Brazil’s President Michel Temer urged to resign as court okays corruption probe

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Brazilian President Michel Temer defied growing calls to resign on Thursday, even as the Supreme Court authorized prosecutors to investigate him for corruption and obstruction of justice based on secret tapes in which he allegedly ordered the payment of hush money to a former political ally.

Mr. Temer dug in, telling Brazilians in a terse late-afternoon address that he wanted a full investigation of the tapes, confident it will clear of him of wrong-doing. "I did not buy anyone's silence," he said.

But the President was an increasingly beleaguered and isolated figure after 24 momentous hours. The drama in Brasilia battered the economy, with the stock market and the real both down more than 8 per cent. One minister quit the cabinet and others seemed poised to follow. Thousands of people took to the streets in the evening to demand Mr. Temer step down and new elections be held. And television channels were filled with feverish speculation of the procedures through which Mr. Temer might be pushed out of the job – and if he is, what could happen next.

Related: Fresh round of corruption allegations rocks Brazil's political establishment

"This is the worst crisis since the democratization of the country in 1985," political historian Paulo Cesar Nascimento said. The best outcome for Brazilians, he said, would be for Mr. Temer to leave swiftly – which he is unlikely to do, since it would end his immunity and expose him fully to prosecution – followed by fresh elections. But that would require Congress members to pass a constitutional amendment, he said, at a moment when they fear for their own careers and have no desire to face enraged voters.

Just a day ago, Mr. Temer was an unpopular president (polling less than 10 per cent in most surveys) who nevertheless seemed likely to serve out his mandate, to late 2018. Then came the leak of plea-bargain testimony from billionaire meat baron Joesley Batista, in which he reportedly secretly taped the President in March. The tapes appear to show Mr. Temer instructing Mr. Batista to make sure to keep paying Eduardo Cunha, a once-powerful Temer ally now serving 15 years in prison for corruption, so that Mr. Cunha did not tell tales about his years of deal-making. Mr. Batista and his brother, Wesley, who run the meatpacking giant JBS S.A., are facing charges of misusing government funds and reportedly co-operated with police and prosecutors in the mammoth Lava Jato corruption case to gather evidence, in exchange for leniency.

The newspaper O Globo reported the existence of the tape on Wednesday night. And for the next 24 hours, events moved with astounding speed even by the standards of Brazil's recent tumultuous political life.

"Temer is very good at building coalitions but this one he's built is going to melt down," said Prof. Nascimento, who teaches at the University of Brasilia, noting that the President is unelected and took power after the impeachment of Dilma Rousseff less than a year ago. "The people around him, when they see the ship sinking, they're going to start abandoning it. Either he resigns or he is going to be impeached. But it's going to be a torturous path."

Impeachment could take months, as a motion moves through the lower house and senate, with Mr. Temer appealing at every stage to the Supreme Court. In the meantime, other legislative business is frozen and the economy is pummelled. The Brazilian bourse, Ibovespa, closed Thursday down 8.8 per cent, its worst performance since the 2008 financial crisis. The market dropped more than 10 per cent on opening, triggering a suspension of trading for 30 minutes. The real fell more than 8 per cent against the dollar.

Lava Jato has claimed increasingly powerful politicians over the past three years, but on Thursday, they began to fall with a new swiftness. Shortly after dawn, federal police executed 30 warrants that originated in the JBS plea bargain. They raided the homes and offices of Senator Aecio Neves, who narrowly lost the last presidential election and was considered a contender for the job in 2018. Mr. Batista reportedly recorded Mr. Neves asking for $870,000 on March 24 to help pay for lawyers to defend him against corruption charges. The Supreme Court swiftly ordered him suspended from his senate seat and, hours later, he was stripped of the leadership of the Brazil Social Democratic Party. His sister, Andrea Neves, the architect of his campaigns, was arrested.

Police also raided the office of Rodrigo Loures, a member of the lower house of Congress who is considered Mr. Temer's right-hand man; the Supreme Court also ordered him suspended from Congress.

And in a first for Lava Jato, police arrested a federal prosecutor, Angelo Goulart Villela, who is charged with leaking secret information to political figures suspected of corruption. Mr. Batista allegedly photographed him in secret meetings with suspects and said that he had been receiving $20,000 a month from JBS to co-operate – and that Mr. Temer knew he was corrupt.

Mr. Batista allegedly also recorded Mr. Temer giving him privileged information about a cut in the interest rate that allowed the company to make hugely profitable investments in the futures market.

In a statement released late on Thursday, the company asked for "the pardon of all Brazilians" and admitted paying bribes to politicians. Mr. Batista, who signed the statement, said there "was no justification" for the graft, then went on to say that JBS had managed to grow "in other countries without transgressing our ethical values" and blamed the necessity to make massive payments on Brazil's difficult business environment and entrenched corruption.

In the evening, the Supreme Court unsealed the plea bargain and Brazilian media outlets shared the audio recordings. The exchanges between Mr. Temer and Mr. Batista were, individually, less explosive than many were expecting based on the bombshell headlines the night before. But taken as a whole, the recording paints a grim picture – of a president who welcomes one of the country's lead businessmen into his home late at night, knowing he faces corruption charges, then sits and listens while the visitor lists off public officials on the take, details widespread paying of bribes, and inquires about how a particular cabinet minister can be made to make decisions favourable to his business.

At nightfall, thousands of people demonstrated in the country's cities, chanting "Direitas Ja" – this is both a demand for direct elections, for a new president and a historical echo: It was the slogan around which Brazilians rallied in mass protests to demand an end to military dictatorship in the 1980s.

Without an amendment allowing new elections, the constitution says that in the event of Mr. Temer's resignation or impeachment, he should be replaced by the speaker of the lower house, Rodrigo Maia, a 46-year-old ally. Mr. Maia is himself the subject of two investigations for corruption in Lava Jato.

Mr. Temer took power promising a change in fiscal policy that would revive Brazil's economy, mired in its worst recession for nearly a century. But he has struggled to pass unpopular pension and labour reforms, and the future of his legislative agenda is now in doubt.