Petrobras scandal threatens to tear apart Brazil ruling coalition

With Brazil's Supreme Court set to grill a clutch of politicians, a snowballing multibillion-dollar graft scandal enveloping state oil giant Petrobras threatens to tear apart the ruling coalition.
President Dilma Rousseff won re-election just four months ago, her top priority the revitalization of a flailing economy hamstrung by four straight years of low growth.
But the focus is now squarely on the biggest graft scandal Brazil has known after the public prosecutor placed her Workers Party (PT) colleagues and coalition allies in an unfavorable spotlight.
The investigation into allegations that dozens of politicians and businessmen received kickbacks on inflated Petrobras contracts has fingered two key members of the centrist PMDB, whose support is key in Congress for the PT.
Congress president and senator Renan Calheiros and his PMDB colleague Eduardo Cunha both feature among politicians allegedly involved in the kickbacks scheme, according to media reports.
To date, public prosecutor Rodrigo Janot has not named the politicians concerned because they enjoy immunity.
But Janot, who said Tuesday he wants 54 people investigated, has asked the Supreme Court to waive that privilege.
- Net closes -
Calheiros, who denies any wrongdoing, promptly rejected a key government proposal to reform payroll taxes, which analysts took as a clear gesture of defiance by the legislature against the executive power.
The PMDB is the strongest political group in the senate and the second strongest in the lower chamber, after the PT.
Cunha, president of the chamber of lawmakers, meanwhile said he hoped there would not be a witchhunt.
"Let them investigate everything they are proposing to. But I hope the investigations will not be of a political nature," Cunha told the media.
Calheiros insisted that "I was not told about anything" in relation to the graft scam.
Prosecutors allege some two dozen companies, chiefly top construction firms, paid massively over the odds for service contracts with Petrobras with up to three percent creamed off going in corrupt payments to politicians.
As the legal net closes, many Brazilians are using social media to call for a protest on March 15 to demand Rousseff's impeachment.
She was Petrobras board chair for much of the period the kickbacks scheme operated but has denied knowledge of it.
As the scandal fallout widens, the government is struggling to drag the economy off the rocks with growth this year set to be barely above zero.
Wednesday saw the local currency the real continue its recent slide against the dollar, coming to the very brink of the three-dollar mark for the first time in 11 years.
"It will get there -- there is a series of internal factors pushing the real downwards," said analyst Ignacio Crespo.
Petrobras shares, which have shed some two-thirds of their value over the past year, closed the day off 3.05 percent at 9.22 reals.
Analysts meanwhile forecast the central bank would later vote to hike interest rates from 12.25 percent to 12.75 in a bid to keep inflation in check rather than stimulate growth.
- 'Damage is done' -
The Petrobras affair, dubbed Operation Car Wash, has eroded Rousseff's support, with Datafolha indicating her approval rate slipped 19 points to 23 percent last month.
Political analyst Andre Cesar told AFP the country was in "political crisis" and asked "how, with this group of 54 including the presidents of the chamber and the senate, can we discuss a complex agenda of tax reform?
"The damage is done. There is nowhere else to go. What will be the scale of this damage depends on how the government responds to it."
Rousseff has already invited coalition party leaders for talks to tackle a crisis which started a year ago when a former Petrobras director turned whistleblower in an attempt to strike a plea bargain.
The hit to the firm has been huge. Last week, Moody's rating agency downgraded the company's stock into junk territory after Petrobras failed to release verified 2014 earning results.
Now Brazil's politicians are racing to prevent similar damage being done to the country's political institutions.