Newspaper revelations put Brazil’s reforms at risk
UNTIL now, Brazil’s president, Michel Temer, has personally avoided the scandals that have engulfed his administration. The supreme court has authorised investigations into eight members of his cabinet, as well as 24 senators and 39 lower-house deputies for allegations related to the vast scandal centred on Petrobras, the state-controlled oil company. However, the president was not a target of the inquiries. And no one had suggested that he had committed any crimes during his term of office, which could lead to impeachment.
That changed with sickening suddenness on May 17th, when O Globo, a newspaper, reported that Mr Temer had been caught on tape endorsing the payment of hush money to a politician convicted of taking bribes. According to the newspaper, in March the president met Joesley Batista, a businessman whose family controls JBS, the world’s biggest beef exporter. The firm is being investigated over accusations of paying kickbacks to Eduardo Cunha, a former speaker of the lower house of Congress who is serving a 15-year sentence for his role in the Petrobras scandal. Mr Batista reportedly told Mr Temer that he had been paying Mr Cunha to stay quiet. Mr Temer allegedly responded, “You need to keep that up, OK?” The tapes are now part of evidence collected in a plea-bargain deal that Mr Batista has struck with prosecutors.
The tapes also reportedly record Mr Temer advising Mr Batista to contact a congressman from his Party of the Brazilian Democratic Movement to resolve a problem for the company that owns JBS. The congressman then received 500,000 reais ($159,000) sent by Mr Batista, an event that was caught on film. The tapes were part of an elaborate investigation by police in co-operation with Mr Batista and his brother, Wesley, which involved placing tracking chips into bags of cash.
Mr Temer fiercely denies the reports. His office issued a statement saying that he had indeed met Mr Batista, but had “never solicited payments to obtain the silence” of Mr Cunha. It said there was “no discussion that would compromise the conduct of the president”.
But the reports have thrown Brazil into turmoil. Immediately after they were published the opposition filed a motion for impeachment in congress. “The government’s backbone has been broken,” declared Alessandro Molon, a leftist congressman who is its author. Hundreds of protesters took to the streets in several cities after the news broke, demanding a fresh election. The real slumped after O Globo’s report, as did an index that tracks Brazil’s stockmarket.
The markets’ worry is that the scandal will derail the vital economic reforms that Mr Temer introduced after he took over as president from Dilma Rousseff, who was impeached last August. He has already pushed through a constitutional amendment to freeze government spending in real terms for 20 years. He is now pushing for an overhaul of the country’s unaffordable pension system, without which the spending freeze will be meaningless, and of its rigid labour laws.
Neither reform is popular. But, by holding out the prospect that Brazil will at last control its unsustainable public debt and improve its labour market, they have helped to restore confidence to an economy that remains mired in its worst-ever recession. Inflation has fallen from double-digit rates to below the central bank’s target of 4.5%, allowing interest rates to fall. Unemployment may at last have stopped rising. Real wages may no longer be falling. The Globo revelations will delay the reforms, if they do not stop them altogether.
It is far too soon to expect Mr Temer to be forced out of office.
A motion to impeach him must be accepted by the speaker of the lower house, Rodrigo Maia, a staunch presidential ally. It would then have to pass with two-thirds majorities through both houses of Congress, where Mr Temer still has strong backing. The constitution rules out a fresh election. When a president leaves office with less than two years left in a term and has no vice-president to succeed him, Congress, not the voters, chooses the next president. Mr Temer has 19 months left to serve.
All this is scant comfort to Brazilians who hoped that Mr Temer would succeed in reforming the economy before handing over to an elected successor. His approval rating, already a dismal 20%, is sure to sink. Unless he can clear his name quickly, the political atmosphere will become more toxic. The consequences of O Globo’s revelations are incalculable, but they are certainly not good.