SAO PAULO/BRASILIA, March 4 (Reuters) - Brazil’s President Dilma Rousseff raced on Wednesday to defuse a rebellion in Congress by legislators upset over her budget austerity plans and her handling of a corruption scandal at state-run oil company Petrobras.
Rousseff was set to meet with legislative leaders from her coalition, her office said, after they unexpectedly threw out a presidential decree that would have raised payroll taxes and helped close a gaping hole in Brazil’s budget.
The congressional maneuver late Tuesday was one of the clearest signs yet of how fallout from the graft scandal at Petroleo Brasileiro SA, as the company is formally known, threatens Rousseff’s economic agenda and could worsen an expected recession this year.
Brazilian financial markets tumbled early Wednesday, with the real losing about 1 percent and stocks also shedding 1.5 percent.
Congress’ decision “shows the increasing difficulty of moves that could help with budget cuts,” said Alessandra Ribeiro, economist with Sao Paulo-based consultancy Tendencias.
The latest setback for Rousseff had its roots in two nearly simultaneous events late Tuesday.
First, Senate president Renan Calheiros, who is formally a member of Brazil’s ruling coalition, threw out Rousseff’s austerity decree for what he described as procedural reasons.
Hours later, Brazil’s top prosecutor asked the Supreme Court to open investigations into 54 people, most of whom are expected to be politicians who allegedly benefited from the corruption at Petrobras in a long-awaited development in the spreading scandal.
Under Brazilian law, only the top court can try cases against political leaders. The names on the list were not made public.
However, numerous Brazilian media reported that Calheiros was among those being investigated. Folha de S.Paulo said, citing unnamed Calheiros allies, that his opposition to Rousseff’s fiscal decree was a pressure tactic designed to show the government his displeasure at being on the list.
A spokesman for Calheiros said he had no information regarding his inclusion on the list, and would make no further comment.
Politicians and financial analysts disagreed early Wednesday about the immediate practical effect of Calheiros’ maneuver.
Rousseff’s office said its fiscal savings target would not be harmed, and it would send a new bill to Congress to replace the decree and raise payroll taxes.
However, some Senate aides and analysts worried that, because of uncertainty over when Congress will approve the bill, the tax might take longer to go up than it otherwise would have. (Additional reporting by Alonso Soto and Caroline Stauffer Editing by W Simon)