July 9, 2005

Head of Lula’s party resigns amid Brazil scandal

By Mauricio Savarese

SAO PAULO, Brazil (Reuters) - The head of Brazil's ruling
Workers' Party resigned on Saturday amid a snowballing
political scandal that is likely to hurt President Luiz Inacio
Lula da Silva's re-election chances next year.

The worst political crisis in Brazil at least since Lula
took over in January 2003 involves accusations that the
president's Workers' Party bribed lawmakers for their support.

Brazilian magazines have published reports over the past
week saying Workers' Party head Jose Genoino co-signed two
loans that also had the signature of Marcos Valerio, an
advertising executive whose firm does a large amount of
government business. Valerio has been accused of operating a
bribes-for-votes scheme.

Genoino's position became even more complicated on Friday,
after police arrested an aide to his brother Jose Guimaraes, a
senior party official in Ceara state, at the airport with
$100,000 underneath his clothes and the equivalent of $85,000
in local currency stashed in his luggage.

Aide Jose Vieira da Silva was headed from Sao Paulo to
Fortaleza, the Ceara state capital, police said.

"At this moment I give up my post as president of the
Workers' Party to the (party's) National Directorate," Genoino
said in a brief statement to reporters as the party top brass
met in Sao Paulo.

He said the party was living through a difficult moment but
denied any wrongdoing. "The Workers' Party does not buy and
does not pay deputies... we have made mistakes ... but we do
not practice irregularities, we do not practice any illicit
activities," he said.

Political analysts say Genoino represents forces most loyal
to Lula within the party and his departure may complicate the
president's relationship with the left-leaning party.

Genoino, a former guerrilla fighter during the military
dictatorship, became party president in 2003, replacing Jose
Dirceu whom Lula then appointed his Cabinet chief.

Lula's right-hand man, Dirceu, resigned last month because
of the bribery scandal and two senior officials in the Workers'
Party, including its treasurer, also stepped down this week.

The party has acknowledged the loans were made but has not
said what the money was used for.

All involved have denied wrongdoing. Roberto Jefferson, the
legislator who first made the allegations last month, has
explicitly said that Lula knew nothing about it.

Lula is reshuffling his cabinet in what analysts see as a
bid to win back waning political support in Congress by giving
Cabinet posts to representatives of Brazil's biggest party --
the Democratic Movement Party. He also appointed Luiz Marinho,
head of the powerful umbrella trade union CUT, as his labor
minister on Friday.

Investors fear the crisis could further undermine the
government's chances of getting economic reforms through
Congress or force the administration to spend more to bolster
its deteriorating popularity before the 2006 election.