Cablegate: Brazil: Dem, Corruption, and the Decline of the Right

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E.O. 12958: DECL: 2019/12/18
TAGS: PGOV KCOR BR
SUBJECT: Brazil: DEM, Corruption, and the Decline of the Right

REF: BRASILIA 1407

CLASSIFIED BY: Lisa Kubiske, Charge d'Affaires; REASON: 1.4(B), (D)

1. (C) Summary. Federal District (Brasilia) Governor Jose
Arruda, caught on camera accepting bribes in late November,
continues in office to fight the charges against him, ensuring a
drawn-out and damaging scandal for the DemC3cratas (DEM), Brazil's
leading center-right opposition party. The Arruda scandal
revolves around a monthly bribe system very similar to the mensalC#o
("monthly pay-off") corruption scheme associated with President
Lula's Workers Party (PT); this case and other recently revealed
bribery charges will hurt the opposition's ability to sell itself
to the electorate as champions of good governance. The leading
opposition party, the centrist Brazilian Social Democratic Party
(PSDB), has only been marginally implicated to date but many fear
additional charges pending. DEM pushed Arruda out of the party
and will try to showcase itself as having reacted responsibly in
the face of scandal, but finds itself - like so many other
center-right Brazilian parties - in the precarious position of
having no clear message to distinguish itself on policy or
administrative competency. PT has been little affected by the
latest wave of scandal, leading center-right parties within Lula's
coalition to solidify their alliances with PT, further hindering
the already-weak ability of the center-right to play an influential
role in Brazilian politics. End summary.

Caught on Camera

2. (SBU) Governor Arruda, considered DEM's bright star of the
future and a top-tier prospective vice-presidential candidate for
Jose Serra, fell into disgrace when he and several political allies
in Brasilia's state government (many from other parties) were
caught accepting bribes on camera. The comical, you-tube friendly
nature of the footage - including elected officials shoving
envelopes of money from contractors into pockets, socks, and
blouses - will likely stick in the public consciousness for some
time. Despite the visual evidence and the paper trail against
him, Arruda insists on remaining in office, fighting the charges
against him, and running for re-election. Dep. Onyx Lorenzoni
(DEM-Rio Grande do Sul) and other party members told poloff (with
no small degree of anger and frustration) that Arruda will probably
remain in office through the October 2010 elections, despite the
multiple legal cases against him and an impeachment motion. On
December 10, Arruda left DEM in advance of an internal party vote
the following day, in which he would have been expelled from the
party.

3. (SBU) The Arruda scandal revolved around monthly payments made
by several contracting firms building the Brasilia metro system and
other major construction projects. As such, the scandal very
closely resembles the mensalC#o (monthly payment) scandal that
significantly damaged PT late in Lula's first term, and which
created difficulties for him in his 2006 re-election campaign.
(The present scandal is increasingly being referred to as the
"Arruda mensalC#o.") Two similar monthly payment scandals have
surfaced over the past week, including one in which the Federal
Police has announced that it will imminently file a case against
the construction company Camargo Correa, charging that it paid out
approximately R30 million (17 million USD) to various politicians
in recent years. Initial reports released by the Federal Police
list several opposition and coalition politicians as recipients of
funds, including heavy hitters such as Chamber of Deputies
President Michel Temer (PMDB-SC#o Paulo). Federal and state
contracts generally release funds to contracting companies on a
monthly basis, with weak rules for detailing and justifying line
item expenses, making it easy for the mensalC#o to become Brazil's
bipartisan favorite corruption scheme.

