February 17, 2004

Silva faces political scandal

BRASILIA, Brazil (AP) --Brazilian President Luiz Inacio da Silva faces the first major
scandal of his administration with allegations that an aide solicited illegal campaign
contributions from the boss of an illegal lottery.

Opposition lawmakers on Monday called for a congressional investigation into
allegations that could undermine the government of Silva, who in the past 24
years built his leftist Workers' Party on a platform of honesty and service to the

The president fired the aide at the center of the scandal, Waldomiro Diniz, on

In a story last week, the magazine Epoca alleged that Diniz had solicited illegal
campaign contributions for the party from Carlos Ramos, also known as
Carlinhos Cachoeira -- "Charlie the Waterfall." Epoca described Ramos as a
kingpin of a Rio de Janeiro-based numbers game, an illegal lottery run from
open-air bars and coffee shops and popular among poor Brazilians.

Epoca based its charges on a videotape of a conversation between Diniz and
Ramos in which Diniz appears to solicit cash contributions for two party
candidates for state governorships as well as a one percent "commission" for
himself. According to Epoca, Diniz assured Ramos the donations would not be
reported to electoral authorities. Failure to report such contributions is a crime
under Brazilian election laws.

The tape was shown on Brazilian TV news programs over the weekend.

Diniz has made no public statement since being fired. He had been responsible
for relations with Congress and was considered a protege of presidential chief
of staff Jose Dirceu.

Dirceu read a brief statement to congressional leaders Monday, saying, "These
events took place before the present administration took office and no
irregularity occurred during the present government." Dirceu added, "Swift
action was taken in firing the employee and turning the case over to competent
police authorities."

On Monday, the opposition Social Democrats began circulating petitions in
both houses of Brazil's Congress seeking the creation of a committee to
investigate the allegations.

"This is a very serious case," said David Fleischer, a political science professor
at the University of Brasilia. "No one can say, at this point, how it is going to
turn out."

Investors are watching developments closely, worried that such an investigation
could hurt Silva's attempts to push through a package of ambitious electoral,
judicial, labor and bankruptcy reforms. The country's Ibovespa stock exchange
index has fallen nearly 3 percent since news of the scandal broke last week.

Silva and the PT, as the party he founded in 1980 is known, spent much of the
last two decades investigating allegations of corruption against various

"For eight years, the PT investigated everything under the sun," said
Congresswoman Zulaie Cobra, a Social Democrat. "Now that they are in
power, they want to sweep these latest allegations under the rug."

Cobra is leading the drive to set up a committee to investigate the allegations
against Diniz and look into whether a wider network for soliciting illegal
campaign donations might be in place.

"It could easily become a runaway committee," said political risk analyst
Walder de Goes, of Goes Consultants. "Campaign finance is the black plague
of Brazilian politics."

PT National Chairman Jose Genoino played down the scandal, noting that
Diniz was not a registered member of the party. "This is nothing more than an
attempt by the opposition to get attention," Genoino told reporters Monday.

"The government is going to try to muzzle the congressional inquiry," said
Amaury de Souza, a senior partner of the MCM Consulting Group. "They have
a good chance of succeeding, but they are going to pay a high price in political
patronage and pork barrel legislation."

Silva's problem, according to Souza, is a weak congressional coalition, based
on votes from seven different parties in the 513-member Chamber of Deputies
and 81-member Senate. The powerful Brazilian Democratic Movement joined
the coalition in January, delivering its 77 Chamber of Deputies votes and 22

Democratic Movement lawmakers "will vote against a congressional
investigation, but they are going to want more government jobs and budget
allocations for their trouble," Souza saud. "This will set a bad precedent, with
the administration buying its way out of every scandal from now on."

Copyright 2004 The Associated Press.