Corruption Charges Against Temer Stall Brazil Reform Drive

(Bloomberg) -- Criminal charges against Brazilian President Michel Temer are the latest blow to a reform agenda designed to jump start Latin America’s largest economy, as the nation’s capital prepares for another drawn out political showdown.

Chief public prosecutor Rodrigo Janot on Monday night pressed corruption charges against Temer in an unprecedented development that may put the embattled president of Latin America’s largest economy on trial.

With the prospect of more charges from Janot in coming weeks, the Supreme Court weighing in on proceedings and Congress having to vote on whether to open a potentially lengthy trial, politics stands to overshadow the economic agenda in coming weeks.

"Now it’s become even more difficult to vote anything," said Luis Antonio Covatti, a lawmaker from the Progressive Party in Temer’s ruling coalition. "The government will use all its energy to survive."

The real dropped 0.9 percent in morning trading amid a broader sell-off in the emerging currency market. The Sao Paulo stock exchange inched lower.

Temer is likely to muster the necessary votes -- just over one-third -- in Brazil’s chamber of deputies to block a trial, said Cleber Verde, head of the PRB party in the lower house.
If it does go ahead and he is found guilty he would be stripped of office and could be jailed.

The prosecutor’s charges are based partly on a secret recording of a conversation between Temer and Joesley Batista, the former CEO of the meat-packing giant JBS. The document sent to the Supreme Court states that Temer received 500,000 reais ($151,000) between April and March 2017 from Batista via an intermediary. Temer’s lawyer, Antonio Mariz, told Bloomberg that he would only comment after analyzing the report. The presidential palace declined to comment. The president has repeatedly denied wrongdoing.

Since he took office in May last year, Temer’s market-friendly administration has been dogged by scandal, accusations of illegitimacy and low levels of popularity. Last month’s explosive allegations of criminality destabilized yet further his government and prompted, briefly, a sell-off of Brazilian assets. But the president has vowed to stay in office and the decision of his main political ally, the PSDB, to continue to back his government has strengthened his chances of finishing his mandate.

Temer appears to still have enough legislative support to survive a vote in Congress, according to Ricardo Sennes, managing partner at Prospectiva Consulting. "But this is survival in legal, judiciary terms,” he said during a panel at the Americas Society in New York. "In political terms... for the population this guy is guilty no matter the proofs."

The charges against Temer come as Brazil braces for a possible conviction in the trial of former president Luiz Inacio Lula da Silva. Lula is being prosecuted in five separate criminal cases, on charges ranging from corruption to influence-trafficking.