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UNCLAS SECTION 01 OF 02 BRASILIA 001659 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON BR
SUBJECT:  BRAZIL INTERNAL POLITICS UPDATE, 7-11 AUGUST 2006. 
 
REF: BRASILIA 1441 AND PREVIOUS 
 
¶1.  (SBU) SUMMARY. The Parliamentary Inquiry Committee (CPI) 
investigating the so-called "blood suckers" (Sanguessugas) 
corruption scandal issued a report on August 9 that implicated 69 
federal deputies and three federal senators, calling for their 
removal from politics.  The scale of the accusations, 12 percent of 
the congress, is unprecedented in Brazil, even following a year of 
scandalous revelations of large-scale corruption.  Corruption was 
also the subject of intense questioning directed at President Lula 
on a 10 August TV Globo interview.  Contradicting earlier 
presidential statements, Lula claimed he fired former ministers Jose 
Dirceu and Antonio Palocci for their alleged roles in earlier 
scandals.  END SUMMARY. 
 
------------- ----------------------------------- 
SANGUESSUGAS: CPI ACCUSES 69 DEPUTIES, 3 SENATORS 
------------- ----------------------------------- 
 
¶2.  (U) The preliminary report of the Parliamentary Inquiry 
Committee implicated 69 federal deputies and three federal senators 
in the "Sanguessugas" corruption scandal, which involved payments to 
legislators to support overpriced purchase contracts for ambulances 
and medical supplies. The scheme involved a ten percent kickback for 
congressmen who introduced the purchases as amendments to the 
federal budget.  The CPI called for the removal of the 72 from 
politics ("cassacao"); the CPI's findings are not yet final and are 
subject to further investigation.  Eighteen legislators under 
suspicion were exonerated.  The vast majority of the accused, 63 of 
72, are from parties in the governing coalition, especially the 
Liberal Party (PL) and the Brazilian Labor Party (PTB), while the 
other 9 are from the opposition. One member of President Lula's 
party, the Workers Party (PT), was accused.  Several of the accused 
are members of the so-called evangelical bloc; Band News said thirty 
percent are evangelicals.  The accused constitute 12 percent of the 
congress. Many of these same parties were implicated in the 
"mensalao" scandal (i.e., the systematic monthly bribery of 
legislators by PT operatives in exchange for votes) that rocked 
Lula's PT party and governing coalition over the past year. 
 
¶3.  (U) The CPI's findings were based largely on the testimony of 
Luiz Antonio Vedoin, one of the owners of the Planam firm that sold 
the ambulances, as well as telephone wiretaps and bank records 
showing payments to legislators.  The total amount of payoffs is 
around 9 million reais (about USD 4 million); the CPI said the 
largest amount to an individual was about a third of the total, paid 
to Lino Rossi (Progressive Party, of Mato Grosso state.)   The CPI 
said 19 of the accused received over 100,000 reais each (about USD 
45,000). 
 
¶4.  (U) The next step involves a congressional decision on each 
case, leading either to exoneration or expulsion from congress and a 
permanent ban on political activity by that individual.  This will 
probably happen in 2007, during the next congress. 
 
------------------------------------ ------------------- 
LULA CONTRADICTS EARLIER STATEMENTS: "I FIRED DIRCEU AND PALOCCI" 
------------------------------------ ------------------- 
¶5.  (SBU) President Lula appeared on TV Globo's Jornal Nacional, the 
main evening news program, on August 10 in TV Globo's series of 
candidate interviews.  Globo anchors William Bonner and Fatima 
Bernardes questioned him so aggressively on corruption scandals that 
Lula could scarcely talk about anything else, staying on the 
defensive and unable to control the interview.  The most significant 
revelation in the interview was Lula's claim that he fired his 
former head of the civil household Jose Dirceu and Finance Minister 
Antonio Palocci for their roles in earlier scandals.  Previously, 
Lula and the presidential palace (Planalto) had maintained that both 
had resigned. (Comment: It is not clear whether Lula sought to show 
himself in a new, decisive light, or was so befuddled by the 
aggressive questions that he misspoke and inadvertently contradicted 
himself.  End comment.) 
 
------------------------------- 
LULA UP, ALCKMIN DOWN, IN POLLS 
------------------------------- 
 
¶6.  (SBU) Two major national polls this week showed President Lula 
increasing his lead over opponent Geraldo Alckmin, and gains by far 
left candidate Heloisa Helena.  Others are in single digits.  The 
Datafolha polling firm reported that Lula's lead widened from 16 to 
23 points over Alckmin since a poll conducted in mid-July, from 44 
percent to 47 percent, while Alckmin slipped from 28 to 24 percent 
of first round voting intentions.  Far left candidate Heloisa Helena 
 
BRASILIA 00001659  002 OF 002 
 
 
went from 10 to 12 percent in the same period, essentially unchanged 
since it is within the margin of error for the poll.  The same poll 
showed a second round match-up between Lula and Alckmin resulting in 
a 54 to 37 percent victory for Lula.  A poll by CNT/Sensus this week 
showed Lula at 47.9 percent, Alckmin at 19.7, and Helena at 9.3 
percent.  Lula's lead over Alckmin in the Datafolha poll is greater 
than that of Fernando Henrique Cardoso over Lula at the same time 
before the 1998 elections, according to Folha de Sao Paulo. 
Television campaign advertising is permitted beginning only next 
week, and since most voters get their information from TV, the 
relative positions of candidates could shift, depending on the 
effectiveness of their TV messages.  However, at this early stage, 
there is a growing body of polling indicating that Lula could win a 
first round victory. 
 
SOBEL