Brazil’s Temer Faces Brewing Mutiny by Allies Amid Corruption Scandal

  • Ministry set on fire by demonstrators outside Congress
  • No consensus on replacement for president in indirect vote

How Temer Scandal Is Impacting Brazil's Markets

Demonstrations against embattled Brazilian President Michel Temer exploded into scenes of violence across the capital city of Brasilia Wednesday. Protesters set fire to the Agriculture Ministry, trashed several government buildings and clashed repeatedly with police, prompting the government to deploy the armed forces.

The outpouring of violence -- the worst to hit Brasilia in years -- ratcheted up the pressure on Temer just as he sought to suppress a revolt in his own party by lawmakers who want to oust him after last week’s damaging graft allegations.

Police and demonstrators clash in Brasilia on May 24.

Photo: Nilton Fukuda/ESTADAO CONTEUDO via AP Photo

As protests raged, government allies inside the presidential palace debated whether to stick with the embattled president. The best solution to remove Temer, who is being investigated by the prosecutor-general on corruption and cover-up charges, is for the top electoral court to annul the 2014 election result in which he shared a ticket with ousted President Dilma Rousseff, according to half a dozen legislators from his ruling PMDB party who spoke to Bloomberg News. The court will retake the case on alleged illegal campaign financing on June 6.

Wednesday’s violent scenes weighed on financial markets and challenged the optimistic government view that it would be possible for Temer to rebuild his coalition and advance an economic reform agenda investors consider crucial to fix the country’s public finances and help pull Latin America’s largest economy out of recession.

The decision to deploy the armed forces also provoked an outcry from lawmakers, as well as a Supreme Court judge, who questioned the move given Brazil’s history with the military. The decree prompted legislators to come to blows, with the scuffles resulting in the suspension of a congressional session for the second time in two days.

Mutiny

Temer met with PMDB Senators on Wednesday morning in an effort to tackle the dissidents. After the meeting, one Temer aide said the rebels account for no more than a handful of the party’s Senators.

But some legislators from other allied parties share concerns. The largest member in the government’s allied base, the PSDB, held its own meeting to discuss its future in the coalition. Afterwards Senator Tasso Jereissati told reporters that his party’s main concern was the country’s stability.

The nation was rocked last week by news of a Supreme Court-authorized probe into Temer on allegations of passive corruption and obstruction of justice, only days before Congress had planned to vote on a pension bill considered central to the administration’s efforts to fix the country’s depleted public coffers and pull its economy out of recession.

Some of the dissident lawmakers told Bloomberg News that they favor a negotiated resignation in which Temer agrees to not stall possible court decisions against him with appeals. Senator Renan Calheiros, the current leader of Temer’s PMDB party in the upper house, has become the most outspoken advocate of a "negotiated exit" for Temer. 

Yet Temer, a 76 year-old career politician, refuses to budge, saying charges against him were trumped up and the evidence doctored.

Opposition legislators have filed numerous impeachment requests against the president. The OAB, Brazil’s influential bar association, intends to file its own petition on Thursday. For any of the requests to proceed, they would to be accepted by house speaker Rodrigo Maia. In comments to reporters on Wednesday, he urged patience. "I cannot evaluate such a serious matter in a ’drive-thru’," he said. "It’s not a decision that you make overnight.

For more politics coverage, subscribe to the Bloomberg Politics Balance of Power newsletter

Possible Substitutes?

Another factor that buys Temer time is the lack of consensus on a possible substitute. Under the current law, Congress would elect an interim leader until the October 2018 general elections, should Temer leave office.

Some of the names discussed in the halls and elevators of Congress’s modernist building in Brasilia include the PSDB’s Jereissati, former Supreme Court Chief Justice Nelson Jobim, ex-President Fernando Henrique Cardoso, and current Supreme Court Chief Justice Carmen Lucia Rocha. Also the current head of the lower house, Rodrigo Maia, was suggested by senior legislators as an alternative.

In order to help rebuild support among legislators and their constituents, Temer is pushing a series of pork barrel projects, such as wage increases for public tax collectors, debt refinancing for small and mid-size companies, as well as land ordinance regulations sought by farmers, according to a person with direct access to the president who asked not to be named.

— With assistance by Luisa Marini, Gabriel Shinohara, and Rachel Gamarski

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE