Reuters/Brasilia
Brazil President Dilma Rousseff yesterday raced to defuse a rebellion by legislators upset about her budget austerity plans and her handling of a corruption scandal at state-run oil company Petrobras.
Rousseff met with legislative leaders from her coalition after they unexpectedly threw out a presidential decree that would have raised payroll taxes and helped close a gaping hole in Brazil’s budget.
The effects of the congressional manoeuvre late on Tuesday were unclear, but it was a sign of how fallout from the scandal at Petroleo Brasileiro SA, as Petrobras is formally known, threatens Rousseff’s agenda and could worsen an expected recession this year.
Brazil’s real tumbled more than 2% yesterday and briefly traded below 3 per dollar for the first time since 2004 as some investors worried the fiscal problems could cause Brazil to lose its investment-grade credit rating. Stocks fell 1.5%.
“This is very serious for Rousseff,” said political analyst Gabriel Petrus of Brasilia-based consultancy Barral M Jorge Associates. “It looks as if there is no political stability on top of the economic crisis.”
Rousseff, a leftist who has just started her second term, is also struggling with rising inflation and unemployment, low prices for Brazil’s commodities, and a historic drought that has raised the spectre of widespread energy and water rationing.
Her latest setback had its roots in two nearly simultaneous events late Tuesday.
First, Senate President Renan Calheiros, a member of Brazil’s ruling coalition, threw out Rousseff’s austerity decree for what he called procedural reasons.
Hours later, Brazil’s top prosecutor asked the Supreme Court to open investigations into 54 people, most of whom are expected to be politicians accused of benefiting from a multi-billion-dollar kickback scheme at Petrobras.
Under Brazilian law, only the top court can try cases against political leaders. The list of names was not released.
However, numerous Brazilian media reported that Calheiros was among those under investigation. Folha de S.Paulo said, citing unnamed Calheiros allies, that his opposition to Rousseff’s fiscal decree was a pressure tactic designed to show the government his displeasure at being on the list.
A spokesman for Calheiros said he had no information about his inclusion on the list and would not comment further.
Rousseff’s office said it would send a bill to Congress to replace the decree and raise payroll taxes. Since it is unclear when the increasingly hostile legislature will vote on the bill, however, the tax increase may come later than it would have under the decree.
Eurasia Group, a consultancy, said the delay could cost the government as much as 3bn reais ($1bn).
In a sign of Rousseff’s dependency on Congress, Bank Itau calculated that the president would need its support to pass budget savings measures worth 0.5% of gross domestic product this year. That would be equivalent to nearly half the government’s key fiscal savings target.
Brazil President Dilma Rousseff
