Brazil’s Political Crisis Grows as Top Rousseff Ally Rebels

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Eduardo Cunha
Brazilian lower house President Eduardo Cunha. Photographer: Yasuyoshi Chiba /AFP via Getty Images

The turmoil swirling around President Dilma Rousseff and Brazil’s other top politicians grew more intense as the head of the lower house announced an open rebellion against her.

Lower house President Eduardo Cunha urged his party, the biggest in the country, to abandon the ruling coalition and identified himself a member of the opposition. Cunha made his announcement in a morning press conference Friday following allegations he received kickbacks in exchange for a contract with the state-run oil company. He denied wrongdoing.

The real has declined the most among major currencies after the Swedish krona since Thursday, when news broke that prosecutors opened a criminal probe into former President Luiz Inacio Lula da Silva. While newspaper Folha de Sao Paulo reported Saturday that Cunha is at risk of isolating himself, investors are concerned the instability will further weaken the embattled president and endanger her economic recovery plan.

“From now to the end of the year it will be very choppy waters in Congress,” said Joao Augusto de Castro Neves, Latin America director at political risk consulting firm Eurasia Group. “For the next six months or so, it does hurt even more the government’s ability to push its own agenda.”

The real fell 1 percent to 3.1881 per U.S. dollar on Friday.

Allied Base

Cunha’s Democratic Movement Party has so far been key to approving government legislation to raise taxes and cut spending to shrink the budget deficit. Rousseff’s vice president hails from Cunha’s party, known as the PMDB.

Cunha’s move wasn’t supported by fellow party members who hold positions in the government. Vice President Michel Temer wants the PMDB to remain in the allied base and isn’t considering plans to leave the government now, a person with direct knowledge of his position said.

Temer has taken the lead in negotiating support for the government’s austerity plan that is designed to stave off a credit downgrade and boost investor confidence.

While Folha reported Cunha probably will try to block further belt tightening proposals, the lawmaker wrote on his Twitter account Saturday he has no history of trying to create economic “chaos” by putting public accounts at risk.

Cunha’s decision to break with the government is personal and doesn’t reflect the PMDB’s position, which can only be taken by its executive board, political council or national board, the party said in a statement. Danilo Forte, deputy leader of the PMDB in the lower house, said Friday now isn’t the moment to break with the ruling coalition.

‘Even Bigger’

“The PMDB is a government ally and has demonstrated that very clearly,” Delcidio do Amaral, the administration’s leader in the Senate, told reporters. “The president of the lower house is an important position of leadership, but the PMDB is even bigger.”

The presidential press office reiterated in a statement that Cunha’s decision is personal, adding that it expects him to remain impartial as president of the lower house. Opposition leaders remained largely silent following Cunha’s announcement, Folha reported.

Still, Cunha’s job in Congress makes him instrumental in deciding whether to hold a vote to impeach Rousseff, who is defending her administration from charges she broke the fiscal responsibility law in 2014 and campaign rules in last year’s re-election.

Congressional Probe

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The lawmaker said Friday the government was behind a plot to persecute him and weaken him politically. Congressman Silvio Costa, a pro-government member of the Social Christian Party, said Cunha should at least temporarily step down in light of the allegations against him.

Cunha showed no signs of backing down on Friday and in the evening gave a rare televised address to the nation. Rather than discuss his conflict with the government, he listed this year’s legislative achievements, including passage of spending and judiciary bills opposed by Rousseff’s administration.

Off camera he hardened his stance Friday afternoon, taking measures to open a congressional probe into loans provided by Brazil’s state development bank and fraud in pension funds. The move opens up the administration to attacks.

“Cunha could in fact allow the idea of impeachment to advance,” said political scientist Leonardo Barreto. “Cunha is in the very powerful and timely position to set the agenda.”

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