Effects on DEM

4. (C) For DEM, which has the third-largest bench in both the
Senate and the Chamber, the Arruda mensalC#o strikes a crippling
blow to a party that was already slowly losing support. Dep.
Ronaldo Caiado (DEM-Goias), leader of the party in the Chamber,
admitted that the scandal will hurt them in the elections but
argued that the party at least distinguished itself by taking
action to expel Arruda, in contrast to PT, which took no action
against offenders in its own mensalC#o scandal. Though true, it is
hard to see the party getting much credit from the public for such
a stand. As one party advisor admitted to us, DEM never did get
around to expelling Arruda before the Governor left the party,
largely because several leading DEM politicians stalled the action
out of concerns about having their own ties to Arruda exposed.
The Arruda mensalC#o may not ultimately have a large impact on DEM
in the 2010 federal elections, Dep. Lorenzoni argued, since most of
its key figures are well-established in their northeast and rural

bases. News of corruption in Brasilia will have limited impact,
especially when it becomes old news by October. But the
vice-presidency slot on the PSDB ticket, which DEM has held in the
last two elections, is almost certainly gone. It will also be
difficult for the country's largest right-of-center party to win a
single governor's seat in the elections. Perhaps the most serious
problem for DEM arising from the scandal, as Dep. ACM Neto
(DEM-Bahia) told poloff, is that his party, which planned to run on
an effective governance platform, "does not have an identifiable
message."

Effects on the Opposition and PSDB

5. (C) It is not clear at this point whether or how the latest
wave of scandal will affect PSDB and its front-running presidential
candidate, JosC) Serra. Two Federal District state deputies caught
taking bribes in the Arruda mensalC#o were PSDB members, and Arruda
has his public defenders within PSDB ranks, much to the chagrin of
the rest of the party. The greater worry with the Arruda mensalC#o
is that three of the same contracting companies prominent in paying
bribes in the Federal District are also prominent in other state
governments with PSDB governors, including Sao Paulo (Serra) and
Minas Gerais (AC)cio Neves). Sen. Gim Argello (PTB-Federal
District), vice-leader of Lula's governing coalition in the Senate,
told poloff last week that he believes these companies were likely
not engaging in the same practices outside Brasilia, and that the
scandal will not affect Serra or Neves. According to Argello, also
a real estate investor with his own contracting interests, Arruda's
corruption had been known among the local contracting community and
created an environment in which bribes were necessary.

6. (C) Dep. Bruno AraC:jo (PSDB-Pernambuco) expressed confidence in
his party's ability to weather the Arruda scandal, and even saw the
benefit in PSDB gaining at DEM expense, but expressed concern that
more news about corruption was coming and that PSDB would have to
fight hard to burnish its image as the party of good government.
He noted the case of Sen. Eduardo Azeredo (Minas Gerais), Chairman
of the Foreign Affairs and Defense Committee, now under
investigation for a mensalC#o-type scheme during his campaign for
Governor in 1998. AraC:jo characterized the Azeredo case as all
smoke, no fire - but conceded that there will probably be a lot of
smoke for PSDB to deal with in the coming months. He also
asserted, like other PSDB contacts recently, that an all-PSDB
Serra-Neves presidential ticket would be the silver bullet means of
overcoming voter concerns about corruption and good governance.

Where Does the Center-Right Go?

7. (C) The immediate impact of the Arruda mensalC#o scandal seems
fairly obvious: that it weakens Brazil's leading center-right party
and challenges the opposition's claim that it would govern more
cleanly and effectively than PT and its ally PMDB. More broadly,
the scandal further limits the ability of the center-right to
articulate policy positions, both within the opposition and the
conservative wing of the governing coalition. The governing
coalition's center-right parties - including PP, PR, PTB, PDT and
parts of PMDB - have moved away from their previous independence on
key issues and has become increasingly acquiescent to Lula's agenda
in Congress. All but one senator from this bloc voted for
Venezuela's accession to Mercosul and the vote on the Pre-Salt oil
exploration legislation is expected to yield a similar count.
Senators from those parties, such as SC)rgio Zambiasi (PTB-Rio
Grande do Sul) often tell us that they have concerns with some of
the votes they're asked to cast, but there's no indication of any
coming rebellion. After all, as one political analyst told us, the
leaders of many of these parties have corruption concerns
themselves, and are safer within Lula's coalition than outside of
it. As Dep. Neto told poloff, "in Brazil today, a party can only
be genuinely conservative on economics if it has no scandals."
KUBISKE

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