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

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 002539 
 
SIPDIS 
 
TREASURY FOR PARODI, DEPARTMENT PASS TO USTR AND USAID/LAC 
 
E.O. 12958: DECL: 09/22/2015 
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL - CORRUPTION SCANDAL UPDATE, WEEK OF 19-23 
SEPTEMBER, 2005 - CHAMBER PRESIDENT RESIGNS 
 
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 
     ¶I. BRASILIA 2242 
     ¶J. BRASILIA 2237 
     ¶K. BRASILIA 2305 
     ¶L. BRASILIA 2384 
     ¶M. BRASILIA 2457 
     ¶N. BRASILIA 2387 
     ¶O. SAO PAULO 1071 
     ¶P. SAO PAULO 1076 
 
Classified By: POLITICAL COUNSELOR DENNIS HEARNE. REASONS: 1.4 
(B) (D). 
 
¶1.  (SBU) Summary. Chamber of Deputies President Severino 
Cavalcanti resigned both his position and his mandate this 
week in disgrace in the face of corruption allegations, the 
first Chamber leader to fall in such circumstances in 
Brazil's history. The resignation sets the stage for a 
succession contest in which President Lula da Silva's 
scandal-scarred PT is unlikely to have sufficient unity or 
clout to elect one of its own to the position, though it 
reportedly may back Aldo Rebelo, a well-regarded communist 
deputy who served as a minister in Lula's government. 
Seeking to avoid the humiliating failure that brought the 
obscure Cavalcanti to the Chamber presidency last February, 
Lula's government and the PT may have to accept a candidate 
from the PMDB party (Michel Temer's name is emerging 
prominently) if it hopes to avoid a hostile opposition party 
figure in the Chamber's presidency at this critical juncture. 
 In a related development, a convicted money launderer 
alleged that the illicit PT financial scheme that paid bribes 
to allied party congressmen (refs) also paid Cavalcanti the 
equivalent of 3.5 million dollars to assure Cavalcanti's 
cooperation with the Lula government once Cavalcanti assumed 
the Chamber presidency.  A poll this week indicates continued 
downward trends in public perceptions of Lula and his chances 
for re-election.  End summary. 
 
CAVALCANTI RESIGNS: REPLACEMENT STILL UNCERTAIN 
--------------------------------------------- -- 
 
¶2.  (U) On 21 September, Chamber of Deputies President 
Severino Cavalcanti (U.S. Speaker of the House equivalent) 
delivered his resignation speech before the lower house 
plenary, in the wake of credible accusations that Cavalcanti 
extorted kickbacks from a restaurant owner in exchange for a 
restaurant concession in the Congress building (Ref. M and 
N).  Cavalcanti is the first Chamber President in Brazil's 
history to resign owing to corruption allegations.  Earlier 
this week, the restaurant owner's allegations were reinforced 
when the Brazilian Federal Police announced it had strong 
evidence that Cavalcanti had been receiving bribes while 
serving as the Chamber's first secretary in 2002 and 2003, 
and was forwarding the case to the Supreme Court (Note: With 
Cavalcanti's resignation, his case reverts to a normal 
criminal court for hearing.  End Note.).  In addition, on 20 
September a convicted currency black market operator 
testified  during a joint session of congressional inquiry 
committees (CPIs) that Cavalcanti accepted a bribe from PT 
elements to secure his cooperation with the GOB when he 
assumed the Chamber Presidency (see para 6 for details). 
 
¶3. (U) During his resignation speech, Cavalcanti denied all 
the accusations, blamed the media, his political enemies and 
the "elite" for his resignation, and promised to regain his 
Chamber seat in 2006.  A group of university students present 
at the session booed Cavalcanti after his speech, causing a 
brief tumult with security personnel and forcing the 
adjournment of the session.  Politicians and analysts here 
widely regard Cavalcanti as a political hack and 
arch-pragmatist and were not surprised by his resignation and 
trifling speech.  Indeed, if Cavalcanti had not resigned, a 
broad-based movement within the Chamber would have initiated 
an impeachment process against him, likely leading to his 
expulsion and loss of political rights for eight years. 
Nonetheless, Cavalcanti still tried to bargain with the 
government.  In return for Lula's guarantee that his 
appointees would not be dismissed, Cavalcanti relented on a 
reported threat to take medical leave and pass the Chamber's 
command to Chamber Vice President Jose Thomaz Nono, from the 
opposition PFL party.  With the Speaker's resignation, Nono 
temporarily takes over the Chamber's presidency for a period 
of five plenary sessions, after which elections for a new 
president will be held. 
 
