Bloomberg/Brasilia/Rio de Janeiro
The arrest of Brazil’s former president Michel Temer on Thursday showed the largest corruption investigation in the country’s history remains a powerful and unpredictable force in its politics, clouding the outlook for the government’s key economic reforms.
Temer, 78, became the second former Brazilian head of state after Luiz Inacio Lula da Silva to be arrested by the so-called Carwash probe that has brought down swathes of the nation’s business and political elite. Former Energy Minister Wellington Moreira Franco, a close friend of Temer, was also detained. They are both members of the MDB, one of the larger parties in Brazil’s highly fractured Congress.
Brazilian markets sank as news of Temer’s arrest sent shock waves across Brasilia, where lawmakers have begun analysing the government’s pension reform bill; an unpopular piece of legislation deemed vital to shore up Brazil’s battered public finances. While the medium and long-term consequences remain unclear, in the short-term the arrests create another major distraction from the increasingly urgent task of rescuing Brazil’s anaemic recovery.
“It’s undeniable that Temer’s arrest clouds the outlook in Brasilia,” analysts from XP Politica wrote in a research note. “The focus on pension reform is lost, even if for only a few days.”
Lower house speaker Rodrigo Maia, Moreira Franco’s son-in-law and a keen advocate for reform, said that the arrests would not affect the bill’s passage, but he acknowledged there were “other problems”. Concerns about the government’s ability to approve the bill were already on the rise after a separate proposal for military pensions displeased investors and government allies on Wednesday.
The leader of the opposition in the Chamber of Deputies, Alessandro Molon, said that the arrests “create a certain amount of trouble here in the lower house that will inevitably impact the progress of the pension reform that’s going badly.”
Prosecutors accused Temer of “leading a criminal organisation” that received or was promised more than 1.8bn reais ($471mn) in funds diverted from several state-owned companies and public works, including construction of Angra 3, an unfinished nuclear power plant in the state of Rio de Janeiro, according to a statement. The preventative arrests were authorised by federal judge Marcelo Bretas in Rio.
“Temer has been stealing from the country for the past 40 years,” Carwash prosecutor Jose Augusto Vagos said at a press conference in Rio de Janeiro.
A lawyer for Temer said the arrest constituted one of the most serious attacks on the rule of law in Brazil. His legal team also submitted a request for habeas corpus. Moreira Franco’s lawyers said in a statement they disagree with the judge’s decision, and that the former minister remains willing to assist with investigations.
The benchmark Ibovespa stock index fell as much as 2.6%. The real was one of the worst performers among major currencies, tumbling by as much as 1.6% in afternoon trading.
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