Dirceu´s resignation had been expected, since Jefferson had already made the claims in a newspaper interview a few days earlier, but it came suddenly. In fact, Dirceu stepped down only two days after Jefferson had urged him to do so during his testimony. Jefferson´s testimony was devastating and destroyed any lingering idea that the PT was above the routine corruption and deal-making that bedevil Brazilian politics. It portrayed the PT as being deeply involved in shady money-raising activities, through its powers of appointment in state-run bodies and companies, and buying up politicians from other parties.

The PTB is among the parties alleged to have received money and Jefferson has been at the center of allegations of receiving illicit payments from the state-run Post Office and IRB reinsurance company.  A Congressional committee, known as a CPI, has already been set up to investigate the Post Office allegations and its findings could lead to Jefferson losing his seat and being prosecuted. Faced with this, Jefferson decided that attack was the best form of defense and that if he was having mud thrown at him then he would throw mud back. He threw it in all directions, targeting Dirceu, the PT president, Jose Genoino, and its national treasurer, Delubio Soares. The PL party of the vice president, Jose Alencar, and the PP were also singled out as the recipients of the cash. The PL president, Valdemar Costa Neto, was accused to his face of accepting bribes and, just to add to the excitement, of being a “womanizer”. Jefferson also admitted that his own party had been involved in these dealings but had become frustrated because an estimated R$20 million which the PT had promised in kickbacks had not been paid in full.

Would You Buy a Used Car from This Man?

Jefferson performed like a smarmy used car salesman or real estate agent. His sharp suit, slick hair and accompanying facial, hand and body gestures were all designed to convince – and he was convincing, although in a sleazy, shifty way. Unfortunately, none of the Congressmen on the ethics committee was bright or brave enough to go too deep into his testimony. A lawyer or detective would have made mincemeat of him. Jefferson subsequently stood down as president of the PBT. It is a sad indication of Brazil that Jefferson has been portrayed as some kind of hero in some quarters and has been swaggering around in triumph.

Despite his aggressive attack, Jefferson went out of his way to spare Lula whom he described as “innocent” and said had been “betrayed”. Being praised by someone as duplicitous and conniving as Jefferson is nothing to welcome but Lula must have sighed with relief. Had Jefferson pointed a finger at Lula and accused him of knowing about the kickbacks then Brazil would now be facing an nightmare with the possibility of an impeachment and ensuing political and economic chaos.

Having said that, Jefferson´s testimony has still plunged the government into the worst crisis since Lula assumed office two and a half years ago. Lula must now rebuild his ministerial team, maintain the governing alliance, and boost the confidence of PT politicians and ordinary members so that they are ready to back him and launch his candidature for next year´s elections.

Dirceu is expected to be replaced by the current mines and energy minister, Dilma Roussef, who will play a more administrative role than Dirceu. For much of his time as chief of staff Dirceu acted like a prime minister, interfering in the briefs of ministers and insisting on having a say in important decisions. His disagreements over the economic policies of the finance minister, Antonio Palocci, were well known. Only two weeks before his departure, he publicly criticized the Central Bank´s policy of high interest rates during a visit to Portugal.

However, the writing had been on the wall for Dirceu since early 2004 when film was shown of one of his aides demanding money from a businessman involved in illegal gambling activities. Dirceu offered to resign at the time (although how sincere he was is open to doubt) but Lula turned him down. This time, Lula accepted without any qualms and Dirceu has gone back to the House of Representatives.

Justice now lies in the hands of the ethics committee and the CPI. The PT, which had originally been against the CPI, reversed its hostility and embraced the idea. It even managed to get a PT member appointed as the chairman – Delcidio Amaral who leads the party bloc in the senate. The chief investigator, or relator as he is known, Osmar Seraglio, is a Lula loyalist albeit from the PMDB. 

With Dirceu gone, conventional wisdom has it that Palocci is now the most influential minister. This is probably true but Lula, and practically everyone else in the country, has been getting frustrated with the slow pace of economic growth. Although GDP grew by an impressive 5% last year it grew by only 0.3% in the first quarter of this year compared with the same period in 2004. Some analysts are marking down their growth expectations. The Central Bank´s latest survey showed an average forecast of growth of 3.27% but the Applied Economic Research Institute (IPEA) has revised its forecast from 3.5% to 2.8%. Two other respected institutions – Banco Itau and MB Associados - are forecasting growth of 2.6% and 2.8% respectively.

By cruel coincidence, on the day of Jefferson´s testimony, the Central Bank´s monetary policy committee, the Copom, ended a nine-month cycle of interest rates rises but this good news was totally overshadowed. The signs are that rates may start falling again later this year as inflation becomes under control once more. However, they will still remain among the highest in the world. The current prime rate, known as the Selic, is 19.75%.

Central Bank Head to Go?

Lula will, obviously, want some concrete results when he starts his election campaign and Palocci and the Central Bank will come under great pressure to loosen the tight monetary policy. So far, Lula has given Palocci his unqualified support but he may feel that changes have to be made and start exerting pressure. It is unlikely that Palocci will go but the Central Bank president, Henriques Meirelles, could be replaced in the near future. He has been at the center of a long-running allegation involving irregularities in money transfers abroad. So far he has stood his ground and even been given ministerial status to protect him from legal investigations but he could become the next one to go. Even if he is not affected by any scandal, Meirelles may resign in any case and stand for the governorship of Goias state. Meirelles was elected to the Lower House as a PSDB member but did not take up his seat after being offered the Central Bank presidency.  

Lula´s popularity does not appear to have been seriously affected by this affair. As I have pointed out before, the mass of Brazilians are either uninterested or ignorant of political infighting. They have an extremely low opinion of politicians and expect nothing more from them than what we have been seeing of late. For these people, Lula is still one of them, a president with the common touch who is holding his own in a tough world. It is the chattering class - and the anti-PT section of the media - which makes a fuss of scandals like this and even then only when it suits its interest. Having said that, one cannot rule out further revelations which will be seized on by the main opposition parties, the PSDB of ex-President Fernando Henrique Cardoso and the PFL. 

June 18, 2005 

© John Fitzpatrick 2005