Brazilian investigation taints presidential hopeful

A Brazilian police investigation into possible fraud by one of the country's leading presidential candidates has plunged her candidacy into crisis and caused a political schism in the race to the become leader of Latin America's biggest and most populous nation.

The allegations of fraudulent dealings inside a company owned by candidate Roseana Sarney and her husband, Jorge Murad, were met with angry denials from Ms. Sarney, the daughter of former President José Sarney. The surprise investigation prompted Sarney, the governor of the northeastern state of Maranhao, to call the investigation a politically motivated witch hunt designed to undermine her presidential ambitions.

And Sarney's party – the center-right Liberal Front Party (PFL) – walked out of President Fernando Henrique Cardoso's governing coalition, claiming his party manufactured the scandal. Four ministers and as many as 2,000 other political appointees resigned their posts, bringing the PFL's participation in the Cardoso coalition to an end after seven years, and leaving the government in a state of limbo.

"Our candidate was the victim of unprecedented violence, with clear political consequences, with the intention of weakening her and even pushing her out of the race," a party statement said. "Due to this ... we cannot justify our presence in the government."

Sarney is trying to become Brazil's first female president. Voters had hoped she would emerge as a palatable alternative to the current administration, say observers, who could reduce unemployment, improve public security, and fight corruption. If her candidacy falters, this could open the way to the left-wing Workers' Party.

The corruption scandal broke two weeks ago when police in Sarney's home city of Sao Luis raided the office of Sarney's company, Lunus Servicios e Participacoes. Detectives armed with search warrants entered the Lunus office after an investigation produced evidence allegedly implicating the company in the fraudulent diversion of funds from the government's notoriously corrupt Amazon development agency, Sudam. Police seized documents, computer files, and $570,000 in cash.

Authorities suspect that Lunus received money from Sudam, one of two government agencies set up to attract companies to underdeveloped areas in Brazil's poor north and northeastern regions. Investigators say that Lunus took the grant money, but did not use it as promised. An inquiry last year found that such frauds had taken $2 billion from government coffers.

Because neither the judge who ordered the investigation nor the police who carried out his orders are permitted to speak about the case, it is impossible to know why the decision to raid Lunus was taken now, political analysts say. The government says the investigation is no different from any other, but a furious Sarney has accused the Cardoso administration of trying to taint her business dealings in order to halt her steady rise in the polls.

"The era we are living in is worse than the military dictatorship," she says.

Whatever the catalyst for the raids, they are having the effect Sarney most feared. Surveys taken last weekend show Sarney – who had been in a technical tie for first place – losing points and falling behind Luiz Inacio Lula da Silva, the well-known Workers' Party leader. Voting is scheduled for Oct. 6.

Sarney now has the tough task of reversing her decline. Explanations given by her as to the origin of the $570,000 have not proven credible and she is hoping that a belated mea culpa given by her husband – he claimed he was collecting cash to use for her campaign bid – will put the matter to rest. However, fundraising prior to June's candidate registration is illegal and Mr. Murad could still face criminal charges.

"The only way she can continue [in the race] is if the investigations stop and there are no more accusations against her," says Carlos Ranulfo, a political scientist at the Federal University of Minas Gerais. "If that doesn't happen, then she's finished."