(Bloomberg) -- Brazil's economic reform plan was thrown into disarray after a Supreme Court justice removed Senate chief Renan Calheiros just days before the upper house was scheduled to vote on a crucial spending cap bill.
Justice Marco Aurelio Mello ruled that Calheiros couldn't remain in office after the Supreme Court last week accepted charges of illicit enrichment against him. Opposition legislator Jorge Viana will chair the Senate and set its legislative agenda.
The ruling is effective immediately but Calheiros can appeal the decision, and the full court could annul it as well. Calheiros said he is consulting with his lawyers on what measures to pursue in response to the court's decision, according to a press statement.
Spending Bill
The decision, potentially the biggest setback to Temer's reform agenda, weighed on Brazilian financial markets. The real weakened 0.4 percent while the Ibovespa stock index fell 0.5 percent.
The spending cap bill that the Senate was scheduled to vote next week is a key part of the administration's strategy to fix the country's battered public accounts and boost investor confidence. Brazil's Senate leadership will meet on Tuesday to discuss the next “adequate measures,” Viana said in a text message.
“The president of the Senate has fallen, and with him his entire agenda for voting,” Senator Lindbergh Farias, of the Workers' Party, said in an interview. “There won't be a vote on the spending cap bill.”
Yet the Senate's general secretary Luiz Bandeira de Mello said the upper house president doesn't have unlimited powers over the voting agenda. “He can maneuver to delay votes, but I don't think he will do that. He's a peace maker,” Mello said in an interview.
Romero Juca, the government's leader in Congress, said that the government was keeping its original plan to vote on the federal spending cap on Dec. 13.
There is a 50 percent chance that the vote on the spending cap bill will be delayed, Eurasia Group political risk consultancy said in a research note late Monday.
The risk the spending cap bill is affected by Calheiros' removal "is real," said Andre Cesar, a political analyst at Hold Consultoria. This is a "new development, with the potential to impact the Senate's agenda."
The head of the Senate is next in line for the country's presidency after the speaker of the lower house. Since Temer replaced his impeached predecessor, Brazil has no vice president.
--With assistance from Mario Sergio Lima To contact the reporters on this story: Anna Edgerton in Brasilia at aedgerton@bloomberg.net, Rachel Gamarski in Brasilia at rgamarski@bloomberg.net, Samy Adghirni in Brasilia Newsroom at sadghirni@bloomberg.net. To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Raymond Colitt, Walter Brandimarte
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