¶4. (SBU) Cavalcanti's resignation sets off a contest in the 
Chamber for the new President, and puts pressure on Lula's 
government and on his Worker's Party (PT), which is 
undergoing a tense internal election process (refs p and q). 
The Chamber President controls the lower house's agenda, 
decides which bills come to vote, resolves procedural 
disputes, and decides on impeachment requests, in addition to 
being third in the succession line to replace the President. 
Cavalcanti's election in February 2005 was a result of the 
PT's inability to settle on a single candidate for the 
position, and represented a humiliating setback for the Lula 
administration and a clear sign of PT's internal schisms 
(Ref. O).  Lula and the PT must avoid a similar disaster at 
this juncture.  Under an unwritten rule of the Brazilian 
legislature, called the "Rule of Proportionality", the party 
with the largest caucus -- currently the PT -- has the right 
to nominate the speaker. But this rule was weakened by the 
PT's bungling in February, and, given the party's deep 
involvement in the corruption scandal, it lacks the political 
strength necessary to secure victory for its candidate.  As 
of 23 September, there are reports that the government and PT 
may back Aldo Rebelo, a communist deputy from Sao Paulo who 
served as Lula's minister for political coordination and is a 
well-regarded pragmatist with good relations across the 
spectrum of parties in the Chamber. 
 
¶5. (SBU) Still, many political analysts doubt the PT can 
elect the new Chamber leader and foresee challenges coming 
especially from the catch-all PMDB party, which has remained 
broadly neutral during the crisis.  Losing to the PMDB would 
be less damaging than defeat by an opposition candidate from 
the centrist PSDB or right-of-centre PFL, but could still 
represent a serious setback, since the PMDB's likely 
candidate -- Michel Temer of Sao Paulo -- is from the PMDB 
wing that is generally hostile to Lula.  Moreover, the party 
would control three out of the four positions in the 
presidential line of succession (the Senate's President is 
already from the PMDB) -- a matter of some significance in 
the event of impeachment proceedings.  Along with Temer and 
Rebelo, the PFL's Nono is a leading contender. 
 
BLACK MARKET OPERATOR TESTIFIES IN JOINT SESSION 
--------------------------------------------- --- 
 
¶6. (U) On 20 September currency black market operator Antonio 
Oliveira Claramunt, known as Toninho da Barcelona, testified 
in a joint session of the three congressional inquiry 
committees (CPIs) currently investigating the related 
corruption scandals.   During his testimony, Claramunt, who 
is currently serving a 25-year prison sentence for money 
laundering, stated that the PP, through Deputy Severino 
Cavalcanti, received 8 million reais (approximately $3.5 
million) from businessman Marcos Valerio and currency black 
market operator Dario Messer at the time Cavalcanti assumed 
the Chamber's presidency.  Claramunt also stated that 
Messer's operations in the currency black market were used to 
launder money for various PT campaigns and Deputy Jose Janene 
(PP), but did not present evidence confirming his 
accusations. 
 
LULA'S RATINGS REMAIN ON DOWNWARD TREND 
--------------------------------------- 
 
¶7. (U)  On 21 September, IBOPE released its fourth poll since 
the beginning of Brazil's political crisis.  Compared to the 
figures released in August, President Lula and his 
administration's ratings remain steady, but compared to 
previous polls, the tendency downward is confirmed: 
President Lula's personal approval rating of 55 percent in 
June, dropped to 45 percent in August and remained the same 
in September.  Those that considered the administration good 
or excellent were 35 percent in June, 29 percent in August 
and remained 29 percent in September.  In addition, the poll 
showed Lula and Sao Paulo Mayor Jose Serra virtually tied in 
the 2006 election contest. 
 
¶8. (C) Comment. If the Lula government and PT caught any 
piece of luck in recent weeks, it may be in the fact that 
this week's allegations that the disgraced Severino 
Cavalcanti was bribed by the PT "mensalao" machine to secure 
his cooperation once he assumed the Chamber Presidency came 
from a convicted criminal, recounting second hand statements 
by another convict. A more credible source offering such 
testimony would have caused an explosion, setting up a direct 
nexus between the ludicrous tenure of Cavalcanti in the third 
most powerful office in the country and the PT corruption 
schemes that have rocked Brazil and Lula's government for 
four months.  Such a connection, if proved at some stage by 
stronger testimony or evidence, would raise the corruption 
scandal to the level of outright bribery of the leader of one 
branch of government by the party dominating another, taking 
the crisis to another dimension of gravity. In our view, that 
would be one development (we believe there could be others on 
the horizon) that could turn the tide of opinion definitively 
against Lula. 
 
 
 
 
CHICOLA