August 6, 2015 / 9:42 PM / in 2 years

Allies of Brazil's Rousseff see leadership vacuum as economy sinks

Brazilian President Dilma Rousseff reacts during a Summit of Heads of State of MERCOSUR and Associated States and Meeting of the Common Market Council in Brasilia in this July 17, 2015 file photo. REUTERS/Ueslei Marcelino

BRASILIA (Reuters) - Allies of Brazil’s President Dilma Rousseff have turned to her opponents to talk about filling what they see as a damaging leadership vacuum after losing confidence in her ability to pull the country out of an economic tailspin, party insiders said on Thursday.

Two parties broke ranks with Rousseff’s governing coalition on Wednesday night, fueling a lopsided defeat on a lower chamber bill raising salaries for police officers, prosecutors and government attorneys. Even Rousseff’s own Workers’ Party voted for the spending bill.

The president’s failure to control her political base in Congress, dramatized by House Speaker Eduardo Cunha’s own very public break with Rousseff, has undermined her efforts to bridge a gaping fiscal deficit that threatens Brazil’s prized investment grade credit rating.

A widening political kickbacks scandal involving contracts at state-run oil company Petroleo Brasileiro has weakened Rousseff, put her leftist party against the ropes and rattled her allies, some of whom are suspected of receiving bribes.

But it is the worst economic downturn in 25 years that has undercut confidence in her leadership and raised the specter of impeachment for Rousseff just six months into her second term.

Vice President Michel Temer warned of the gravity of the situation during a news conference at the presidential palace on Wednesday, as he made a plea for unity to rescue the country from economic crisis.

Even as Temer sought to keep Rousseff’s coalition from further disintegrating, though, fellow members of the Brazilian Democratic Movement Party (PMDB), her main ally, dined with senators of the opposition Brazilian Social Democracy Party (PSDB) to discuss a pact to fill the leadership vacuum.

“There is a political crisis that is deepening the economic crisis, and the government’s ability to handle its coalition in Congress has diminished drastically,” said Wellington Moreira Franco, a PMDB leader who attended the dinner.

“We have to build a national agreement as soon as possible to restore confidence, contain inflation, rebalance the government’s accounts and restore growth,” he said in a telephone interview.

Impeachment of Rousseff was not discussed at the dinner, Moreira Franco said. But he blamed policy mistakes in Rousseff’s first term for the woes of Latin America’s largest economy, which is expected to shrink 1.7 percent this year.

While opinion polls show Brazilians increasingly favor impeaching the president, senior leaders of the PSDB party, including former President Fernando Henrique Cardoso, have not openly backed this option so far. That could change as her political situation deteriorates.

“We practically do not have a government. How can Brazil continue for the next 3-1/2 years with no government,” said Senator Cassio Lima, PSDB leader in the Senate.

Rousseff is not a target of the Petrobras corruption probe, but the PSDB is hoping evidence will be produced showing that bribe money helped fund her re-election campaign. That could lead to a new election that would favor Aecio Neves, the PSDB candidate who narrowly lost to Rousseff in October.

A more serious risk for Rousseff could come from a federal audit court ruling expected in late August on alleged manipulation of government accounts last year. Speaker Cunha is expected to pounce on the decision, if it goes against the government, to start impeachment proceedings in the lower chamber.

“This is the most serious case against her because it involves the crime of violating the budget law,” said PSDB Senator Aloysio Nunes. A dozen impeachment requests already received by Congress have less merit, he said.

The next gauge of government stability will be the size of the turnout for a nationwide protest against Rousseff on Aug. 16, which the PSDB will openly back for the first time.

A new poll on Thursday showed Rousseff’s approval rating is the lowest for any Brazilian president in the last three decades, with seven out of 10 respondents wanting to see her impeached.

Reporting by Anthony Boadle; Editing by Tom Brown

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