Bribing charges against President Temer are rocking the Brazilian government

A massive kickback scheme is said to involve both Speakers of Congress and dozens of MPs and government officials, as well as all three presidents in the last three terms, the “Car Wash” probe unveiled.

People walk past a sign reading "Out Temer" at the end of a protest against Brazil's President Michel Temer in Sao Paulo, Brazil, May 21, 2017. REUTERS/Nacho Doce
People walk past a sign reading "Out Temer" at the end of a protest against Brazil's President Michel Temer in Sao Paulo, Brazil, May 21, 2017. REUTERS/Nacho Doce

“It’s been a year of courage,” Brazilian President Michel Temer said on 11 May, praising the actions of his government, which seemed to be bringing back the economy. Six days later, the world learned that he was under investigation for allegedly bribing an entrepreneur into keeping former House Speaker from speaking.

Mr. Temer had spoken about courage also last year in August when he took over the government from impeached socialist president Dilma Rousseff on budget manipulation charges: “You need courage to govern and we have courage,” he said then. His government passed austerity bills that gave international investors — but not the Brazilian public — a renewed confidence in Brazil’s ability to turn north the economy, despite its political corruption quagmire, namely the involvement of up to 98 personalities among which presidents, Congress speakers, governors, MPs, government officials and party leaders in the Car Wash kickback scheme.

Already an unpopular president when on 17 May the newspaper Globo broke the news that also Mr. Temer was under probe, he denied the charges, and said that he would not resign. Brazilians, however, had their worries confirmed about a widely corrupt political élite and a daunting prospect of a second impeachment in only one term and no real alternative for a political government. The Chief of Staff and the Secretary to the Presidency are involved as well in the Car Wash scandal.

During the last three years, owing to several plea-bargain deals, prosecutors led by judge Sérgio Moro, now a hero to the anti-corruption movement, were able to trace the trail of the payoffs by entrepreneurs to politicians in exchange for major government contracts or very favorable state loans. The scheme, unveiled initially through a probe into money laundering at a gas station, turned out to be common practice at Petrobras (the Brazilian state oil company), construction behemoth Odebrecht and an array of other important companies of which JSB, a meatpacking giant, is the latest.

To avoid going to jail and risk the collapse of their pork-and-chicken empire, its heir and chairman Joesley Batista decided some months ago to cooperate with prosecutors. Batista, according to Brazilian press accounts, was the company’s “head of bribing.” He first told officials about a $30 million deposit in an offshore bank account he made for Ms. Rousseff and another of over $50 million in another account for Mr. Lula da Silva, the popular labor former president in the two terms before Ms. Rousseff.

Fifteen days later, he met with Michel Temer and recorded — on his initiative, he is said to have stated — the president approving that he pay the former speaker of the House already convicted, Eduardo Cunha, to buy his silence. Reportedly he also made payments to Mr. Temer of at least $2.2 million. The Supreme Court authorized on Thursday an investigation into president Temer’s position.

The stock market plunged 10%, the Brazilian currency 5% the day after the news. Only a couple days before, the international economic press was praising Mr. Temer’s policies and their results. With inflation falling to 4.08%, a near 10-year low, and the economy growing 1.12% in the first quarter after two years in a deep recession, “capital markets were coming to life again,” international analysts applauded.

Mr. Temer’s main achievement was a budget ceiling that changed a constitutional clause that made most public spending (up to 85%) mandatory and increasable in line with nominal GDP growth. His next major policy steps were going to be a labor regulation reform and one of Brazil’s thorniest problems: reforming the pension system by upping the retirement age for men to 65 and for women to 62 from the current average of below the mid-50s. Both reform processes were already temporarily suspended — and might not happen at all.

The only certainties are, economists write, a setback to a situation similar to when Rousseff came to power: “a will to reform, but no real political power to act”, and an impact on the economy, unemployment and consumer buying power. Halting reforms that would have produced positive effects in the long term is a costly collateral damage of the current political crisis, they say.

Brazil is the world’s largest producer of coffee and sugar cane and home to the world’s largest commercial livestock heard, it is the second largest exporter of iron and one of the world’s main producers of aluminum, coal and soy. Supported also by a recovery of commodity prices, the economy was just beginning to exit the recession.

Brazil has one of the highest rates of inequality, according to World Bank data. While during the last nine months inflation decreased almost by half putting more money in the pockets of people, official data from IBGE shows that unemployment struck a record in the first quarter with 13.7%, that is a total of 14 million people from 11.5 when Temer came to power. This is a heavy toll paid by families, even if the number of poor supported by the social program “Bolsa familia” grew by 500 thousand.

More than 28.6 million Brazilians were lifted out of poverty between 2004 in 2014 thanks to this and other social programs, but as a consequence of the prolonged economic crisis before the end of 2017 some 2.5-3.6 million people could fall back in misery, the World Bank reckons. They are the “new poor”, the study said, people living mainly in urban areas, aged under 40 with mid-level education. Many are dropouts from the service sector which is stagnating.

The social picture is bleak, but if the current crisis will not extend over 60 days, the nation could go back to try and restart reforms and maintain current growth rates, the former government of the Central Bank of Brazil and chief economist at the Trade and Services Confederation, Carlos Thadeu de Freitas, said via Globo, because Brazil has some ‘fat to burn’ on the monetary side. “Mr. Temer does not have the moral and ethical conditions for staying in power,” but the impact of the crises on GDP could be limited if “a qualified personality is elected through Congress,” Thadeu said.

This is what article 81 of the Constitutions says, but with a Congress of which a third of its members is under investigation for corruption, will Brazilians buy the outcome?

Temer’s approval rate nosedived to 9%, according to a Datafolha poll, that is four points below Rousseff’s when she was ousted last August. In several cities, like São Paulo and Brasilia people took to the streets on Saturday banging on pans. In April the first general strike in 21 years protesting Mr. Temer’s austerity policies paralyzed the nation.

Another uncertainty is if Lula’s legal woes will send him to jail or allow him to run for president in 2018, a possibility his political opponents fear because he is still Brazil’s most popular and charismatic politician, whereas only 2% would vote for Temer.

Impeachment, criminal charges, a criminal action against the ticket Rousseff-Temer or the latter stepping down, there is little or no visibility on what happens next in the ninth largest economy in the world.

@GuiomarParada

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