet shuffle will not make Lula's political 
position any worse as the corruption scandals batter 
Brasilia.  But taken alone, it will not be enough to restore 
the GoB's credibility and momentum.  The fact that Lula's 
only option is to count on a divided and fractious PMDB 
party, has shown that the GoB's (and the PT's) inability to 
rise above the current scandal and re-establish its 
Congressional support base may compromise the 
administration's future agenda, including Lula's reelection. 
 
CHICOLA