Brazil’s Budget Minister Takes Leave of Absence During Probe

  • Recordings allegedly implicate minister; he denies wrongdoing
  • Brazilian markets sell off on concern about Temer government

Brazil’s newly-appointed Budget Minister Romero Juca said he will take a leave of absence after allegations surfaced that he wanted to obstruct the sweeping corruption probe known as Carwash.

Juca, the leader of Acting President Michel Temer’s political party, will return to his former job as senator and make room for Dyogo Oliveira to take the helm of the Budget Ministry on Tuesday. The surprise announcement on Monday afternoon capped a day of speculation about Juca’s future in the cabinet after he initially refused to step down.

The dramatic departure highlights the challenges facing Temer, who with less than two weeks on the job was forced into damage-control mode as the corruption scandal encroached on his government. The allegations emboldened Temer’s critics, who heckled the acting president and allies when they visited Congress, accusing them of orchestrating a coup against Dilma Rousseff.

"Political instability will continue to prevail in the new government," said Bruno Rovai, Brazil analyst at Barclays Plc in New York. Temer’s administration "probably will be negatively affected by the instability caused by the Carwash investigations."

Brazil’s real led losses among major currencies and the Sao Paulo stock exchange index fell amid investor concern that the scandal could derail Temer’s efforts to revive the economy. Analyst Lucas de Aragao at consulting firm Arko Advice said the allegations are particularly damaging because they’re centered on a pillar of Temer’s economic team, who was tasked with containing a widening budget deficit that has eroded confidence.

Carwash Investigation

Folha de S. Paulo newspaper broke the news about the budget minister on Monday morning when it published recordings of conversations that took place in March between then-Senator Juca and a former oil executive. In the discussions, the minister allegedly said Rousseff’s impeachment would lead to a government that could prevent the Carwash investigation from proceeding.

Juca’s lawyer, Antonio Carlos de Almeida Castro, didn’t deny the conversations took place, but added that he saw no criminal implications in the exchange. The minister said early on Monday his comments were taken out of context. He said later he would step down until prosecutors answer whether the recordings show evidence of wrongdoing.

"I’m one of the builders of this new government, and I don’t want any malicious slander to undermine it," Juca told reporters in Congress, where it was difficult to hear above the shouts of lawmakers loyal to Rousseff.

Juca’s decision to temporarily step down was a good solution politically because it takes him out of Temer’s administration without alienating members of their political party in Congress, said Roberto Padovani, chief economist at Brazilian bank Banco Votorantim SA.

"This reduces the fallout in the short term," Padovani said. "This takes pressure off the government and won’t eat away at its support in Congress. Investors need to know that the government has that support to win approval of key measures."

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