July 4, 2005

Brazil scandal may topple ruling party’s leader

By Andrei Khalip and Ricardo Amaral

BRASILIA, Brazil (Reuters) - A new twist in Brazil'sgrowing bribery scandal may topple the powerful head of theruling Workers' Party and upset President Luiz Inacio Lula daSilva's efforts to win political support with a governmentreshuffle.

Some local media said Workers' Party (PT) president JoseGenoino's departure was almost certain after Veja magazinereported over the weekend that party treasurer Delubio Soaresreceived a loan from an entrepreneur allegedly involved in abribes-for-votes scandal, and Genoino was a guarantor of theloan.

"Genoino and Delubio represent the leadership of themajority camp inside the PT who brought the party to power in2002, so if Genoino steps down it generates an internal crisiswith that camp possibly losing command," political analystChristopher Garman of the Eurasia group consultancy said onMonday.

The Workers' Party has been under fire since June when thehead of a small party allied to the government accused it ofmaking cash payments to some legislators to secure theirsupport in Congress.

"What it might lead to is an eventual schism between Lula'sgovernment and the rest of the PT, where many criticize thegovernment," Garman added, noting that the party had anelection of its leadership scheduled for September.

The snowballing scandal has tarnished a corruption-freeimage the party cultivated for many years while it was inopposition. Investigating the allegations has preoccupied theCongress, stalling economic reforms.

"There is no way the thesis of Lula's complete lack ofresponsibility (for the scandal) can be maintained and thereare evident signs that new accusations will emerge," Goesconsultants said in a research note, adding that a possiblesolution could be for Lula not to run for re-election nextyear.

Lula last week opened a probe into a state energy companyand unveiled anti-graft measures that make it easier toinvestigate and imprison corrupt public officials.

The Workers' Party denies the allegations, but Lula'sCabinet chief Jose Dirceu had to resign last month.

Lula is trying to woo allied parties closer to thegovernment in an effort to increase his power in Congress.

A majority of lawmakers from the leading BrazilianDemocratic Movement Party said last week they would give Lula'sgovernment full support in return for Cabinet posts promised byLula earlier and a say in public policies.

Government sources said Lula is likely to give fourministries to that party and another portfolio to anonpolitical appointment, possibly the head of Rio de Janeirostate industry federation, Eduardo Vieira.

The sources said the details of the reshuffle, in which theruling party is likely to lose five ministries and possibly thepresidency of state-run Petrobras oil giant, should becompleted by Monday evening or Tuesday. Central Bank PresidentHenrique Meirelles, who is being investigated for tax evasion,may also lose his job.