MercoPress. South Atlantic News Agency

Brazil's scandal: ruling party accused of bribery

Brazil's ruling party was shaken Monday by accusations that it bribed lawmakers to maintain its coalition in Congress, raising fears of a scandal that could paralyze President Luiz Inacio Lula da Silva's government as it seeks to pass key reforms.

In response to the allegations, investors sent stocks falling that 4 percent before recovering slightly to close down 3 percent. Brazil's currency initially fell more than 2 percent against the U.S. dollar and ended the day down 1 percent.

Congressman Roberto Jefferson told the Folha de Sao Paulo newspaper that he first told top Silva advisers about the practice last year, but the payments stopped only after he personally informed Silva in January.

Silva, Brazil's first elected leftist president, did not mention the scandal during a speech in Sao Paulo on Monday, but his party denied the accusations. He then flew to Brasilia to meet with members of his Cabinet to discuss Jefferson's claims as a clamor emerged for a congressional investigation into the allegations.

"These declarations are very serious, and the government now has a first-class crisis on its hands," said congressional minority leader Jose Jorge. "It will be very difficult for them to bar an investigation."

"The government has been placed on a very uphill road. It will not be ease for it to overcome this crisis," said University of Brasilia political science professor David Fleischer.

Silva has never had a majority in Congress and depends on alliances with a patchwork of parties across the political spectrum to get legislation approved.

A congressional investigation would delay or derail Silva legislative initiatives like labor and tax reform and a proposal to grant the Central Bank more autonomy - all important to investors.

While investors initially viewed Silva with skepticism after he took office in 2003, he has gained Wall Street's support for embracing orthodox economic policies.

Following the allegations, stocks initally plunged by more than 4 percent before closing the day 3 percent down. Brazil's currency, the real, also lost one percent of its value against the dollar.

The scandal also broke as Silva is beginning to lay the groundwork for his 2006 re-election campaign, and as polls are showing his popularity waning due to slower growth for South America's largest economy and concerns about corruption.

In the interview, Jefferson said the treasurer of the Workers Party "has been giving a monthly allowance of 30,000 Brazilian reals ($12,500) to each allied congressman." That is more than double a congressman's monthly salary.

Jefferson did not say how many congressmen were bribed, and made the allegations as he and other members of his party are trying to fend off accusations they benefited from another scandal involving corruption in Brazil's postal service.

The national chairman of the Workers Party, Jose Genoino, denied that the Workers Party made payoffs to allies from other parties, stating in the party's Web sit that "the practice simply does not exist."