A Carnaval of Disillusion in Brazil

 A Carnaval of Disillusion 
  in Brazil

Brazilian politics
is once again involved in a scandal. It was revealed
that the coordinator between the office of the President and
the legislative branch extorted funds from underworld figures.
None of this is terribly shocking to observers except that it shows
that the PT is not unlike the other Brazilian political parties.
by: Richard

As Brazil approaches the weeklong lull during which Carnaval is celebrated,
attention is focused on Brasília more than usual. The decision of COPOM,
the Central Bank’s monetary committee, to maintain the basic interest rate
at 16.5 percent came as no surprise. If rates had been lowered, the Central
Bank would have been perceived as yielding to political pressure.

As it turned out the usual
noisy complaints of business people and consumers have been drowned out by
controversy over the situation of Lula’s most trusted and influential advisor
and long time collaborator, José Dirceu.

Last week, weekly magazine
Época published photos and an article showing that Waldomiro
Diniz, who had been serving as the coordinator between the office of the President
and the legislative branch, extorted funds from underworld figures that were
used to help finance the campaign of three PT governors. This happened in

Until last Friday when
he resigned, Diniz reported directly to José Dirceu. Dirceu, a long
time friend of Diniz with whom he once shared an apartment in Brasília,
was president of the PT at the time Diniz collected bribes in exchange for
influence. Diniz was serving as head of the lottery in Rio de Janeiro at the
time of his indiscretion. Dirceu was responsible for Diniz’ appointment as
the then governor of the State of Rio de Janeiro, Antonio Garotinho, was allied
with the PT before he broke away and decided to run for president.

The reaction of the PT
(Partido dos Trabalhadores—Workers’ Party) government was swift. Diniz
was fired and Dirceu stated that because this incident happened in 2002 before
the PT came to power and that since investigations by the Federal Police and
the Ministry of Justice were ordered, the affair was over. The fact that he
had a crook working very close to the seat of power in Brasília evidently
is not important to Dirceu. It is highly unlikely that a man as experienced
and streetwise as Dirceu did not know of Diniz’ questionable moral qualities.

The opposition,
mainly the PSDB (Partido da Social Democracia Brasileira—Party
of the Brazilian Social Democracy), has called for a parliamentary
inquiry. So far the necessary votes have yet to be collected.
Since Congress is in recess now until after Carnaval, I doubt
if a formal CPI (Comissão Parlamentar de Inquérito)
will ever get off the ground. The parties that nominally support
Lula and his government are divided on the issue, as is the

It seems as if there is
evidence that Diniz had further contacts with these same people that are involved
in bingo games and the illegal numbers racket known as jogo do bicho,
due to the symbols of animals that appear on the tickets. Big money is involved
as well as possibly money laundering and connections with the Mafia. If further
evidence of wrong doing since January 2003 when the PT took over the government
appears in the media, it may be difficult for Dirceu to stay in his position.
He apparently has offered to resign but up until now, Lula has not accepted
his offer to step down.

None of this is terribly
shocking to observers except that it shows that the PT is not unlike the other
Brazilian political parties. The PT has always strived to appear to be above
scandal and corruption.

This latest disclosure
plus the still murky circumstances that surround the murder of the PT mayor
of Santo André make if difficult for Duda Mendonça, the publicity
agent for the PT, to burnish the image of purity.

Palocci Rises

There is a positive angle
to this lowering of prestige of José Dirceu. With his influence possibly
diminished, perhaps that of Antonio Palocci, the sensible Minister of Finance
who has managed to gain a degree of confidence in Brazil’s economic policies
domestically and abroad, will increase. Before the Diniz affair surfaced,
Lula stated categorically at an informal dinner party among journalists, that
Palocci enjoyed his unrestricted support. This is important, as Palocci’s
accomplishments are the only visible signs of competence demonstrated so far
by this administration. The rest has been all talk, propaganda and the establishment
of task forces.

The sad part of the Diniz
episode, which is far from over as the press continues to delve into the matter,
is the disillusionment on the part of sincere intellects that believed that
Lula was different and could make the changes required to point Brazil in
the direction of a more just society and better living standards for its people.
His popularity had already waned a bit of late and this type of publicity
that puts in question his judgment in his choice of advisors will not help
bolster it. Inflation is not dead and unemployment, crime and violence, high
interest rates and excessive taxation continue to be serious concerns of the
population. The banks’ profits have never been higher.

Due to the municipal elections
in October, the chances of accomplishing much during the legislative period
were already slim. Now with the Diniz affair dividing the members, it is doubtful
if any serious work will be realized. The congressmen and their staff have
already pocketed the estimated R$ 50 million (US$ 17 million) it cost taxpayers
for the special session during January and February. So they are in no hurry
to examine the several proposals for reform that should be studied.

These include finishing
up the social security reform, enacting tax legislation, beginning a reform
of labor and union practices and changing bankruptcy laws. The idea of central
bank autonomy has not been mentioned as a possibility even though it is part
of the IMF agreement.

It remains to be seen
to what degree this political confusion will alter the confidence exhibited
on the part of foreign lenders and passive investors. Market reaction has
been negative this week. The Diniz/Dirceu affair may blow over in time or
it may erupt into a full blown institutional crisis. Lula has characterized
Dirceu as the "captain of the team". As Lula’s right hand man, Dirceu
has been a vital factor in the functioning of the PT government. Without his
presence or with his prestige badly damaged, it is difficult to predict what
the future holds.

Not much of note will
happen until after March 1. This is a period of celebration for many and rest
for others.

Richard Edward Hayes first came to Brazil in 1964 as an employee of Chase
Manhattan Bank. Since then, Hayes has worked directly and as an advisor
for a number of Brazilian and international banks and companies. Currently
he is a free lance consultant and can be contacted at 192louvre@uol.com.br

February 20,

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