Brazil Prosecutor Said to Take Aim at Politicians in Probe

Brazil’s prosecutor general asked the Supreme Court on Tuesday to authorize a probe of senior politicians for their roles in the country’s largest corruption scandal.

The prosecutor is asking to open 28 new investigations of 54 people, including politicians, according to an official with knowledge of the request who asked not to be identified because it’s not public. If authorized, some of the probes would center on whether the politicians were involved in an alleged kickback scheme that may have funneled hundreds of millions of dollars from state-controlled Petroleo Brasileiro SA to political parties. The Supreme Court will decide whether to reveal the names of those accused.

The investigation of politicians threatens to weaken the governing coalition and deadlock Congress as President Dilma Rousseff seeks approval for spending cuts and tax increases, said Marcos Troyjo, who teaches and co-heads a forum on emerging markets at Columbia University in New York. The scandal has contributed to a decline in Rousseff’s approval rating, which is the lowest of any Brazilian president in 15 years.

“Brazil will be paralyzed in terms of decision-making, drawing attention from getting the economy back on track,” Troyjo said in an interview from Rio de Janeiro. “It could get ugly if funds siphoned from Petrobras are linked to her 2014 re-election campaign.”

PMDB Members

Local media, including newspapers O Globo and O Estado de S. Paulo, reported that Senate President Renan Calheiros and lower house President Eduardo Cunha were informed that they are on the list of prospective investigations. Both are members of the Brazilian Democratic Movement Party, Rousseff’s biggest ally. Calheiros’s press office declined to comment. Cunha said he doesn’t comment on speculation.

Swap rates maturing in January 2017 rose 16 basis points, or 0.16 percentage point, to 13.03 percent at 5:09 p.m. local time. The real fell 1.7 percent to 2.9814 per U.S. dollar and has dropped 10.9 percent so far this year, the worst performance among the 16-most traded currencies tracked by Bloomberg.

Rousseff’s ruling alliance is already strained as coalition partners jostle for power and disagree over austerity measures designed to shrink the budget deficit and prevent a credit-rating downgrade.

Calheiros skipped a dinner with the president on Monday. A day later he rejected her decree to unwind payroll tax breaks, forcing the president to introduce new legislation to get her measure through Congress. The bill is designed to raise government revenue.

“If someone is unsatisfied, there’s only one way - sit down and listen,” Pepe Vargas, institutional relations minister, told reporters on Wednesday. Obviously the carwash operation causes anxiety in Congress, there’s a climate of concern.’’

$200 Million

Some of the kickbacks allegedly paid by contractors in the Petrobras case went to legislators and political parties, including as much as $200 million to the ruling Workers’ Party, or PT, according to Pedro Barusco, a former Petrobras services manager who made a deal to turn state’s witness. The PT has said that all contributions were within the law.

It’s been 12 months since police made the first round of arrests in the alleged money laundering scheme. The probe, dubbed Carwash after a gas station and carwash network in Brasilia, has mushroomed as investigators looking into alleged kickbacks and inflated contracts at Petrobras.

The police have detained former Petrobras directors and executives at some of the country’s biggest construction companies on allegations of accepting and paying bribes. Members of Petrobras’s management team, including Chief Executive Officer Maria das Gracas Foster, resigned in February after revealing the writedown from corruption, among other items, could reach 89 billion reais ($30 billion).

Foster has denied wrongdoing.

Recession Threat

More than three-quarters of respondents in a Feb. 3-5 Datafolha poll said Rousseff, who was chairman of Petrobras from 2003 to 2010, knew about the corruption and either let it happen or couldn’t do anything to stop it. The scandal, coupled with the threat of an economic recession, has driven her approval rating to 23 percent, a drop of nearly half from December, according to the poll, which had a margin of error of plus or minus two percentage points.

Rousseff has said she had no knowledge of the graft and that her government, unlike some previous administrations, is allowing investigations to proceed unhindered.

“Those who participated in acts of corruption will have to respond for them,” she told reporters Feb. 20.

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