Few Clues to Temer's Fate in Brazil's Cliffhanger Court Case

(Bloomberg) -- Brazil's top electoral court wrapped up initial proceedings on a highly anticipated case that could see Michel Temer stripped of the presidency without giving any clear indication of how it may rule.

Prosecutors maintain that in the 2014 elections President Dilma Rousseff and her running mate, Temer, benefited from off-the-books donations. If a majority of the seven-member court agrees and declares the election void, Temer could be removed from office. The unprecedented court ruling takes place amid an increasingly poisonous atmosphere in Brasilia, where the government's economic reform agenda is jeopardized by numerous serious threats to the presidency.

Lead judge Herman Benjamin started reading his opinion towards the end of the nationally televised three-hour hearing on Tuesday evening, after presentations from prosecution and defense lawyers. "The actions now being judged are the result of a failed system," he said. Benjamin will finish casting his vote when the court resumes at 9am on Wednesday morning. The other six judges are expected to vote in the remaining three sessions on Wednesday and Thursday.

"The campaign was built on top of lies," said Flavio Henrique Costa Pereira, one of the prosecuting attorneys at Tuesday's hearing. "Lies elaborated and orchestrated to win the election."

Temer and Rousseff have repeatedly denied any wrongdoing involving campaign finance donations. The president's lawyer reiterated his client's statement of innocence before the court.

"President Michel Temer did not carry out any illegal acts," said Gustavo Guedes, Temer's defense attorney.

Tuesday's court case comes as the president battles for his political survival amid unrelated
allegations of corruption and influence-trafficking, intensifying calls for his resignation or impeachment. While some investors have begun to see Temer as a liability, others still cling to hopes that he can at least push part of his business-friendly agenda through Congress. Most agree the nation requires a swift exit from the crisis.

"The market would prefer a quick way out, the difficulty is knowing which one," said Patricia Pereira, a fixed income manager at Mongeral Aegon before the start of Tuesday's hearing.

In a sign of the frenzy that has gripped Brazil's political establishment, former lower house speaker and Temer's ex-tourism minister, Henrique Alves, was arrested early on Tuesday, the latest of several Temer aides put behind bars in recent weeks. Alves's lawyers could not be reached.

Eager to showcase a business-as-usual environment, the governing coalition passed the base text of a labor reform bill in the Senate's economic affairs committee on Tuesday. A vote on the Senate floor is expected later this month.

What to Expect From Brazil's Top Electoral Court Ruling

Corruption Investigation

The electoral court is one of three threats to Temer's continuation in office. The others are pending impeachment requests and an investigation authorized by the Supreme Court into allegations of obstruction of justice and passive corruption.

Rodrigo Rocha Loures, an aide of the president implicated in the recent corruption scandal, was arrested on Saturday. Temer's allies fear he may strike a plea bargain agreement with prosecutors, offering testimony against the president in return for leniency, according to a member of Temer's cabinet.

Temer and his political aides believe the prosecutor general's office will press charges against the president in the coming days as a way of putting pressure on the electoral court, local media reported on Monday.

The PSDB, the government's main coalition partner, will decide whether to continue supporting Temer after the TSE decision, according to its interim leader, Senator Tasso Jereissati.

To contact the reporter on this story: Simone Iglesias in Brasília at spiglesias@bloomberg.net.

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Raymond Colitt, Bruce Douglas