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 002226 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR PARODI, STATE PASS TO USTR AND USAID/LAC/AA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 15-19 
AUGUST 2005 
 
REF: A. BRASILIA 2219 
     ¶B. BRASILIA 2150 
     ¶C. BRASILIA 2082 
     ¶D. BRASILIA 2025 
     ¶E. BRASILIA 1979 
     ¶F. BRASILIA 1874 
     ¶G. BRASILIA 1973 
     ¶H. BRASILIA 1631 
 
¶1.  (SBU) SUMMARY.  This was a somewhat quiet week in the the 
corruption scandals (refs) plaguing Brazilian President Lula 
da Silva's government and the Workers' Party (PT).  Two 
protests, one in support of and one against Lula, took place 
in Brasilia on 16-17 August.  In his testimony before the 
Vote-Buying Scheme Congressional Inquiry Committee, ex-PT 
treasurer Delubio Soares accepted responsibility for taking 
out approximately $22 million in loans from moneyman Marcos 
Valerio for his party, but denied that the money was used to 
bribe lawmakers.  Leading opposition figures in Congress 
announced that they would not push for presidential 
impeachment.  And a new poll reportedly will show Lula losing 
in elections next year to opposition candidates.  END 
SUMMARY. 
 
RALLIES FOR AND AGAINST LULA 
---------------------------- 
 
¶2. (U) Two protests prompted by the corruption scandals took 
place in Brasilia during the week.  On 16 August, about ten 
thousand protestors marched past ministries and congress, 
demonstrating support for President Lula but demanding 
punishment for those linked to the scandal.  Protestors from 
the National Student Union, labor groups including the sole 
Workers' Union (CUT), and the Landless Rural Workers Movement 
chanted "Lula stay."  This was the first mass rally in the 
capital since the scandal erupted in June.  The following 
day, an anti-Lula protest of about ten thousand persons, 
mainly university professors and some left-wing parties (PDT, 
PPS, PCB, PSOL), called for the president's resignation or 
impeachment.  While Lula's popularity rates have declined 
recently, polls reveal that the majority of Brazilians still 
do not want an impeachment because of the expected political 
and economic repercussions. 
 
FORMER PT TREASURER TESTIFIES BEFORE CONGRESS 
--------------------------------------------- 
 
¶3. (U) On 18 August, former PT treasurer Delubio Soares 
delivered his second testimony before a Congressional Inquiry 
Committee (CPI).  In his statement before the Vote-Buying 
Scheme CPI, Soares claimed full responsibility for taking out 
approximately $22 million in loans from private sector 
moneyman Marcos Valerio for his party, but denied that the 
money was used to bribe lawmakers.  According to Soares, the 
funds were used to cover campaign expenses for the PT and PL 
parties, and confirmed that the illegal funds made their way 
to President Lula's presidential campaign via allied party 
politician Ciro Gomes, who currently serves as the National 
Integration Minister. However, Soares emphasized that the 
President was not aware of the loans.  The previous day, the 
PT had issued a formal mea culpa for its involvement in the 
corruption schemes, contending that it was only certain 
members*-not the official party structure*-that took part 
in the illicit activities. 
 
OPPOSITION STEPS BACK FROM PRESIDENTIAL IMPEACHMENT 
--------------------------------------------- ------ 
 
¶4. (U) President Lula seemed to have gained a respite from 
talk of impeachment this week, as leading political figures 
and media editorialists stepped back to urge caution and 
circumspection.  This week saw leading figures in the 
congressional opposition (PSDB, PFL, PPS, PDT, PV and 
elements of the PMDB) declaring on 15 August through a joint 
committee that talk of impeachment of Lula is premature. 
Senator Jose Sarney echoed this cautious note in a speech 
before the Senate on 16 August, and editorialists in leading 
papers are also pointing out the dangers and disadvantages 
for Brazil's political and economic stability that could 
arise from an impeachment of a figure as popular and iconic 
of Brazil's democratic growth as Lula.  The motive behind 
this restraint appears to be an understanding that the 
political climate does not favor radical actions against the 
President.  "The political will, the political climate, which 
is crucial for an impeachment, does not exist," said PSDB 
congressman Eduardo Paes.  A lead editorial in right of 
center "O Estado de Sao Paulo" this week also reflected this 
line of thought.  Moreover, political leaders and 
commentators fear that a presidential impeachment could lead 
to one of two unsettling scenarios.  Best case: It would mean 
giving power to Lula's vice president, Jose Alencar, a 
nationalist businessman whose opposition to the government's 
tight economic policies is widely acknowledged.  Worst case: 
The ascension of Severino Cavalcanti, a much ridiculed 
backbencher who accidentally won the Chamber of Deputies' 
presidency earlier in the year in a demonstration of 
incompetence by Lula's congressional forces.  Cavalcanti is 
the second in the presidential line of succession. 
 
¶5. (SBU) Given these scenarios and the absence at present of 
evidence further implicating the President directly in the 
corruption scandal, the opposition seems inclined to allow a 
weakened Lula to remain in office until the October 2006 
election rather than risk a radical confrontation with an 
uncertain outcome.  Preliminary tabulations in an IBOPE poll 
this week indicate that Lula would lose by significant 
margins to the three possible PSDB candidates*-SP Mayor Jose 
Serra, SP Governor Geraldo Alckmin, and former President 
Fernando Henrique Cardoso--if elections were held today. 
 
DANILOVICH