Brazil Real Falls on Report Acting President Tied to Graft Probeby
Temer accused of getting improper campaign donation in 2014
Real has been the world’s best performing currency this year
Brazil’s real declined after a magazine reported that acting President Michel Temer was accused of receiving illegal campaign donations, tarnishing the image of a new government that investors had bet would pull the nation out of economic and political crisis.
The real weakened 0.4 percent to 3.1790 per dollar at 10:23 a.m. in Sao Paulo. Marcelo Odebrecht, the former chief executive officer of Brazil’s largest construction company who was jailed on allegations of bribery, linked Temer to a 10 million-real ($3.2 million) illegal campaign donation in 2014, Veja reported Saturday, citing part of the executive’s plea-bargain deal with prosecutors.
The report undermines the confidence investors had bestowed on the new administration, which had helped fuel the world’s best currency rally this year. The real has appreciated 24 percent and the Ibovespa stock index is up 33 percent in 2016. Buying the real with borrowed dollars in a so-called carry trade has returned 34 percent this year, the most in the world.
"Brazilian assets are suffering on the heels of Odebrecht’s recent declarations, which have dented Temer’s image," said Italo Abucater, the head of currency trading at ICAP Brasil Ctvm in Sao Paulo. "Still, I don’t expect this downward trend to remain as it is too expensive to bet against the real."
Odebrecht alleged that Temer requested the financial support when he was vice president, the magazine said, adding that the contribution was made in cash and was accounted for in a non-traditional manner. A press official for Temer, who has repeatedly denied any wrongdoing, said the politician met Odebrecht in 2014 to discuss campaign donations to his PMDB party in accordance with the electoral rules and that the donation was registered. The construction company, Odebrecht SA, declined to comment in an e-mailed statement.
Swap rates on the contract maturing in January 2018, a gauge of expectations for interest rates, advanced 0.03 percentage point to 12.74 percent.