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May 18, 2017 | 14:29 GMT

Brazil: A New Scandal Engulfs the President

Brazilian President Michel Temer is once again under fire, this time amid reports that prosecutors have obtained recordings of him discussing hush money payments with a jailed associate. The obstruction of justice allegations have sparked street protests and calls for his impeachment by Brazilian lawmakers.

According to a May 17 report from O Globo, the president was caught on tape asking the chairman of Brazil's JBS meat-packing company, Joesley Batista, to buy the silence of Eduardo Cunha, the former president of the lower house who has been in prison since November 2016. Batista has been under investigation for his company's alleged involvement in a corruption scheme aimed at getting special financial favors from the country's state-owned national development bank, BNDES. Batista has been negotiating a plea bargain with Brazilian authorities in exchange for information about the BNDES scandal. He is believed to have provided the tape implicating Temer to prosecutors last March.

It is not yet clear why Temer would want to buy Cunha's silence, since the tape itself will not be made public until the Brazilian Supreme Court approves its release. Nonetheless, Cunha is believed to have been threatening to strike a plea bargain of his own with prosecutors — one that would ostensibly be politically damaging to Temer, formerly a close ally of the jailed lawmaker. Temer has denied the pay-off allegations, though he admitted to meeting with Batista last March.

This case is significant for two reasons. First, it could very well lead to the president's downfall. Second, it may halt progress on economic, pension and labor reform efforts underway in Congress.

The new scandal seems unlikely to lead to Temer's resignation, since leaving office would increase his exposure to potential prosecution on obstruction of justice charges. Impeachment is more likely, since an impeachment request was filed in the lower house shortly after the O Globo report broke. At this point, Temer appears to still have support from more than a third of Congress (the threshold needed to avoid impeachment). Impeachment proceedings, moreover, would likely take at least six months to complete. Even so, sustained street protests could force Congress to move forward with an impeachment against Temer.

Meanwhile, Temer will also be under scrutiny in the Superior Electoral Court, which is hearing a case on allegations that the president accepted illegal donations on behalf of his vice president during the 2014 campaign season. Temer's trial had been moving slowly, and the judges have appeared reluctant to rule against him, hoping to avoid creating another political vacuum with the presidential election just over a year away. However, with evidence of another corruption scandal implicating Temer, the court may feel compelled to accelerate its deliberations. Temer's trial is expected to resume June 6-8. Perhaps the biggest threat to Temer's presidency would be formal obstruction of justice charges, which could put him on trial at the Supreme Federal Court — Brazil's highest judicial body. In this case, Temer could even be arrested.

Should a judicial ruling oust Temer, the president of the lower house, Rodrigo Maia, would assume the office for 30 days until Congress votes on a successor. The new president would hold office until October 2018, when the country is supposed to hold the next presidential election. It is possible, however, that Congress may instead try to pass a constitutional amendment (requiring two-thirds support) to move up the 2018 vote.

Regardless, Brazil's economy is likely to suffer from another political scandal at a time when it was just beginning to show signs of a promising recovery. The market has already reacted negatively to the recent revelations: Brazil's stock market dropped over 10 percent this morning and Brazil's real is down over 8 percent. With the country's leadership once again in flux, lawmakers may slow down or even halt some of the economic reforms — particularly measures to rejuvenate Brazil's deficit-plagued pension system and introduce more flexible labor laws — needed to make the recovery last.

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