Brazil Plunges Back Into Crisis as President Accused


Brazil has plunged back into political crisis, reminiscent of the chaos surrounding last year’s impeachment process, following reports that President Michel Temer was involved in an alleged cover-up scheme with the jailed former speaker of the lower house of Congress.

One of the country’s largest newspapers reported on Wednesday evening that two senior executives from JBS, the giant meat-packing company, have submitted a tape to the Supreme Court of a secret recording of Temer approving a payment to Eduardo Cunha, the mastermind behind last year’s impeachment of former president Dilma Rousseff. The executives’ evidence forms part of a plea-bargain deal, according to O Globo newspaper, in which information is offered in exchange for reduced sentences.

The presidential press office has issued a statement vehemently denying the allegations. “President Michel Temer never requested payments to obtain the silence of ex-deputy Eduardo Cunha,” it said. “The president defends a deep and wide investigation to get to the bottom of the claims put forward in the media.” Both JBS and its holding company, J&F, declined to comment.

The allegations come just over a year after Temer assumed the presidency, following the start of impeachment proceedings against Rousseff. Over the past 12 months his administration has embarked on an ambitious reform program that has pleased investors and fueled a rally in both the currency and stock market. Brazilians, however, are overwhelmingly opposed to his austerity measures and the president’s approval rating hovers at around 10 percent.

Protests

Amid growing protests in Brasilia on Wednesday evening, military police moved into position around the presidential palace and one of the judges on Brazil’s Supreme Court called for calm. “It’s a moment for serenity, moderation and watching the institutions work,” said Marco Aurelio Mello. Local TV images showed a crowd of protesters gathered in Sao Paulo, Brazil’s largest city.

The allegations are the latest development in Operation Carwash, a three-year long corruption investigation that has implicated many in Brazil’s business and political elite, including some in both the government and the president’s own party. Temer has repeatedly denied any wrongdoing.

According to the newspaper’s report, when the president became aware that the executives were paying Cunha to keep silent he said, “You’ve got to keep this up, right?” O Globo did not provide a transcript of the conversation, or the question leading up to the president’s alleged comment. Nor did it explain how it obtained the information.

Reaction

After the news broke, a Brazilian ETF plunged 8 percent in trading in Tokyo, its biggest drop since November. Mauricio Oreng, a strategist at Rabobank, told Bloomberg that he expected the real to take a six percent hit on Thursday. Share prices would also fall over the coming days, he said.

The report caused an immediate stir in Congress, where opposition congressmen started to shout anti-government slogans. The session was subsequently suspended. Legislators from five opposition parties called for Temer’s resignation and early elections, according to a statement sent by the opposition leader in the lower house. Temer went to his official residence after an emergency meeting with some of his closest aides.

A senior member of the Brazilian government told Bloomberg on condition of anonymity that the administration’s economic team was worried that the crisis could impact its reform agenda. The government is on the verge of sending its long-anticipated, and highly-controversial, pension reform proposal to the lower house of Congress.

“The dramatic political weakening of the government must, at a minimum, delay the timetable for passage of the labor and pension reforms,” Arko Advice, a political consultancy, said in a note. It added that the episode may affect the ruling of Brazil’s top electoral court, which is currently assessing whether to scrap the results of the 2014 election. Such a decision could eventually strip Temer of the presidency, pending possible appeals.

The head of the Brazilian Bar Association, Claudio Lamachia, said in a statement that society needs immediate answers and that the alleged recordings need to be made public as soon as possible.

“Brazilians can no longer live with doubts regarding their representatives,” Lamachia said.

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