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UNCLAS SECTION 01 OF 02 BRASILIA 000209 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON BR
SUBJECT:  BRAZIL: INTERNAL POLITICAL UPDATE, WEEK OF 23-27 
JANUARY 2006 
 
 
¶1.  INTRODUCTION.  Henceforth, post's regular series 
reporting on the political scandals affecting Brazilian 
politics will be expanded to include coverage of key 
developments in the 2006 election campaign, which is 
getting under way.  In addition to updates on the 
corruption scandals and investigations, the cable will 
incorporate information on electoral legislation, emerging 
party alliances, poll results, and other factors in the 
2006 national elections.  The standing subject line, per 
above, will reflect the expanded content.  This week's 
cable will provide background information on the coming 
races, electoral legislation and party negotiations to 
define coalitions and alliances, as well as report on 
Finance Minister Palocci's appearance before a 
congressional committee investigating corruption.  END 
INTRODUCTION. 
 
BRAZILIAN ELECTION PRIMER 
------------------------- 
 
¶2.  (U) The 2006 Brazilian electoral cycle will begin 
formally on April 1, when prospective candidates that are 
not running for reelection have to resign (e.g., the case 
of Sao Paulo Mayor Jose Serra and Sao Paulo Governor 
Geraldo Alckmin, both from the PSDB).  However, parties are 
already negotiating alliances and coalitions, and a cabinet 
shuffle is expected in either February or March, since many 
ministers intend to run for office.  The following offices 
will be elected in 2006: president and vice-president; one- 
third of the federal senators; all federal deputies; all 
state governors and vice-governors; all deputies to state 
legislatures.  Elections for mayors and city councilmen 
will only take place in 2008.  In the executive races 
(president and governor), there is a possibility of a 
second-round runoff three weeks after the first round if no 
candidate receives more than 50 percent of the valid votes. 
The legislative races are proportional and will be decided 
on October 1. 
 
NO MORE "VERTICALIZATION" 
------------------------ 
 
¶3.  (U) Brazilian law establishes that elections are 
regulated by the legislation in force one year before the 
election day.  However, on January 25, the Brazilian 
Chamber of Deputies approved a constitutional amendment 
that struck down a Superior Electoral Court (TSE) rule that 
established that party alliances in the states should 
follow those at the federal level (a rule known as 
"verticalization").  In practice, the rule required that if 
two parties were allied in the presidential race, they 
would also have to be allied in the governor and federal 
deputy races.  The amendment to strike down the rule 
(approved by the Senate in earlier votes) received 343 
votes in favor, 146 against, and one abstention.  The 
minimum required for a constitutional amendment to pass is 
308, but it still must go to a second vote in the Chamber. 
After the vote, some legislators and lawyers stated that 
the new rule does not apply to this year's election, since 
it was established only nine months before the race. 
Brazil's association of attorneys have challenged the 
legality of the amendment's taking effect this year, and 
the Supreme Court (STF) may be called to decide the matter. 
 
¶4.  (U) If the Supreme Court ratifies the Chamber's 
decision, all parties -- more than 30 currently registered 
in the TSE -- will be fre to follow their local and 
regional directories' interests, which tend to be more 
parochial and less ideologically-led then their national 
counterparts.  The four large parties were split during the 
vote: the Brazilian Democratic Movement Party (PMDB) and 
the Liberal Front Party (PFL) were the most favored by the 
new rule. The PMDB will be allowed to launch an independent 
presidential candidate (either former Rio de Janeiro 
governor Garotinho or Rio Grande do Sul governor Germano 
Rigotto), while the PFL, although allied with the PSDB at 
the federal level, will be free to ally itself with 
different parties in state races.  The Brazilian Social- 
Democratic Party (PSDB) and the Worker's Party (PT) had 
less to gain. PT allies (PSB, PCdoB, PTB, PP, and PL) will 
probably abandon the alliance at the state level, 
diminishing the chances for party victories regionally.  At 
the federal level, however, President Lula da Silva 
reportedly favored the amendment, seeing it as a means for 
 
BRASILIA 00000209  002 OF 002 
 
 
drawing more parties to his federal coalition. 
 
ELECTION POLL: LULA LEADS AGAIN AFTER FIVE MONTHS 
--------------------------------------------- ---- 
 
¶5.  (U) On January 19, IBOPE released its latest poll on 
the presidential election.  For the first time in five 
months, Lula rose to first place, giving signs that he may 
be recovering somewhat from the damage caused by the 
corruption scandals.  According to the poll, Lla would 
beat Sao Paulo mayor Jose Serra by a 35 to 31 percent vote 
margin.  The previous IBOPE poll, released in December, 
showed that Serra had 37 percent support, while Lula had 31 
percent.  IBOPE stated it did not ask how respondents would 
vote in a second-round run-off.  However, the weekly news 
magazine Veja reported that IBOPE did, in fact, ask 
respondents how they would vote in a second-round, and 
figures published by Veja show Serra leading with 45 
percent support, vice Lula with 42 percent.  Although 
neither Lula nor Serra have publicly announced whether they 
will run for office, the poll suggests it is early to make 
any predictions on the election results. 
 
THIS WEEK IN CONGRESS: PALOCCI TESTIFIES BEFORE CPI 
--------------------------------------------- ------ 
 
¶6. (U)  After months of negotiations and threats from the 
opposition, Finance Minister Antonio Palocci testified 
before the CPI on Corruption in Bingos and Municipalities 
on January 26.  Palocci appeared as an invited guest, thus 
avoiding a CPI subpoena.  Federal Deputies bombarded 
Palocci with questions regarding a range of allegations 
against him, including of intervention in favor of U.S. 
company Gtech in a lottery contract with state-owned Caixa 
Economica Federal, corruption in bid letting in city 
government while he was mayor of Riberao Preto, and illegal 
transfer of funds from Cuba for use in the PT 2002 
presidential campaign.  Palocci denied all the allegations 
categorically, adding that he will not run for any office 
in this year's elections.  In his testimony, Palocci, who 
was Lula's 2002 campaign coordinator, stated that the Lula 
campaign did not use off-the-books financing (although the 
PT party's ex-Treasurer, the discredited Delubio Soares has 
admitted to another CPI that it did), declared that the PT 
did not receive any campaign money from Cuba, and claimed 
that the allegations against him were fanciful. 
 
¶7. (U) Palocci denied the accusation that he had intervened 
in the contract renewal negotiations between GTech and 
Caixa Economica Federal (i.e., the Federal Savings Bank) in 
¶2003.  Palocci tried to distance himself from the 
accusation by saying that it was not his job to interfere 
in the bank's day to day management.  Nevertheless, the 
cloud over him remains.  According to a finding in the 
partial report of the CPI, Ademirson Ariovaldo da Silva, 
Palocci's former chief of staff, along with current Caixa 
Economica President Jorge Matoso and two former presidents 
of the institution, Sergio Cutolo and Emilio Carazzai, 
violated their statutory responsibilities and failed to 
comply with the applicable laws governing public 
procurement with respect to the GTech contract.  Palocci's 
testimony was a non-event for the financial markets, which 
appear no longer to be concerned about a pre-election 
economic policy shift; the Real appreciated, the Sao Paulo 
stock exchange (BOVESPA) was up and measures of country 
risk were down. 
 
CHICOLA