Brazil's Latest Political Crisis: A Timeline of Events

(Bloomberg) -- Brazil plunged back into crisis when the Supreme Court authorized an investigation into President Michel Temer on accusations of passive corruption and obstruction of justice.

The allegations are the latest development in Operation Carwash, a sprawling corruption probe that has implicated many of the country's business and political elite and helped bring down Temer's predecessor, Dilma Rousseff.

What Could Happen Next?

With Brazilian politics in turmoil, there is little that is certain in the days and weeks ahead. In theory, Congress could vote on both labor and pension reforms by the time of its usual recess period in mid to late July. Though less likely, Congress could also debate a constitutional amendment to bring forward direct general elections. 

Another improbable, but still possible, scenario is that the speaker of the lower house, Rodrigo Maia, could decide to schedule for debate one of the numerous impeachment requests filed against Temer. The attorney-general could also file formal charges against the president. If the case is approved by two-thirds of the lower house, it would head for trial at the Supreme Court and the president would be suspended.

A Quick Guide to How Brazil's New Political Crisis May Play Out

Tuesday June 6

Brazil's top electoral court is due to resume its deliberations on allegations that the Rousseff/Temer ticket in the 2014 elections was financed with illegal campaign donations. Four sessions are scheduled through June 8, though there is no deadline by which the court must make a decision. An adverse ruling could strip Temer of the presidency, though he would have the right to appeal.

Mid-June

Finance Minister Henrique Meirelles said on May 29 that he expected a vote on the government's key pension reform bill in the lower house by mid-June. Even before the latest scandal broke, the government was struggling to obtain the 308 votes it needed to pass the unpopular measure. Now, the challenge is even greater.

Mid-July

Brazil's Congress is due to enter recess, but this may be postponed.

What Has Happened Since the Scandal Broke?

Both the real and the Sao Paulo stock index have taken a hit after President Michel Temer was dragged into a corruption scandal that threatens to stall his reform agenda in Congress. Here's a timeline of the main events to date.

Wednesday May 31

Brazil's Central Bank cut the benchmark interest rate, the Selic, by 100 basis points to 10.25 percent. In the note accompanying the decision it highlighted the uncertainty facing the reform agenda and indicated that future rate cuts are likely to be less aggressive.

Friday May 26

Brazil's credit outlook was cut by Moody's Investors Service, which said the corruption scandal ensnaring President Michel Temer poses a rising threat to the recovery of Latin America's largest economy. Moody's reduced the nation's outlook to negative from stable and kept its rating at two levels below investment grade at Ba2.

Wednesday May 24

Brasilia was rocked by some of the most violent protests in years. Tens of thousands of demonstrators, mobilized by Brazil's main trade unions, demanded Temer's ouster and an end to his reform program. Protesters set fire to the ministry of agriculture and ransacked other government buildings, prompting the president to deploy the armed forces.

Saturday May 20

Temer called an afternoon press conference to urge the Supreme Court to suspend the investigation against him, saying that the recorded evidence had been doctored. He also sought to discredit Batista, calling him a "notorious loudmouth" whose company has profited through the scandal and who is now free to enjoy life in New York, having fled Brazil after securing his plea bargain deal with prosecutors.

Friday May 19

The Supreme Court released documents relating to the Batista plea bargain testimony and the investigation into Temer, who faces an inquiry into allegations of obstruction of justice and passive corruption. After a sharp sell-off of Brazilian assets the day before, the real recovered some of its losses, closing 3.6 percent higher on the day as Brazil's main stock index gains 1.7 percent.

Thursday May 18

Brazilian markets plunged early, triggering circuit breakers in both currency and stock market trading. By the end of the day, around $150 billion had been wiped from the value of the Bovespa, the currency fell over 7 percent despite heavy central bank intervention, and credit default swaps jumped the most since 2008.

In the early afternoon, the Supreme Court published its approval of a request by the prosecutor-general to investigate the president for obstruction of justice and corruption. A few hours later, Temer gave a press conference in which he defied calls for him to stand down. "I will not resign. I know what I did. I know my actions were correct," he said.

Wednesday May 17

The latest scandal started around 8 pm on Wednesday May 17, when the newspaper O Globo published a report that Joesley Batista, former chairman of the meat-processing giant JBS, had secretly recorded Temer endorsing the payment of hush money to Eduardo Cunha, the jailed former lower house speaker who was instrumental in the impeachment of Dilma Rousseff.

--With assistance from Samy Adghirni and Mario Sergio Lima

To contact the reporter on this story: Bruce Douglas in Brasilia Newsroom at bdouglas24@bloomberg.net.

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