Brazil corruption scandal sends shock waves through ruling coalition

Investigations ordered into dozens of politicians linked to a massive corruption scandal at state oil giant Petrobras is sending shock waves through Brazil's governing coalition and South America's largest economy.
After a day of high suspense, Brazil's Supreme Court on Friday greenlighted investigations into a who's who of the country's politics.
The list encompasses 49 politicians, headed by Senate president Renan Calheiros and Speaker of the Chamber of Deputies Eduardo Cunha, both leaders of the centrist Brazilian Democratic Movement Party, or PMDB, a key component of President Dilma Rousseff's ruling coalition.
The PMDB has emerged from the scandal weakened and divided, with some members reaching out to the opposition, weakening Rousseff's hold over Congress at a time when the country faces major challenges to its faltering economy.
Private contractors are alleged to have paid huge bribes to gain inflated Petrobras contracts, and then funneled payments to senior politicians.
The loss to Brazil's largest corporation has been estimated at $3.8 billion.
Among those named in the sprawling Petrobras corruption probe are 12 senators and 22 deputies from five parties, including three in the ruling coalition.
Rousseff is not being investigated, even though she chaired the Petrobras board for much of the decade when the corruption is alleged to have flourished.
On Saturday, Justice Minister Jose Eduardo Cardozo stressed that nothing found so far had warranted an investigation of the president, correcting "erroneous" press reports that prosecutors had held off because she enjoyed immunity.
"There was nothing rejected in regard to the president, since there were neither deeds nor evidence against her" in the investigation, he said.
But prosecutors will investigate the financing of Rousseff's 2010 presidential campaign, when she succeeded her mentor President Luiz Inacio da Silva.
Antonio Palocci, Lula's former finance minister and Rousseff's former chief of staff in 2011, is reported to be cooperating with investigators in hopes of obtaining a reduced sentence.
He is alleged to have received $700,000 from a network within Petrobras to help fund Rousseff's campaign.
- Blow to the economy? -
Both Calheiros and Cunha have denied any wrongdoing, while Rousseff has denied all knowledge of the kickbacks scheme, backing the investigation.
Impending judicial action in the case could have major unforeseen consequences for Brazil, analysts say.
"Is the Petrobras corruption scandal going to paralyze the country?" asked the economic weekly Exame.
Besides Petrobras, 30 large companies have been implicated so far, causing construction projects to be halted and lines of credit and contracts to be suspended or revised.
The situation also threatens a proposed package of budget cutbacks, which the government says are needed to revive growth in an economy that has been on a five-year-long downward slide.
The economy was believed to have either contracted or not grown at all last year, although official figures will not be out until the end of March.
After media leaks implicating Calheiros in the scandal earlier this week, the Senate president vowed to block a key measure in the government's budget package that targets tax loopholes for businesses, a threat seen as a declaration of war on the executive.
The scandal seems bound to worsen relations between PMDB and the Workers Party at a time when Rousseff is particularly vulnerable, her popularity having plunged 19 points to 23 percent in February.
The PMDB has the largest bloc in the Senate and second largest in the Chamber of Deputies, after Rousseff's leftist Workers Party, which has been in power for 12 years.
"The list has been a knife in the heart of the PMDB. The party should rethink its strategy," Getulio Vargas Foundation historian Marly Motta told O Globo newspaper.
"It's not a moment for conflicts, not for the PMDB nor for the government. The solution is a pact."