August 11, 2005

Brazil scandal hots up again over Lula’s publicist

BRASILIA, Brazil (Reuters) - Brazil's political scandal
hotted up on Thursday with calls on President Luiz Inacio Lula
da Silva to explain how his publicist received undeclared
political funding from abroad.

Duda Mendonca, architect of Lula's 2002 campaign victory,
told a congressional probe he had received undeclared money
from the alleged middle man in the illegal funding and bribery
scandal, entrepreneur Marcos Valerio, through his Bahamian

Mendonca initially said the money was used to pay campaign
costs of Lula's Workers' Party in 2002, but later said the
president's election campaign, to his knowledge, was not
included in the illegal financing scheme.

But many legislators said Lula could be implicated and had
to explain himself as the scandal went beyond irregular
campaign funding, already acknowledged by the party, into the
sphere of financial crimes involving foreign accounts.

Stocks fell 1.8 percent on Thursday on the new testimony
and a separate blow suffered by the government in Senate on
Wednesday. Senators voted to raise the minimum salary to 384
reais from 300 reais, a move that Lula opposes.

"The testimony does attain the president in the following
form: the money is abroad, coming from abroad and deposited
abroad, the money is undeclared and there is money including
for the president's campaign," said Sen. Pedro Simon from the
Democratic Movement Party largely allied to the government.

He said Lula was running out of time to provide

"If he doesn't do it tomorrow (Friday), Monday will be
late. Because your statement gives a new direction to the
investigation," Simon told Mendonca during the hearings.

Workers' Party new president Tarso Genro, who took over
last month after his predecessor had to step down over the
scandal, said Mendonca's evidence was serious.

"It is related to other issues that have to do with crimes
of financial nature," Genro was quoted as saying on the party's
official Web site.

He said, however, there was "not a single fact, including
in Duda Mendonca's testimony, that would directly attain the
president" and the party will keep defending Lula.

Genro added that he had suggested to Lula that he address
the nation directly showing his support for the investigations.

Four PT leaders and Lula's former Cabinet Chief Jose Dirceu
have resigned after being accused of running the scheme. Lula
has denied any knowledge of wrongdoing and the press and
lawmakers have yet to present evidence for allegations.