Not going down without a fight.

Photographer: Evaristo Sa/AFP/Getty Images

Brazil's Scandal Takes Another Toxic Turn

Mac Margolis writes about Latin America for Bloomberg View. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”
Read More.
a | A

On Thursday, Brazilian Attorney General Rodrigo Janot formally charged Eduardo Cunha, Brazil's highest-ranking lawmaker with commanding a farrago of felonies, including shaking down suppliers of Petrobras, the scandal-ridden national oil company, for some $5 million, and then laundering the bribes through more than 100 financial operations from Montevideo to Monaco.

Running 85 pages and garnished with an aphorism by Mahatma Gandhi, the indictment reads like the production notes to a noir movie script.

My favorite scene: 250,000 reais (around $71,000) in booty decanted through Cunha's preferred house of worship, the Assembly of God.

Not surprisingly, Janot's indictment has enthralled Brasilia, where President Dilma Rousseff has seen the national economy and her approval ratings sink to record lows, and not even core allies can be trusted to back her emergency reforms.

QuickTake Brazil's Highs and Lows

Ever since Cunha won the right to the top microphone in Congress, trouncing Rousseff's own candidate for the job, the Rio de Janeiro lawmaker has dedicated his mandate to making her life miserable, delaying revenue raising initiatives and planting some "fiscal bombs" in Congress that would plump constituents' earnings at the expense of the swelling public deficit.

So how do you say schadenfreude in Portuguese? After weeks of escalating rhetoric and street protests clamoring for impeachment, suddenly it's Rousseff's archenemy who looks to be on the brink.

But hold those vuvuzelas. While Cunha may be hobbled by the scandal, he's hardly out of play. Even if the Supreme Court accepts Janot's indictment and sends Cunha to trial, he has no obligation to step aside. Removing him would take half plus one of the 513 members of Brazil's lower house, an ecosystem where Cunha is at home.

Under Brazil's hyper-democratic political arrangement -- a near imperial president, reined in by a legislature on steroids -- the speaker of the house enjoys enviable sway. Cunha, second in line to succeed the president, controls the legislative agenda and budget, and can name or sack heads of subcommittees as he pleases. One measure of his clout was the letter of support Cunha garnered on Thursday from house members of the Democratic Movement Party (PMDB), Brazil's largest, which notwithstanding Cunha’s animus toward the president is nominally allied with her.

Until recently Cunha's strategy had been to use his swagger to pry concessions for cronies and allies from a government enfeebled by crisis. Now survival trumps political appetite: Look for Cunha to try to make Rousseff feel his pain by lobbing even more fiscal bombs, stonewalling key austerity measures, or even putting one of the many impeachment proposals floating around the legislature to a floor vote.

Of course, any move by Cunha to impeach Rousseff now runs the risk of being seen for what it is: a rank attempt by a desperate rival to avoid a fall -- or at least go down shooting.

The timing is crucial. Ten or more key items on Rousseff's agenda to slash government spending, raise taxes and rationalize the bloated bureaucracy -- and so prevent Brazil from seeing its credit rating reduced to junk -- still ride on congressional approval, Eurasia Group said in a client note on Friday.

Rousseff can likely muster the votes to thwart impeachment, and count on backing from her new best friends in the senate, where PMDB member Renan Calheiros -- Cunha's former ally-turned-rival -- presides.

And yet Calheiros himself is under scrutiny for possibly taking bribes in the Petrobras scandal. If Janot also decides to slap him -- and a critical mass among the four dozen other politicians under investigation -- with indictments, that alliance could collapse, adding another toxic twist to what has already become Brazil’s most engrossing, and enervating, scandal.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net