Argentine spy master denies he bribed senators

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BUENOS AIRES, Aug 24 (Reuters) -- The head of Argentina's secret service told congressmen on Thursday anonymous charges that he provided bribe money for opposition senators to ensure passage of a key labor reform law were baseless.

Fernando de Santibanes, head of the State Intelligence Department (SIDE) and a close ally and personal friend of President Fernando de la Rua, testified to a congressional intelligence committee.

The scandal has shaken a government claiming to be cleaning up the country's politics -- despite an absence of evidence to substantiate the allegations.

"We have shown in a very complete way that the department did not do anything like this and indeed could not have done so," De Santibanes told reporters after the closed session. He explained that budget cuts meant the SIDE could not pay significant bribes even if it wanted to.

The spy chief also denied public suspicions by former President Carlos Menem and current Vice President Carlos Alvarez that he had bugged their telephones.

Accusations that officials from the center-left Alliance government paid unnamed Peronist senators to vote for a key labor market law in April surfaced in La Nacion daily. Since then, anonymous pamphlets have named government officials and Peronist senators, and included details of sums paid.

The labor reform was aimed at making it cheaper for companies to hire and fire workers -- key to the government's drive to cut 15.4 percent unemployment as it tries to drag the economy from recession despite weak finances.

De la Rua took office in December vowing to end corruption many believe flourished during the 10-year rule of Menem, a Peronist. One of De la Rua's first acts in office was to establish an Anti-Corruption Bureau, which has launched investigations into several former top Menem officials.

A second former senior Menem official was charged with corruption on Thursday, when a judge ruled that one-time Environment Secretary Maria Julia Alsogaray could not satisfactorily explain how she became so rich.

But the bureau is now investigating De Santibanes and Labor Minister Alberto Flamarique.

Failing to contain his rage before reporters outside his Buenos Aires home, Flamarique angrily compared the anonymous accusations to Nazi propaganda.

"The Nazis were sure they were a superior race. And they did what they did because they were sure but they didn't have any proof. That violates democratic norms and individual rights," he said.

The scandal comes as the government faces a wider confidence crisis in the future of South America's second-largest economy and even its ability to pay its abundant foreign debt.

Desperate to restore the government reputation for honesty, Alvarez requested a criminal probe into the accusations.

De la Rua has largely managed to avoid the press since the scandal flared last week. But he told reporters on Thursday he was sure he could restore the damage to public confidence.

"There has been a very important development to deal with this crisis of rumors in the Senate, and that has been the attitude of transparency the government has taken, of providing information, answering questions and acting united," he said.

Flamarique made a surprise midnight visit to the Senate on Wednesday to heatedly deny he had bribed any members.

A leading opposition union official says Flamarique told him before the labor law was passed that to secure Peronist votes he had only to visit an "automatic teller machine." The minister flatly denies saying that.

One of the most senior Peronist senators, Antonio Cafiero, who served as a minister to the movement's founder, President Juan Domingo Peron, in the 1950s, has said he is considering leaving the party. Cafiero and another Peronist senator have complained of being ostracized by their party since voicing suspicions bribes were paid.

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