Skip to main content

Brazil's President Dilma Rousseff attends a breakfast with journalists at the Planalto Palace in Brasilia, Brazil, January 15, 2016.Adriano Machado/Reuters

Even by recent standards – and they are high – Thursday was an epic day for news in Brazil: The President was implicated in the giant graft scandal preoccupying the nation, her nemesis was ordered by the Supreme Court to stand trial on charges from the same affair, and financial markets and the currency soared on the hint the President might fall at the same moment that new data revealed the economy is in its worst shape in decades. All of that, before 5 p.m.

In news that riveted the nation, a magazine revealed what it said is evidence that President Dilma Rousseff and her predecessor, Luiz Inacio Lula da Silva, intervened in the "Lava Jato" political bribery scandal that has been playing out for months.

Until this, Ms. Rousseff had never been directly linked to the kickback scheme at the national oil company Petrobras. Prosecutors say bribes worth more than $2-billion (U.S.) were paid by contractors seeking work at the company, and a percentage of the cash funnelled to politicians. She was energy minister, and chair of the Petrobras board, at the time the alleged kickbacks occurred, and investigation of the scheme has overshadowed her second term as president.

Ms. Rousseff denied the allegations, but the revelation was enough to send Bovespa, the Sao Paulo-based exchange, soaring 5.1 per cent, and to boost the real to close up 2.1 per cent against the U.S. dollar, as investors concluded the revelations would bolster efforts to try to impeach the President, who is deeply unpopular with markets. It was a rare burst of positive news, in a battered economy, but came twinned with the promise of heightened political drama.

Meanwhile the Supreme Court ruled that congressional speaker Eduardo Cunha must stand trial on money-laundering and corruption charges in connection with the Petrobras scandal, complicating his power-play efforts to topple Ms. Rousseff.

And all of this played out against a backdrop of dire macroeconomic news, as new GDP figures showed the economy shrank by 3.8 per cent last year – the worst contraction in 25 years and a crushing end to Brazil's reign as a promising emerging market.

The magazine, IstoE, reported that a former senator from Ms. Rousseff's Workers' Party, Delcidio do Amaral, who was arrested last November in connection with alleged efforts to block investigation of Lava Jato, is negotiating a plea bargain with prosecutors. The magazine says that in his depositions to date he provides information implicating the President and her predecessor in trying to block investigations into their political allies and party donors.

Hours after this news broke, Mr. do Amaral issued a statement in which he said he "didn't recognize" documents posted by the magazine on its website and cited as extracts of his deposition, and that he had "not been contacted" by the reporter on the article. But he stopped short of outright denying he was negotiating a deal. (By law, if he were to comment on such a deal, it would immediately be void.)

IstoE is not, typically, considered one of the most unimpugnable sources of political information in this country, which left other media grappling with how to handle the news. Ms. Rousseff's popularity ratings are below 10 per cent, however, and many Brazilians seemed to see this as the long-anticipated moment when she would finally be personally tied to the scandal that now encompasses a vast cast of influential political and business figures.

Ms. Rousseff also issued an angry statement about the allegations, in which she called leaks about Lava Jato an abuse that threatened the democratic rule of law.

The case against Mr. Cunha, who has spearheaded efforts to impeach Ms. Rousseff, further complicates matters. Under Brazilian law, sitting politicians can only be tried by the Supreme Court; 10 justices voted unanimously to hear the case on charges that Mr. Cunha accepted a $ 5-million bribe from a contractor who sought work with Petrobras.

The speaker is a bombastic social conservative who is a key figure in Brazil's largest political party, a central part of Ms. Rousseff's governing coalition. The power struggle between them has paralyzed government for months. Mr. Cunha has repeatedly denied any wrong-doing and says he will not step down. Attorney-General Rodrigo Janot has been asking the Supreme Court since December to remove Mr. Cunha from his congressional seat for allegedly using his position to obstruct the probe into his affairs.

But Mr. Cunha has thus far refused to go. It is unclear when the court may actually try him, given that there is no precedent for this kind of case; and it is entirely uncertain whether this development may cause him to ease off in in his campaign against Ms. Rousseff, or to redouble it.

None of this assists with the free-falling economy. Mr. Cunha has blocked most of Ms. Rousseff's efforts at market-friendly reforms, gambling that soaring inflation and unemployment, and falling tax revenues, would boost his campaign to oust her.

Follow Stephanie Nolen on Twitter: @snolenOpens in a new window

Report an error

Editorial code of conduct

Tickers mentioned in this story