President is said to be ‘deeply shaken’ by political crisis
Some see annulment of 2014 election as way to new leadership
Brazilians watched in shock as federal police carried out search and arrest warrants throughout the capital, Brasilia, in dramatic scenes reminiscent of the impeachment process last year that brought Temer to power. The president is expected to address the nation at 4 p.m. local time, according to Globonews cable TV.The operation came after O Globo newspaper reported on leaked testimony that Temer allegedly approved payoffs to buy the silence of Eduardo Cunha, the mastermind behind last year’s ouster of former president Dilma Rousseff. Cunha is now in prison on corruption charges. The recorded testimony was submitted to the Supreme Court by two senior executives from meat-packing giant JBS SA as part of a plea bargain deal, according to the paper. The paper provided neither a transcript nor a recording, and Temer has denied wrongdoing.
The allegations are the latest twist in a sprawling corruption scandal that has reached the top levels of the country’s financial and political elite.
Markets tanked Thursday on the prospect that renewed turmoil would kill a reform agenda designed to fix depleted public coffers and pull the economy out of its deepest recession on record. Brazilian assets had rallied over the past year as Temer pursued austerity measures designed to rein in a ballooning a budget deficit.
Congress was due to vote on a long-anticipated and controversial overhaul of the pension system by the end of May. Eurasia Group said in a note that Temer has lost the capacity to continue his reform agenda. Ricardo Tripoli, a lower house leader from the administration’s main coalition ally, the PSDB, said the party would abandon the government if the recording confirms the allegations.
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Despite initial attempts to show Temer was conducting business as usual at the presidential palace on Thursday, the 76-year-old career politician was deeply shaken by the events, according to a person familiar with his thinking who requested not to be named because of the matter’s sensitivity.
Opposition deputies have already filed impeachment proceedings. People close to Temer told Bloomberg that the most honorable exit may be the president’s removal by Brazil’s top electoral court. The court is currently assessing whether to nullify the results of the 2014 elections on the basis it was illegally financed. Hearings on the case are due to resume in a few days.
There are several options to replace Temer in office, said Luiz Carlos Hauly, lower house deputy leader of the PSDB, the main coalition partner. "The menu is open," he told Bloomberg, adding that the electoral court process may take too long.
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So far the only official response from Temer was a statement issued late Wednesday.
"President Michel Temer never requested payments to obtain the silence of ex-deputy Eduardo Cunha," according to the statement. "The president defends a deep and wide investigation to get to the bottom of the claims put forward in the media."
Both JBS and its holding company, J&F, declined to comment.
Minister Wellington Moreira Franco, one of Temer’s closest aides, said in a video posted on his Twitter account that the government was surprised by the plea-bargain testimony, and urged the coalition to remain united "so the country wouldn’t be paralyzed."