(Adds resignation of PMDB minister)
By Anthony Boadle
BRASILIA, March 28 (Reuters) - Brazil’s largest party will decide on Tuesday to break away from President Dilma Rousseff’s floundering coalition, party leaders said, sharply raising the odds that the country’s first woman president will be impeached amid a corruption scandal.
The fractious Brazilian Democratic Movement Party (PMDB) will decide at its national leadership meeting on the pace of disengagement from the Rousseff administration, in which it holds seven ministerial posts and the vice presidency.
A formal rupture appears inevitable and will increase the isolation of the unpopular Rousseff, freeing PMDB members to vote for her impeachment.
That makes it likely Rousseff will be temporarily suspended from office by Congress as early as May and replaced by Vice President Michel Temer, leader of the PMDB, while the Senate decides if she should be permanently ousted.
In the first step toward an imminent rupture, Tourism Minister Henrique Eduardo Alves, a PMDB leader and former speaker of the lower house of Congress, announced on Monday he was resigning from Rousseff’s cabinet. “Dialogue, I regret to say, has been exhausted,” Alves said in his resignation letter to Rousseff.
Temer aides said the vice president is ready to take over and move fast to restore business confidence in Brazil, in an effort to pull the economy out of a tailspin. Brazilian media reported over the weekend that a team of Temer aides is drawing up a plan for his first weeks as president.
Brazil’s stocks and currency rose Monday on the prospect of Rousseff’s removal. Many blame her for running Latin America’s largest economy into the ground, while Temer is widely viewed as far more business friendly.
The Economist Intelligence Unit said in a note to clients it no longer expects Rousseff to survive impeachment, joining other risk analysts who have raised the odds of her removal.
Party officials calculate that 70 to 80 percent of the 119 voting members of the PMDB directorate will vote to end the party’s alliance with Rousseff and the ruling Workers’ Party. One told Reuters that 75 had already pledged to do so.
Rousseff is an economist by training and a former Marxist guerrilla who was imprisoned and tortured during Brazil’s long military dictatorship. She vigorously denies any wrongdoing and rejects impeachment charges that she manipulated government spending accounts to help her re-election in 2014.
The impeachment process only adds to the crisis hitting Brazil, shaken by its biggest corruption scandal - an investigation into political kickbacks to the ruling coalition and other parties from contractors working for state oil company Petrobras.
Rousseff’s government is also grappling with Brazil’s worst recession in decades and an epidemic of the mosquito-borne Zika virus, as it scrambles to host the Olympic Games in Rio de Janeiro in August.
The Petrobras scandal has weakened Rousseff by reaching her inner circle with allegations against her mentor and predecessor, Workers’ Party founder Luiz Inacio Lula da Silva.
An attempt by Rousseff to appoint Lula to her Cabinet was the last straw for many of her allies who saw it as a desperate move to shield him from prosecution by a lower federal court that is overseeing most of the Petrobras case.
Brazil’s top court is expected to decide later this week if Lula can indeed become a minister.
With the prospect of impeachment ending 13 years of rule by his Workers’ Party, Lula said he was “saddened” by the PMDB’s exit from a coalition he forged in 2006. The former union leader, who remains Brazil’s most influential politician, told foreign reporters in Sao Paulo he thought agreement was still possible.
But in Brasilia, a presidential aide said the break was “irreversible” and the Rousseff government was now focusing on individual members of the PMDB and other parties to try to convince them to vote against impeachment by offering government jobs and pork barrel for their districts.
Lula also called for tax breaks and other measures to get the economy growing again.
The departure of the PMDB is expected to lead other smaller parties to bolt from the governing coalition, which will further undermine Rousseff’s ability to muster one third of the votes in Congress needed to block her impeachment.
The two largest, the Progressive Party (PP) and the Republican Party (PR), each with 40 seats or more in the lower chamber, have signaled that they are leaving.
An impeachment vote is expected as soon as mid-April in the lower house. If she fails to block it with the votes of 171 of its 513 members, Rousseff would face a trial in the Senate where she has lost crucial support among the PMDB.
One PMDB senator, Valdir Raupp, said it would be almost impossible for them now to stop the impeachment if it passes the lower house. PMDB senators believe it would be almost impossible for them to stop the impeachment if it passes the lower house. Rousseff would be suspended for up to six months at the start of the trial and Temer would become acting president.
Temer is already looking at ways to cut public spending to tackle a widening fiscal gap that cost Brazil’s its investment grade credit rating, the O Estado de S.Paulo newspaper reported on Sunday.
It said a small team of aides led by Wellington Moreira Franco, Rousseff’s former civil aviation minister, is considering sweeping welfare cuts in social programs that would be carried out by the finance minister of a Temer government.
Two names under consideration for that job are former central bank governors Henrique Meirelles and Arminio Fraga, the newspaper said. A spokesman for Temer declined to comment on the report.
Reporting by Anthony Boadle; Additional reporting by Alonso Soto, Caroline Stauffer, Lisandra Paraguassú and Marcelo Teixeira; Editing by Alistair Bell and Leslie Adler