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Congressional support to aid Brazilian president's survival, but potential fresh allegations to weaken him further

Published: 7/5/2017

President Michel Temer is the first incumbent Brazilian head of state formally charged with a crime committed during his or her term in office.



IHS Markit perspective

Outlook and implications

  • Brazil's Lower House has to decide on whether to open criminal charges against President Michel Temer, after the Supreme Federal Court sent the corruption charges brought by Prosecutor General Rodrigo Janot to Congress.
  • Temer appears to enjoy sufficient support in Congress for the charges to be rejected.
  • The absence of significant anti-government demonstrations has favoured Temer but the showdown with the judiciary is weakening him, seriously jeopardising the chances of important pension reform receiving approval in Congress.

Risks

Government instability; Policy direction

Sectors or assets

All

On 26 June 2017, Prosecutor General Rodrigo Janot formally charged Brazil's president Michel Temer with corruption. According to Janot, the president accepted bribes from Joesley Batista, the owner of JBS, the world's largest meat packing company, in exchange for the government resolving tax-related issues and facilitating loans from official banks to the company. The accusations are based on a plea bargain made by Batista, and a late night conversation between Batista and Temer secretly recorded by Batista in Temer's official residency in March. Instead of resigning, Temer has fought back, denying any wrongdoing and arguing that the charges are politically motivated and aimed at paralysing the government, which would frustrate Brazil's nascent economic recovery after three years of recession.

As mandated by the constitution, the Supreme Federal Court (STF) sent the indictment to the Lower House on 29 June, and now the deputies have to vote on whether to proceed with a criminal trial against Temer.

A protracted process

Brazilian president Michel Temer attending a meeting with leaders of the allied base in the Chamber of Deputies, in Brasilía, Brazil, on 28 June 2017.

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Two-thirds of the votes (342 of 513 deputies) are required to start a trial. To avoid it, Temer needs only 171 votes. The vote in the Lower House is expected for 13–14 July. If they vote in favour, the STF will have to decide, in a matter of days, if there is enough evidence to open a criminal trial. If they do, then Temer would be temporarily removed from office for up to 180 days, and the speaker of the Lower House, Rodrigo Maia – Democrats (Democratas: DEM) would become interim president. If the STF declares Temer guilty, Maia would then have to call an indirect election within 30 days, with Maia himself expected to put his name forward given he is favoured by a large number of house deputies.

Confident that he has sufficient support to reject the charges, Temer and his allies in the Lower House are seeking to fast-track the vote through the Justice and Constitution Committee and House plenary.

Temer has therefore a good chance of survival if the vote takes place early, but his support in the Lower House is vulnerable to the emergence of new corruption scandals almost on a daily basis. It is likely that the longer it takes for the Lower House to decide, the riskier it is for Temer, and therefore he is aiming to secure a vote by the Lower House plenary before Congress breaks for its winter holidays, starting on 17 July. Otherwise, he risks fresh allegations emerging, as several political allies close to Temer could potentially accept a plea bargain deal to avoid a lengthy sentence.

Janot for his part is seeking to extend the indictment beyond August, hoping that by then support for Temer would be eroded by the ongoing allegations and a potential defection of the allied Brazilian Social Democrat Party (Partido da Social Democracia Brasileira: PSDB) if the investigations linger and new allegations come to light. He has staggered the submissions of different accusations to the STF, and is preparing at least another two cases against the president for obstruction of justice and criminal association. After each charge, the same procedures at the STF and the Lower House must be followed, extending the proceedings.

Economic reforms in peril

With the president now fighting for survival, the much-needed economic reforms that he promised to deliver are at risk. Temer is currently seeking the approval of a major labour reform in the Senate that proposes to loosen conditions for outsourcing, hiring, and laying off workers, and reduce the power of unions. The bill is likely to be approved in the next few weeks but will probably be significantly watered down.

Conversely, pension reform, which was intended to be Temer's main achievement, is unlikely to be approved. This consists of a constitutional change that requires a three/fifth majority in both houses of Congress. The reform is very unpopular and it will be very difficult for a weak government to find the necessary majority for the changes, which includes lowering the retirement age. Even if Temer survives, there is little chance that a meaningful reform will be approved.

Outlook and implications

Temer currently enjoys enough support in Congress to survive, partly because many legislators are also being investigated on corruption charges and want to avoid further investigations. Additional factors aiding Temer are the encouraging signs of economic recovery after a three-year recession and the absence of nationwide anti-government protests.

However, Temer's support is likely to quickly erode as the investigations linger and new accusations are brought by Janot over the coming months, which would further destabilise his government. This would include a weakening in support from their main ally in Congress, the PSDB, which could potentially withdraw support from the government, with a view on the October 2018 presidential election. However, the PSDB also does not currently have a strong individual to run for the election, as many of them are also being investigated. If further damaging allegations against the president are produced, the participation of the PSDB in the Temer government would become untenable, as it would damage the party's prospects for the October 2018 election.

With Janot scheduled to step down in September 2017, he is likely to focus on bringing the remaining charges to the STF by mid-August. If Temer manages to survive until then, this will increase the chances of him staying in power until the next election. Temer's battle for survival makes the nature of the political transition until next year's election highly uncertain. Such an election remains an open race, with the PSDB still to nominate its candidate; the Brazilian Democratic Movement Party (Partido do Movimento Democrático Brasileiro: PMDB) has been seriously undermined by corruption and currently has no credible name to put forward. Former president Luiz Inacio Lula da Silva is still leading the polls ahead of the election with 30% of voting intention, according to a June 2017 poll. However, he also is under investigation for corruption (he denies all charges) and could be out of the race if convicted.

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