Brazil President Looks to Bounce Back from Crisis

05/25/2016 - 13h54

Michel Temer, Brazil's interim president, sought to bounce back from the first political crisis of his nascent government on Tuesday (24) with the announcement of ambitious measures to restore the country's sinking public finances.

One day after losing his first minister to a corruption scandal, Mr Temer announced he would seek a constitutional amendment in congress to limit rises in budget spending to inflation - effectively capping the ballooning growth of the state.

The measure is aimed at rebalancing Brazil's sinking public finances. "We will present a proposal to amend the constitution that will limit the growth of primary expenses. We will complete this task by next week," said Mr Temer, accompanied by his economic team.

The programme aims to tackle issues including addressing Brazil's complex labour laws and expensive pension system.

Absent from the line-up of ministers was Romero Jucá, the former planning minister, who took leave of absence on Monday (23) after a newspaper published a transcript of a tape in which he was allegedly plotting to obstruct corruption investigations.

The release of the material sparked the crisis. Mr Temer took office less than two weeks ago after Congress voted to impeach Dilma Rousseff for allegedly manipulating the public accounts to hide a growing deficit.

With seven ministers including Mr Jucá implicated in Lava Jato (car wash), an investigation into corruption at Petrobras, the state-owned oil company, few analysts were surprised when the revelations about Mr Jucá surfaced in newspaper Folha de S Paulo.

Analysts said what was concerning for Mr Temer was the incident showed Lava Jato, which contributed to bringing down the government of Ms Rousseff's Workers' party, or PT, was targeting the leadership of his party, the Brazilian Democratic Movement party, or PMDB.

Mr Jucá, a PMDB leader, was taped in a private conversation with Sérgio Machado, a former executive of a subsidiary of Petrobras. During the exchange, which took place before the senate voted to begin the formal impeachment process against Ms Rousseff earlier this month, Mr Jucá allegedly told Mr Machado they needed to remove the president from power "to stop the bleeding" from Lava Jato.

Newspaper reports alleged on Tuesday that Mr Machado, who was not available for comment, was carrying a wiretap during the conversation with Mr Jucá.

He had also taped similar conversations with other senior PMDB figures, the reports said. Mr Jucá did not deny the existence of the recording but said the newspaper's conclusions about its content were taken out of context.

"We are now entering the PMDB phase of the investigation," said Carlos Melo, a political scientist at Insper, a university in São Paulo.

He said the Jucá incident showed Lava Jato was still going strong despite fears in some quarters that it might end with the impeachment of Ms Rousseff.

On Monday she said Mr Jucá's comments confirmed her claims that the impeachment was a coup plot by the opposition to take power and shut the Lava Jato investigation.

"If anyone was still unconvinced that a coup was under way . . . the seriously incriminating remarks of Jucá about the real objectives of the impeachment . . . should eliminate any doubt," she said.

"I think there must be a [political] pact," Mr Jucá said. Analysts said the incident signalled further volatility ahead for Mr Temer's administration, given the number of his ministers implicated in the investigation.

"Jucá may only be the first member of the new administration to fall in disgrace," said Jimena Blanco, head of Latin America at Verisk Maplecroft.

Yet Mr Temer's response in letting Mr Jucá go had contained some of the damage, analysts said.

Copyright The Financial Times Limited 2016

(c) 2016 The Financial Times Limited