Brazil's President Michel Temer leaves Planalto Palace in Brasilia, Brazil, May 20, 2017. REUTERS/Ueslei Marcelino(reuters_tickers)
By Alonso Soto and Anthony Boadle
BRASILIA (Reuters) - Brazilian President Michel Temer’s refusal to resign in the face of a Supreme Court investigation raises the prospect of a drawn-out fight for survival by an unpopular leader that would stall reforms, deter investors and leave Latin America's largest economy adrift.
Legal experts and some of Temer's political allies said his determination to fight corruption allegations could prolong a political crisis for months. That could halt congressional passage of measures needed to pull Brazil from its worst-ever recession, including moves to ease labour regulations and raise the pension age.
The prospect of Brazil tumbling back into political paralysis just a year after the impeachment of former President Dilma Rousseff sent the benchmark Bovespa stock index toppling 9 percent on Thursday, its biggest daily decline since the 2008 financial crisis. [nL2N1IK2T3]
Details of a plea bargain deal by executives of the world's largest meatpacking company JBS released on Friday showed Temer is accused of attempts to obstruct a sweeping corruption investigation and of receiving $4.6 million in bribes - shocking even Brazilians inured to three years of the graft probe.
In a strongly worded televised address on Saturday, a defiant Temer said a secret recording by JBS Chairman Joesley Batista had been edited to deliberately incriminate him. He asked the Supreme Court to suspend its investigation until the recording's integrity could be verified.
"Brazil will not be derailed. I will continue to lead the government," Temer said from the podium in the presidential palace, denouncing Batista as a 'criminal' who fled to New York before the storm surrounding his plea deal broke. Batista was not available for comment.
In addition to the Supreme Court investigation, Temer faces growing calls for his impeachment and a legal battle over the alleged illegal funding of his 2014 campaign, when he ran as the vice presidential candidate to Rousseff. [nL2N1IK1SY]
Protests in several Brazilian cities this week were relatively small. But analysts said the possibility of an increasingly isolated, lame-duck president clinging to power could bring hundreds of thousands of angry Brazilians onto the streets, as was the case last year.
With more than 14 million Brazilians unemployed and many frustrated by the government's austerity agenda, Temer's popularity is languishing near single figures.
Some allies have already abandoned his coalition and the coming days will determine whether he has enough support in Congress to weather the storm.
"Temer should only stay on if he is able to get his coalition to approve the reforms. If not, he has to step down," said José Anibal, a leading member of the Brazilian Social Democrat Party (PSDB), the president's main ally.
Opponents seeking Temer's ouster filed eight separate impeachment requests on Thursday. Any impeachment would take at least six months, generating further uncertainty that could smother an incipient recovery in Brazil's $2 trillion economy, according to economists, government officials and lawmakers. [nL2N1IK15J]
Temer and his most trusted aides, including Finance Minister Henrique Meirelles, worked the phones furiously over the last two days to convince politicians and investors to back him amid what some analysts are calling the worst crisis since Brazil returned to democracy in 1985. [nL2N1IL171]
"We need to convince the political class that there is no better option for Brazil at this moment," said a presidential aide who asked for anonymity to speak freely. "This is not about Temer but is about investment, generating new jobs and improving the lives of Brazilians."
Temer's critics argue he is not fit to govern after meeting in the presidential residence with Batista and allegedly endorsing - or at least not reporting - his efforts to derail the Operation Car Wash investigation into political kickbacks and bribery at state-run companies, particularly oil firm Petrobras.
Batista handed a recording of the conversation to prosecutors as part of a plea bargain deal. Testimony by JBS executives released on Friday also accused former Presidents Luiz Inacio Lula da Silva and Rousseff of accepting tens of millions of dollars in bribes and named scores of other politicians. [nL2N1IL171]
Lawyers for Lula said he was innocent. Rousseff denied any wrongdoing in a statement.
Brazil's securities regulator is probing JBS and other companies controlled by the Batista family for possible insider trading of foreign exchange futures and shares ahead of the announcement. JBS said in a statement the trades were part of its dollar hedging strategy. [nL2N1IL1DJ]
The Supreme Court investigation would normally take months if not years but given the political climate, justices are expected to expedite a decision on whether Temer should be tried. Legal experts said the evidence in the case appeared to be strong.
"The Supreme Court investigation could take a long time, but it starts off with strong evidence, the recording of the Batista meeting and a series of other videos," said Rafael Mafei, a law professor at the University of Sao Paulo. "This would be the quickest way out of this crisis."
If the Supreme Court accepts charges of obstruction of justice and corruption against Temer, the lower house of Congress would have to authorize his trial. That, like impeachment, would require approval by two-thirds of the chamber.
The president would be suspended immediately pending trial and may be forced to quit.
The fate of his presidency could also be sealed by Brazil's Supreme Electoral Tribunal (TSE) if it decides to annul the Rousseff-Temer ticket's victory in the 2014 election because it received illegal campaign donations.
The case, due to open on June 6, was expected to last months, but the crisis will speed up proceedings. However, Temer can appeal any adverse ruling.
If Temer is removed, the speaker of the lower house would take over for up to 30 days while Congress picks a new president to serve the rest of the presidential term until the end of 2018.[nL2N1IK1SY]
Potential candidates floated by politicians include Temer's economic chief, Meirelles - a favourite of investors - and the head of the Supreme Court, Chief Justice Carmen Lucia Rocha.
Any leader picked by lawmakers, however, would likely lack the legitimacy to pursue the unpopular pension and labour reforms before the general elections in late 2018.
"That leader would be weak given how discredited this Congress is," said Senator Ronaldo Caiado, a member of Temer's alliance who has called for his resignation. "Only someone with the backing of the ballot could carry out the reforms we need."
($1 = 3.2550 reais)
(Reporting by Alonso Soto and Anthony Boadle; Editing by Daniel Flynn and Chizu Nomiyama)