Bolsonaro Strikes Back After Key Aide Exit Leaves Brazil Reeling

(Bloomberg) -- The resignation of Sergio Moro, the Brazilian judge who gained superstar status for taking down a network of corrupt politicians and CEOs, set off a storm in President Jair Bolsonaro’s administration.

Pot-banging protests erupted across the country late Friday as the president spoke to refute Moro’s allegations that he had tried to interfere with federal police investigations.

“I was promised carte blanche to appoint all advisers, including judicial bodies,” Moro told reporters Friday morning, announcing his decision to quit after Bolsonaro fired Brazil’s federal police chief. “I can’t go on without ensuring the federal police its autonomy.”

Bolsonaro called the accusations unfounded and said he was disappointed and surprised at the former judge, who he said he saw as an “idol” in his lawmaker days. As the president spoke, the country’s top prosecutor asked the Supreme Court to open an investigation on Moro’s claims, which he said could either reveal illicit acts allegedly committed by the president or be seen as a slandering.

Markets blew up as investors saw Moro’s exit as further proof that Bolsonaro’s administration is crumbling as it muddles its way through the coronavirus crisis, with speculation growing that Economy Minister Paulo Guedes may soon be out as well. The real sank almost 4% to as low as 5.74 per U.S. dollar, but closed the day at 5.58 as the central bank repeatedly stepped in to curb the losses. Stocks ended the day 5.5% lower, paring an earlier decline of almost 10%.

“We see a government that’s collapsing in the middle of a pandemic,” said Daniela Casabona, a partner at financial adviser FB Wealth in Sao Paulo.

The unpredictable behavior and often explosive rhetoric that helped Bolsonaro get elected is proving a liability in the current crisis. The latest data from the Health Ministry shows coronavirus cases stand at almost 53,000, with 3,670 deaths, although health professionals doubt the official tally.

Investors were already spooked after the president fired Health Minister Luiz Henrique Mandetta last week. The pair publicly sparred over the best way to tackle the coronavirus crisis, with Mandetta urging Brazilians to self isolate, while Bolsonaro repeatedly flaunted that advice by mingling with supporters and calling the illness “a little flu.”

Moro’s departures reinforces the perception that Bolsonaro’s administration has fallen into disarray. The crisis is forcing cabinet members to rethink grand plans to get Latin America’s biggest economy back on steady fiscal footing and kick-start growth. Tensions between Guedes and his boss worsened after a stimulus proposal was unveiled Wednesday that the economy minister views as unsustainable, according to people familiar with the discussions.​

Rambling Speech

Flanked by ministers and allies including Guedes and son Eduardo Bolsonaro, the president spoke for roughly an hour in Brasilia on Friday afternoon. In a rambling speech that mentioned everything from a murdered councilwoman to the presidential palace’s heated pool and a swath of allegations against him and his family, Bolsonaro recounted his first meeting with Moro, and how the relationship deteriorated in large part due to the former judge’s ego. He stated more than once that appointing positions at the federal police falls to the president, and he needs no authorization to do so.

“I never asked the federal police to shield me,” he said. “I’ve always given freedom to my ministers. But if I can replace ministers, why can’t I replace the head of the federal police? I don’t need anyone’s authorization.”

The president also accused Moro of trying to negotiate an appointment to the Brazilian Supreme Court in exchange for replacing the head of the federal police, Mauricio Valeixo. Valeixo was the star judge’s right-hand man at the institution that’s akin to the U.S. Federal Bureau of Investigation. Earlier Friday, Moro said pressure to replace Valeixo began building last year for no obvious reason. Bolsonaro’s insistence makes clear the shuffle was political interference, Moro said.

“The change isn’t the problem -- the question is why?” he said. “I couldn’t accept his departure.”

The federal police has been carrying out a number of investigations with potential to implicate Bolsonaro’s sons, including a probe on the spread of fake news and another on alleged irregularities with their employees at Rio de Janeiro’s state assembly. The family has repeatedly denied wrongdoing.

Moro worked with Valeixo while helming the sweeping Carwash investigation that saw top executives and political leaders jailed, including former President Luiz Inacio Lula da Silva. The push made Moro a national hero among many Brazilians, who dubbed him “Super Moro” and made him the poster-boy of anti-corruption protests. With approval ratings that are higher than the president’s, Moro could turn Bolsonaro rival in the 2022 presidential election.

His departure is likely to cost Bolsonaro supporters. It could also be an attempt to reshape his cabinet with more like-minded people -- which could include replacing his economy chief as well.

Moro’s exit “brings up the possibility that Guedes will leave too,” said Gilmar Alves Lima, an economist at BMG.

Brazilian sovereign bonds were the worst performers among emerging markets on Friday. The 2045 bond fell 3.6 cents to 86.82 cents on the dollar.

Plans to support the economy in the aftermath of the coronavirus pandemic have opened a rift between the president and Guedes, three people familiar with the discussions told Bloomberg News earlier this week. The tensions around market-darling Guedes have made investors even more concerned.

BRAZIL INSIGHT: Long U-Shaped Virus Recovery Faces Many Pitfalls

“In about a week, we’ve had the health minister depart, rumors of other ministers potentially leaving and increased political noise,” said Jose Tovar, chief executive officer at Rio de Janeiro-based asset manager Truxt Investimentos. “That’s too much.”

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