President Dilma Rousseff's austerity program to fix Brazil's shaky finances is again in trouble after her point man in the Senate was arrested in a widening corruption scandal, and it could reignite calls for her impeachment.
"The arrest felt like a nuclear bomb here in the presidential palace," said a Rousseff aide who asked for anonymity. "Unfortunately the political crisis deepens further and complicates our agenda in Congress."
Delcidio do Amaral is the ruling Workers' Party most senior figure in Congress and has been a smooth negotiator with the opposition as Rousseff this year tried to shore up Brazil's overdrawn public accounts and regain the confidence of investors.
But opposition leaders say his arrest shows that the bribery and kickback schemes involving contracts at state-run oil company Petrobras lead to the highest levels of the Workers' Party, in power since 2003.
"It exposes the relation of corruption between the government, politicians and big businesses," said Rubens Bueno, an opposition lawmaker and fierce critic of the government in the lower house of Congress, adding that it is a "disaster" for Rousseff's government.
Amaral was arrested on orders of the Supreme Court for allegedly trying to bribe Petrobras' former international director, Nestor Cervero, out of taking a plea bargain that could implicate the senator and others in bribery in the costly purchase of a refinery in Pasadena, Texas in 2006.
Rousseff is not under investigation in the corruption scandal but was chairwoman of Petrobras when it bought the refinery and when many of the alleged kickback schemes were hatched.
The Petrobras scandal combined with an economic recession led to opposition calls for Rousseff's impeachment earlier this year, and polls show most Brazilians want her unseated.
Rousseff seemed to have distanced herself from the probe in recent months and began to score victories in Congress with votes against new spending bills and for belt-tightening measures.
Amaral, who has close ties to the business world and is a close ally of former President Luiz Inacio Lula da Silva, played a key role in those victories but his arrest pushed Rousseff and her team back to the center of the scandal.
"The government lost its cleverest mover and shaker in the Senate. It will be hard for Rousseff to reach agreement with the opposition on the austerity agenda," said Gabriel Petrus, an analyst with consultancy Barral M Jorge Associates in Brasilia.
BATTLES IN CONGRESS
At stake is a bill to reduce a key fiscal savings goal this year. Without its approval by Nov. 30, the government will be forced to drastically cut expenditures, officials told Reuters.
Members of Rousseff's Workers' Party, such as congressman Henrique Fontana, fear her opponents will try to use Amaral's arrest to further disrupt the government's legislative agenda.
"The opposition will try to use this to paralyze Congress, create an institutional crisis," said Fontana. "We won't let that happen. We will push ahead with the austerity plan."
Prosecutors say Brazil's top engineering firms ran schemes in which an estimated $2 billion was siphoned off overpriced contracts in kickbacks and bribes paid to Petrobras executives and dozens of politicians, mainly from the governing coalition.
Andre Esteves, the billionaire CEO and controlling shareholder of Latin America's biggest investment bank, BTG Pactual SA, was also arrested on Wednesday.
Investors fear the scandal could bring down Esteves' bank and also make it impossible for Rousseff to win support for the unpopular austerity measures needed to cut into Brazil's budget deficit, which has ballooned to more than 9 percent of GDP.
Shares in BTG Pactual slumped 21 percent on Wednesday and the broader stock market index and real currency also fell sharply. Market prices were more stable on Thursday, but the bank's stock was off another 3 percent.
