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### Viewing cable 06BRASILIA209, BRAZIL: INTERNAL POLITICAL UPDATE, WEEK OF 23-27

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06BRASILIA209 | 2006-01-28 00:17 | 2011-07-11 00:00 | UNCLASSIFIED | Embassy Brasilia

`

    VZCZCXRO4919
    PP RUEHRG
    DE RUEHBR #0209/01 0280017
    ZNR UUUUU ZZH
    P 280017Z JAN 06
    FM AMEMBASSY BRASILIA
    TO RUEHC/SECSTATE WASHDC PRIORITY 4373
    INFO RHEHNSC/NSC WASHDC
    RUEHRG/AMCONSUL RECIFE 4258
    RUEHSO/AMCONSUL SAO PAULO 6230
    RUEHRI/AMCONSUL RIO DE JANEIRO 1432
    RUEHBU/AMEMBASSY BUENOS AIRES 3750
    RUEHMN/AMEMBASSY MONTEVIDEO 6013
    RUEHAC/AMEMBASSY ASUNCION 5186
    RUEHSG/AMEMBASSY SANTIAGO 5292

` `

    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

`