Luiz Inácio Lula da Silva was elected on a wave of optimism in 2002. Now he is fighting for his political life after weeks of allegations about corruption within his Workers’ Party that have paralysed the Government, forced colleagues to resign, and moved the crisis closer to the presidency itself.

For the first time an opinion poll showed yesterday that Senhor da Silva, whose election sparked a left-wing resurgence throughout Latin America, would not win re- election — something unthinkable only a few weeks ago.

The crisis hit the Brazilian currency and stock market for the second day. The opposition talked of undertaking impeachment proceedings.

Senhor da Silva, 59, used his television address to declare: “The Government and the Workers’ Party have to ask forgiveness from the Brazilian people.” Emphasising his Government’s economic and social achievements, he insisted that he had no knowledge of the illegal campaign-finance scheme operated by the party he founded in 1980 to pursue social justice.

“I feel betrayed by these unacceptable practices of which I had no knowledge. I am furious,” he said. He called for the reform of political financing rules and promised that his Government would work with the police to bring the guilty to justice.

Those against whom charges could be brought include the former president, treasurer and secretary-general of the party as well as Senhor da Silva’s former chief-of-staff, seen as the architect of his victory in 2002. All have been forced to resign. The charges centre on the awarding of lucrative government contracts to businessmen. Those men then funnelled money to political parties, which used the cash for undeclared campaign financing.

There are also allegations that the ruling Workers’ Party used the money to buy votes from coalition allies in Congress. Though the Workers’ Party is the main focus of investigations, the businessman at the centre of the allegations has said that he also helped to fund opposition election campaigns.

Senhor da Silva’s speech offered no hint that he was considering resigning or not running for re-election — two possibilities raised in recent weeks by politicians and commentators.

The crisis represents the worst of Senhor da Silva’s 31 months in office and the most serious corruption scandal in Brazil since Fernando Collor de Mello was forced from the presidency in 1992.

Senhor da Silva was elected on a pledge to break Brazil’s tradition of dirty politics. Shortly after he took office in January 2003 opinion polls showed him to be South America’s most popular politician.

Having risen to international prominence as the trade-union leader “Lula”, he was chief of a new generation of leftist Latin leaders that included Hugo Chávez in Venezuela, Nestor Kirchner in Argentina and Tabaré Vázquez in Uruguay, all of whom pledged to tackle the persistent social inequalities in South American societies that had been exacerbated by the free-market, neoliberal policies pursued in the region in the 1990s.

Yesterday’s poll in the respected Folha de S. Paulo newspaper suggested that he would now lose to José Serra, the Mayor of São Paulo, whom he defeated in 2002. The next elections are due in October next year.

No one has yet accused the President of personally benefiting from corruption, or shown he knew about the corruption. But many Brazilians find it difficult to believe that he was unaware of the wideranging scheme orchestrated by senior Workers’ Party officials.

The latest allegations hit the news stands just before the President’s address. In an interview with Época news magazine, Valdemar Costa Neto, the leader of the Liberal Party, who was himself forced to resign as a result of the scandal, said that Senhor da Silva knew of an agreement between the Liberals and the Workers’ Party whereby the Workers’ Party offered ten million reals (£2.4 million) to the Liberals for their support of Senhor da Silva’s presidential campaign in 2002.

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