Brazil Supreme Court Judge Annuls Lula’s Carwash Convictions

Brazilian markets tumbled after Supreme Court Justice Edson Fachin annulled former President Luiz Inacio Lula da Silva’s convictions in the Carwash corruption probe, clearing the way for the leftist leader to run again for the nation’s top job if he so chooses.

Stocks fell 4% on the news, by far the worst performer among major indexes on Monday. The real sank more than 2% to 5.82 per dollar at the close, the lowest since May and past the last technical barrier before the all-time intraday low of 5.97.

The judge’s decision provides the former labor union leader and two-term president his biggest chance yet at a long-sought comeback. While Lula remains revered for lifting millions of Brazilians out of poverty, many on the right say he is a symbol of corruption and economic mismanagement under the leftist Workers’ Party.

Brazil Supreme Court Judge Annuls Lula’s Carwash Convictions

For investors, his return to the electoral agenda could derail the government’s reformist push and bring forward an election debate that wasn’t expected until closer to the vote, set for October 2022.

“If Lula is able to run again, the reform agenda would likely be off the table and the prospects for fiscal discipline would deteriorate,” said Brendan Mckenna, a strategist at Wells Fargo & Co. in New York.

Lula Comeback Is Yet Another Risk to Brazil Markets: Analysts

No Jurisdiction

The federal court in the southern city of Curitiba had no jurisdiction over cases against the former president, Fachin wrote in a statement released on Monday. The decision annuls convictions for crimes such as bribery stemming from upgrades at a property in Atibaia and a beach-front triplex, both in the state of Sao Paulo.

The cases against Lula, which prevented him from running in the 2018 vote against Jair Bolsonaro, must be tried in court in the capital city of Brasilia and not in Curitiba because the facts that were raised don’t have direct ties to the misappropriation registered at Petroleo Brasileiro SA, according to the statement. Since 2014, the Brazilian oil producer known as Petrobras has been the focus of the so called Carwash scandal, the largest corruption probe in the country’s history.

“The decision is in line with everything we have been saying for more than five years,” Lula’s lawyers Cristiano Zanin Martins and Valeska Teixeira Zanin Martins said in statement.

Brazil Supreme Court Judge Annuls Lula’s Carwash Convictions

A poll released this weekend showed Lula has more potential ahead of the 2022 elections than President Bolsonaro. The survey carried out by Ipec, a new polling institute led by the former head of Ibope, showed 50% of respondents said they may vote for Lula in the 2022 elections if he were to run, versus 38% for Bolsonaro.

Lula also showed a lower rejection rate when compared to Bolsonaro -- 44% to 56%, respectively. The poll surveyed 2,002 people between February 19 and 23, and has a two percentage point margin of error, according to newspaper O Estado de S.Paulo.

Bolsonaro, in the meantime, dismissed Fachin’s ruling saying it was politically-motivated.

“Brazilians do not even want to have a candidate like this in 2022, less so possibly electing him,” the president told reporters at the official residence in Brasilia on Monday. “I hope that the Supreme Court will reestablish the conviction.”

The ex-president was convicted of corruption in 2017, and left jail in late 2019 after a Supreme Court decision he couldn’t serve time as all appeals hadn’t been exhausted. He has repeatedly denied wrongdoing and has said he’s victim of political persecution.

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