Brazil's president may lead a 'walking dead administration'

The scandal comes at a crucial time for Brazil, which is mired in its worst recession in decades, the economy having shrunk almost 8 percent in the last two years with more than 14 million people unemployed.

Within 90 minutes of the opening, Brazil's main Ibovespa stock index dropped 10 percent and trading was stopped for 30 minutes.

The exchange's benchmark Ibovespa index ended the day down 8.8 per cent, while the value of the Brazilian real against the dollar plunged by almost 9 per cent.

Brazil's political crisis deepened on Thursday as government allies began openly discussing scenarios for the replacement of Mr. Temer after federal police carried out search and arrest warrants throughout the capital, Brasilia.

Temer has denied the allegation that he condoned paying a bribe and is expected to make a public statement about the allegations later in the day.

O Globo reported that Batista had also secretly recorded conversations with Senator Aecio Neves asking for legal defense monies.

In the recordings, Temer reportedly endorsed the bribing of former Chamber of Deputies speaker Eduardo Cunha in exchange for Cunha's silence.

Temer took power a year ago when President Dilma Rousseff was impeached and then removed for illegally managing the federal budget.

According to the O Globo report, the information was revealed when the owners of the meat and chicken conglomerate JBS testified before the Supreme Court behind closed doors as part of a massive corruption investigation, dubbed "Operation Car Wash", which implicates former and current politicians. That witness, Eduardo Cunha, was a key player in the ouster of Rousseff - and is now in prison himself. The report in O Globo has effectively destroyed his support among lawmakers, said Pedro Paulo Silveira, chief economist at the Nova Futura brokerage in São Paulo.

Rousseff was impeached past year for breaking budgetary laws, but she and her supporters have accused Temer, her vice president, of orchestrating her ouster as part of a soft "coup" meant to halt the Car Wash investigation.

To the revelation of a scheme to keep the judges from pressuring Batista, Temer asks "are you holding both of them back?", which Batista confirms before the president says the equivalent of "excellent, excellent".

JBS representatives did not respond to an email sent by The Associated Press late Wednesday seeking comment.

That seeming harmony between Rousseff's Workers' Party and PMDB was paper thin and Temer's loyalty to his boss even thinner.

The corruption probe has led to the imprisonment of some of Brazil's most prominent politicians and business owners.

Leaders of Temer's biggest allied party in Congress, the PSDB, said that if the allegations proved true, they would demand the resignation of three of their members who are in the president's cabinet.

Temer, whose government has a 9-percent approval rating, had already been named in plea bargain testimony for negotiating millions in illegal campaign funding, which he denies.

"These allegations, if proven to be true, have the potential to delve the administration into a profound political crisis", Eurasia said late Wednesday, adding that at the very least the matter will delay major reforms that Temer is trying to enact.

  • Zachary Reyes