Brazil Scandal Won’t Hold Up Reform Agenda, Senate Chief Says

  • Former minister involves Temer in influence-peddling claim
  • Scandal poses risk to approval of reforms, could escalate

Brazil’s Senate president has vowed to push ahead with the government’s reform agenda, as the political establishment reels from an influence-trafficking scandal that threatens to revive political uncertainty in Latin America’s largest economy.

In a note released by his press office on Friday afternoon, Renan Calheiros said that recent cabinet changes would not affect the Senate’s timetable and that the chamber’s year-end recess may be canceled if necessary to vote on the government’s program. Senators are due to vote next week on a controversial spending cap bill, an essential part of President Michel Temer’s plans to drag Brazil out of its worst recession on record.

Calheiros’ comments came hours after the resignation of Geddel Vieira Lima, Temer’s top congressional aide. Both Lima and Temer have been accused of improper use of their powers to influence a construction project.

Brazil’s real fell the most among the world’s major currencies earlier on Friday over speculation that Temer’s possible involvement may derail his government’s reform agenda. The currency weakened as much as 2 percent but trimmed losses after Lima’s resignation. Brazil’s benchmark stock market, the Ibovespa, rose 0.3 percent.

Roberto Padovani, the chief economist at Banco Votorantim, said that Lima’s departure could even accelerate the government’s program. "The political class is under more pressure and this could speed up the reforms to try to restore economic growth," he said.

The scandal centers around claims by former culture minister Marcelo Calero that Temer urged him to settle an impasse over a construction project in which Lima had a stake. Presidential spokesman Alexandre Parola confirmed that Temer spoke with Calero twice in an attempt to avoid conflict over the construction project, but said that the conversation breached no rules. Local media reported that Calero had recorded the conversation with Temer, but no tape has yet emerged.

Legislators are already on edge as executives of a leading construction company finalize plea bargains with prosecutors with details on kickbacks from state-run oil company Petrobras to politicians. Leaked tapes and testimonies surrounding the scandal earlier this year heightened political instability that culminated in the impeachment of President Dilma Rousseff in August.

Temer’s approval rating stood at 28 percent in September, according to an Ibope poll commissioned by the National Industry Confederation. Since assuming the presidency on an interim basis in May, Temer has also lost three ministers over alleged cover ups surrounding a corruption probe.

Political Quicksand

Lima’s departure may give Temer a momentary respite, but the whole episode has put the government back on the defensive, said Andre Cesar, a political analyst at Hold Consultoria. “It’s like quicksand, everyone is looking carefully where to step,” he said.

Temer’s main ally, the Brazilian Social Democracy Party, known as the PSDB, continues to stand behind the president, said Joao Doria Junior, Sao Paulo city’s mayor-elect. “This moment of transition with Temer’s government should be preserved for the country to be pacified,” said Doria. “We’ll only have social calm in the country with economic growth.”

Temer has been in talks with the PSDB regarding Lima’s replacement, and is considering party Deputy Antonio Imbassahy as an option, according to a government member with knowledge of the discussions. The government wants to tap an ally who is capable of securing votes for bills in Congress, the official said.

Opposition lawmakers plan to file a request for an impeachment process against Temer, said Senator Lindbergh Farias of Rousseff’s Workers’ Party. With an overwhelming majority in Congress, Temer’s coalition is likely to reject the request and several congressional leaders said they saw no grounds for it.

— With assistance by Anna Edgerton, Bruce Douglas, and Josue Leonel

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