How Brazil's New Political Crisis Might Play Out: QuickTake Q&A

Aviva's Ballard Says Brazil Is in a Tough Position

Brazil plunged back into crisis when the Supreme Court authorized an investigation into President Michel Temer on accusations of passive corruption and obstruction of justice. The allegations are the latest development in Operation Carwash, a sprawling corruption probe that has implicated many of the country’s business and political elite and helped bring down Temer’s predecessor, Dilma Rousseff. Temer has repeatedly denied the allegations, but several opposition legislators have called for impeachment, as has Brazil’s influential bar association, the OAB.

1. What are the accusations?

Executives from JBS, the world’s largest meat producer, submitted a tape to the Supreme Court that includes a secret recording of Temer which, according to prosecutors, shows the president approving a cover-up and turning a blind eye to corruption. Among the accusations leveled against the president is the apparent endorsement of the payment of hush money to Eduardo Cunha, the imprisoned former house speaker who was key in the impeachment of Rousseff.

2. How has Temer responded?

In a televised address, he sought to discredit Joesley Batista, the businessman who recorded the conversation, arguing that the tape had been doctored and asking the Supreme Court to suspend the inquiry. In an interview with newspaper Folha de S. Paulo, the president reiterated that he would not resign.

3. What’s Operation Carwash?

It’s the nickname for a criminal probe led by Brazil’s federal police that began in 2014. It’s uncovered a kickback and corruption scandal involving some of the nation’s biggest political donors, including the state-run oil company Petroleo Brasileiro, which is known as Petrobras, and Latin America’s biggest construction company, Odebrecht SA. Prosecutors say construction companies formed cartels to win inflated contracts at Petrobras, giving kickbacks to executives and politicians. The "Carwash" name comes from the preferred money-laundering location -- a Brasilia gas station -- used by black market currency trader Alberto Youssef, who disclosed the kickback system to law enforcement while being interrogated after an arrest.

4. How was Rousseff involved?

She was impeached and removed from office in 2016 for breaking the country’s budget laws by doctoring accounts to minimize the size of the deficit. While those charges didn’t directly involve Carwash, her public image suffered as several close allies in were caught up in the probe. Her political mentor and predecessor as president, Luiz Inacio Lula da Silva, is on trial, facing corruption charges. And Rousseff chaired the Petrobras board from 2003 to 2010.

5. Could Temer be impeached as well?

Legislators from several opposition parties have called for his resignation, and numerous impeachment requests have been filed. One cabinet minister has resigned, and three small parties (the PSB, PPS and Podemos) have withdrawn from the administration. Jose Agripino Maia, head of Democratas, a key government ally, said his party would state its position after the Supreme Court rules on Temer’s request to suspend the investigation against him.

6. How likely is it that Temer will be forced out?

Political risk consultancy Eurasia sees a 70 percent possibility of Temer not finishing his mandate, which ends on Dec. 31, 2018. Other than resignation and impeachment, Temer faces two other threats to his continuation in power: being stripped of his mandate by the country’s top electoral court, or becoming a defendant before the Supreme Court.

7. How would the impeachment process work?

For Congress to initiate impeachment proceedings, Rodrigo Maia, the speaker of the lower house and Temer’s ally, would have to sign off on the move. That would trigger a lengthy process involving several rounds of voting in both houses, with two-thirds majorities in both houses needed to find Temer guilty of wrongdoing. In Rousseff’s case, the process took eight months. Temer could file appeals at the Supreme Court at any stage. 

8. How would defeat at Brazil’s top electoral court work?

The president could be forced from office by Brazil’s top electoral court, the TSE, which reconvenes on June 6. The court is currently assessing whether to invalidate the results of the 2014 presidential election, when Temer ran as Rousseff’s vice-presidential candidate, on the basis it was financed with illegal campaign donations. If stripped of his mandate by the court, Temer would have the right to appeal. Prior to the latest Carwash developments, such a ruling was considered unlikely, due to its dramatic consequences for the country’s stability. Now the judges may decide it offers the easiest route out of Brazil’s political crisis.

9. How would a conviction by the Supreme Court work?

If the Supreme Court upholds the investigation, the chief prosecutor will build a case against the president. If the general prosecutor decides he has enough evidence, he will file charges against the president. To move forward, the case needs to be approved by two-thirds of the lower house of Congress. Then it goes to the Supreme Court, which has to decide whether to accept the charges. If it does, Temer would be suspended from office for 180 days while he goes on trial. If found guilty, he would be removed from office and could be imprisoned.

10. What happens if Temer leaves office?

If Temer resigns or is forced out, Maia, as the house speaker, would become president for a 30-day period before a joint session of Congress elects an interim president. Brazilians would vote for their next president as scheduled in October 2018. An early election could be held only if Congress approved a constitutional amendment. Such a change in the law would require a three-fifths vote in both the lower house and the Senate.

11. What happens to Temer’s reform agenda?

Whatever his fate, the prospects for his agenda look bleak. Even before the latest scandal, the government was struggling to cobble together the necessary votes to approve a key overhaul of the pension system. With the departure of at least a few dozen allies, that task now looks virtually impossible. "The government’s goal is to concentrate forces for its survival," said Renato Nobile, the CEO of Bullmark Financial Group.

The Reference Shelf

  • A QuickTake explainer on Brazil’s corruption scandal.
  • A QuickTake Q&A on the pension crisis Temer is seeking to address.
  • Bloomberg’s interview with Temer from September 2016.
  • A Businessweek web comic on the Petrobras corruption scandal.

— With assistance by Matthew Malinowski

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