Brazil's new government has prioritized anti-corruption investigations that began in 2014 with the discovery of an expansive, corrupt network of major construction companies and politicians. President Jair Bolsonaro's anti-corruption efforts resonate among potential voters, but they threaten to create greater conflict within Brazil's political establishment. With key reforms pending in Congress, legislators who fear investigation and arrest could move to slow the probes — and Bolsonaro's larger legislative agenda.
Brazilian federal authorities arrested former President Michel Temer and his ally Wellington Moreira Franco, the country's former energy minister, on March 21. The two men were arrested on corruption charges stemming from their alleged involvement in criminal activities uncovered by the Lava Jato investigation. Temer has previously been accused of receiving payoffs from companies that overcharged the federal government for construction and other services.
Why It Matters
Temer's arrest will likely widen the political divide between President Jair Bolsonaro and Brazil's legislature. In Brazil's fragmented Congress, Bolsonaro has resorted to extensive, often cumbersome bargaining to pass legislation. Temer's party, the Brazilian Democratic Movement (MDB), is a relatively small part of Congress, holding only 13 of 81 total Senate seats and 34 of 513 lower house seats. But the significance of his arrest extends far beyond the MDB. As more sitting Brazilian legislators risk being ensnared in the anti-corruption probe and eventually arrested — indeed, Moreira Franco is married to lower house president Rodrigo Maia's mother-in-law — members of Congress may resist Bolsonaro's anti-corruption drive by slowing down the legislative process.
Maia, who sets the legislative agenda for the lower house, has already postponed a vote on a controversial security proposal by former key Lava Jato Judge and now-Justice Minister Sergio Moro. Horse-trading over targets of the probe and the extent of anti-corruption measures can be expected to increase. Bolsonaro faces an uphill battle in passing key elements of his legislative agenda, including a constitutional amendment on pension reform. Maia said on television later on March 21 that if the government did not pass a key pending pension reform in 2019, it would not approve it in 2020, which is a midterm election year. Maia's statement is likely a call for the government to begin negotiating now or else face greater difficulty in achieving its reforms.
For foreign companies operating in Brazil, Temer's arrest presents the risk that more private sector figures will fall to corruption charges. Though key figures in Brazil's private sector — such as Marcelo Odebrecht, the former CEO of Brazil's biggest construction company — have already been arrested, Temer and Moreira Franco may implicate more. Such arrests could be very disruptive to foreign investors, given that federal authorities would likely seize assets and open additional investigations as part of new probes. Rising congressional gridlock and political infighting over the investigation could also spur currency fluctuations and hurt the country's investment climate.
Some Useful Background
As a minor legislator who came to power on a wave of populist dissatisfaction with the established political system, Bolsonaro had few reasons to slow down the pace of anti-corruption prosecutions that began in 2014. And after winning the presidency in October 2018, Bolsonaro appointed former federal Judge Sergio Moro to the Brazilian Justice Ministry, signaling his government's intention to heavily prioritize anti-corruption efforts.