Petrobras probe tests new government in Brazil

OREANDA-NEWS. May 24, 2016. A massive corruption investigation centered on state-controlled oil company Petrobras is testing Brazil's new interim government that has pledged to implement major economic reforms.

Less than two weeks after assuming as Brazil's interim president, former vice president Michel Temer today accepted the resignation of a minister who allegedly plotted to thwart the Petrobras probe.

In leaked recordings, planning minister Romero Juc?, a senator from Temer's Democratic Movement Party (PMDB), tells Sergio Machado, the scandal-linked former chief executive of Petrobras transportation subsidiary Transpetro, that the new government can help "staunch the bleeding" caused by the two-year-old Lava Jato investigation into systemic corruption at Petrobras.

The credibility of Temer and his government of "national salvation" have been under intense scrutiny in the days since President Dilma Rousseff's mandate was suspended on 12 May. A series of controversies, such as the appointment of an all-white male cabinet, and increasing popular unrest are already dimming the prospects for swift economic changes, including oil sector reforms aimed at reviving production.

For Rousseff's left-leaning Workers Party (PT), the recordings, apparently from conversations that preceded a 17 April impeachment vote in the lower congressional house, are proof of a coup. The party, which ruled Brazil for 13 years, has increased pressure on Temer with protests, some of which have devolved into clashes with police.

Temer's route to the presidency has divided Brazil, and sparked concerns that his own legal problems and those of leaders in his party will prevent the country from turning the page on a political crisis that has reverberated onto Petrobras' operations and financial standing.

On 12 May, Brazil's senate voted to initiate an impeachment trial against Rousseff on claims of fiscal responsibility crimes, forcing a suspension of her second four-year mandate. The senate has up to 180 days to deliberate on claims Rousseff illegally obfuscated gaps in the 2014 accounts in the run-up to her re-election, claims she denies.

The PT has already said it will again challenge the proceedings in light of the recordings. Brazil's Supreme Court has already denied several of the party's attempts to suspend the process.

The PT, PMDB and other smaller allied parties are alleged to be the main beneficiaries of a scheme that diverted funds from Petrobras. Rousseff is not under investigation for corruption at Petrobras, the company she chaired between 2003-10, but top politicians from the PT and PMDB are alleged to have personally benefitted from it.

Temer appointed several scandal-linked politicians, such as Juc?, to his cabinet when he assumed office on 12 May. Those appointments were seen as necessary to unite the splintered PMDB, one of Brazil's biggest and most influential parties, but have opened a channel for scrutiny over the real intentions of the parties that led the impeachment drive against Rousseff.

Lava Jato has been blamed as the main culprit for Brazil's economic woes, but has been defended as a necessary process to fortify Brazil's institutions. GDP is expected to shrink by around 3.9pc this year, almost the same as last year.