Brazil's New President Temer Threatened With Impeachment After New Corruption Scandal Emerges

Six months after Brazil's former president Dilma Rouseff was removed from power as a result of a carefully orchestrated process by her former Vice President, Michel Temer, who as many suggested at the time, was merely trying to shift attention away from himself and to his former boss due to his "checkered past", swirling with allegations of corruption on par with those of the deposed president, Temer himself may be in danger of impeachment when overnight, Brazil's public prosecutor announced it was studying a possible investigation into whether President Michel Temer put pressure on a former minister to favor a Cabinet colleague's property investment.

Marcelo Calero, who resigned last week as culture minister, told federal police that the president pressured him to resolve a dispute with another Cabinet member, Geddel Lima, president Temer's top government congressional liaison, who was seeking a permit for an apartment building in a historic preservation area of his hometown, a federal police source said.

Calero's accusations have set off new crisis for Temer for allegedly using his public office to obtain a permit for the luxury oceanfront building in the city of Salvador.

Following the news, the Brazilian real slumped as much as 2.2% to 3.4679 reais to the dollar, the biggest intraday drop since Trump's unexpected victory. Traders cited concern that the controversy could derail an overhaul of government finances favored by investors. Simiarly, Brazil's main stock market index, the Bovespa, fell 1.3 percent on concerns of continued political uncertainty delaying recovery from the country's worst recession since the 1930s.

As Reuters adds, adding fuel to the crisis, the Estado de S.Paulo newspaper reported on Friday that Calero secretly recorded his conversations with Temer and Vieira Lima to back his case. If the chief prosecutor's office finds grounds to investigate the allegations it would have to ask the Supreme Court for authorization to allow the probe involving the president, the spokeswoman said, effectively starting a new impeachment process. Confirming this, the leader of the Workers Party in lower house Afonso Florence said that former Culture Minister Calero’s allegation that President Michel Temer pressured him on Lima’s case is “very serious” and may lead to an impeachment request.


Michel Temer, 76, and his 32 year old wife, Marcela

Any investigation would be a serious blow to Temer who took office this year vowing to fight corruption.

Shortly after the latest revelations, this morning Lima announced he would step down which in turn prompted a modest snapback rally across Brazilian asset classses.

In an attempt to squash the scandal, presidential spokesman Alexandre Parola confirmed on Thursday evening that Temer spoke with Calero twice in an attempt to avoid conflict over the construction project. But Parola said that the president “never induced any of his ministers to take a decision that breaches internal rules or convictions.” Speaking to Estado, Temer was adamant that the Lima crisis won’t affect Brazil reform votes.

Others are not so certain: Mizuho chief strategist, Luciano Rostagno, said earlier, before Lima resignation, that Brazil assets may suffer further if there’s confirmation that Temer talk with Calero was recorded. "It all depends on whether a recording will emerge confirming whether Temer really pressured the former minister" adding that “The situation would become tough for the debate of reforms.”

He added that if the tapes are disclosed and show improper talks, a new political crisis may emerge, damaging government efforts to approve fiscal reforms, “The environment could become unfavorable for the reforms debate. The population risks going back to the streets to protest against the Temer government."

As Bloomberg adds, the ethics scandal comes at a delicate time for the government, which is pushing for final approval of a key spending cap bill in the Senate. Legislators are already on edge as executives of a leading construction company finalize plea bargains with prosecutors with details on kickbacks to politicians and managers from state-run oil company Petrobras. Leaked tapes and testimonies surrounding the scandal earlier this year heightened political instability that culminated in the impeachment of President Dilma Rousseff in August.

“It all depends on whether a recording will emerge confirming whether Temer really pressured the former minister,” said Luciano Rostagno, chief strategist at Banco Mizuho do Brasil. “The situation would become tough for the debate of reforms.”

Temer’s approval since assuming the presidential position has remains stubbornly low, and stood at 28 percent in September, according to an Ibope poll commissioned by the National Industry Confederation. Including Lima, since assuming the presidency on an interim basis in May, Temer has also lost a total of six ministers over alleged cover ups surrounding an ongoing corruption probe.