Op. Car Wash arrests a second former Brazilian president

Author

Gustavo Ribeiro
March 22, 2019 • Reading Time: 7 minutes

Good morning! In today’s issue: Op. Car Wash arrests a second former Brazilian president. Speaker could jump ship in pension reform. Brazilian assets crash after Temer arrest. 

Op. Car Wash arrests a second former Brazilian president

Less than three months after leaving the presidential office, Michel Temer was arrested by Operation Car Wash—alongside 10 other people, including his former Minister of Mines and Energy. Mr. Temer is accused of running a sophisticated criminal ring that used a series of shell companies to siphon BRL 1.8bn from government agencies across decades. Per the case’s prosecutors, Mr. Temer’s group tried to tamper with the probe by forging false documents and eliminating evidence (which would justify his preventive detention).

While Mr. Temer’s arrest was a long time in the making (he is the subject of 10 inquiries), the move seems like a political reaction from Operation Car Wash, coming soon after the Supreme Court decided that crimes connected to elections should be tried in the overburdened, slow-paced Electoral Justice system. Federal Judge Marcelo Bretas, who ordered the arrests, made a reference to that episode. Moreover, the tampering attributed to Mr. Temer allegedly happened in 2017.

This Operation Car Wash offensive could spark a reaction from the political establishment against anti-corruption efforts and the sitting administration—to which many members of the operation have associated themselves with.

Jair Bolsonaro supporters celebrated the arrest, seeing it as evidence that the government is cracking down on corruption. The arrest certainly deviates attention from the government and its shortcomings, but its lasting political effects are unknown. Congress is expected to resist the anti-crime bill presented by Justice Minister Sergio Moro (the former face of Op. Car Wash) and the uneasiness provoked could also create additional hurdles to the pension reform bill.

Speaker could jump ship in pension reform

House Speaker Rodrigo Maia—a strong supporter of the pension reform bill—appears to have had it with the federal government. After a new round of attacks on social media from Rio de Janeiro City Councilor Carlos Bolsonaro—one of President Bolsonaro’s sons—Mr. Maia reportedly called Economy Minister Paulo Guedes to tell him that, the shots coming from the president’s entourage show that the administration doesn’t need his help.

The call—which was witnessed by several party leaders—comes after Carlos Bolsonaro insinuated that Mr. Maia was actively opposing the anti-crime bill put forward by the Ministry of Justice. The Speaker said that it has become impossible to whip votes or build a coalition in favor of the administration. He believes that, by not publicly calling out his son, the president is condoning the attacks.

Mr. Maia has been advised to backpedal and resume negotiations around the reform—a measure in which he believes. But even if he continues ahead of the effort to build a 60% majority in the House, his relationship with the president has been damaged. And it is never good for a head of state to remain at odds with congressional leaders—they control the parliamentary agenda. And, the Speaker has discretional power to accept impeachment requests.

Brazilian assets crash after Temer arrest

The news of Michel Temer’s arrest sent shockwaves through the Brazilian stock market, as investors fear that centrist politicians could be implicated by further investigations, preventing the pension reform from passing. Earlier in the week, the Ibovespa index topped the 100,000-point threshold—but the stock market lost almost all of its gains yesterday.

The tense political climate can influence the pension reform’s path in Congress in multiple ways. The House’s Constitution and Justice Committee was set to choose a rapporteur to the pension reform, but the move was postponed when news of Mr. Temer’s arrest broke. All in all, the episode makes Brazil look bad, making foreign investors scared of the level of uncertainty—except for speculative capitals. Today should be another day of caution from investors.

President Bolsonaro is also not helping the reform’s case. While in Chile for a diplomatic visit, he told voters through a Facebook live broadcast that he doesn’t want to pass the pension reform, “but it would be irresponsible not to.” And that’s him talking about the government’s alleged #1 priority.

Brazilian assets crash after Temer arrest

The news of Michel Temer‘s arrest sent shockwaves through the Brazilian stock market, as investors fear that centrist politicians could be implicated by further investigations, preventing the pension reform from passing. Earlier in the week, the Ibovespa index topped the 100,000-point threshold—but the stock market lost almost all of its gains yesterday.

The tense political climate can influence the pension reform’s path in Congress in multiple ways. The House’s Constitution and Justice Committee was set to choose a rapporteur to the pension reform, but the move was postponed when news of Mr. Temer‘s arrest broke. All in all, the episode makes Brazil look bad, making foreign investors scared of the level of uncertainty—except for speculative capitals. Today should be another day of caution from investors.

President Bolsonaro is also not helping the reform’s case. While in Chile for a diplomatic visit, he told voters through a Facebook live broadcast that he doesn’t want to pass the pension reform, “but it would be irresponsible not to.” And that’s him talking about the government’s alleged #1 priority.

What else you need to know today

  • Diplomacy. President Jair Bolsonaro is visiting Chile, where right-wing South American governments are sponsoring the creation of Prosur—a new multilateral body designed to replace Unasur, which has been “plagued with left-wing ideology,” according to the president. In a radio interview, Chief of Staff Onyx Lorenzoni said Chilean dictator Augusto Pinochet “had to carry out a bloodbath [in the country], but his economic reforms remain.”

  • Privatization 1.The federal administration is auctioning four ports destined to transporting and storing fuels. It is the second such auction under President Jair Bolsonaro. Bidders will fight for 25-year concession contracts—and the Ministry of Infrastructure expects BRL 199m in investments for the four-port terminals combined. One of the ports still needs to be built by the winner of the auction. On April 5, another six ports will be privatized.

  • Privatization 2.To boost the government’s revenue, the Ministry of Mines and Energy (MME) has decided to speed up the privatization of federally-owned power company Eletrobras—which could raise up to BRL 12bn. The MME wants to promote initial public offerings for power companies, with the government keeping a stake in them, but the Ministry of Economy wants to sell off the assets.

  • Pensions.Congressman Delegado Waldir, who acts as the House whip for Jair Bolsonaro’s Social Liberal Party, has stated that the government made a mistake in allowing for more generous pension rules for the military, while civilians carry all the burden for the austerity reform. He also criticized the government’s lack of dialogue with Congress on the matter, saying representatives learned about the details of the military pension reform bill through the news.

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