By Paul Kiernan, Paulo Trevisani and Luciana Magalhaes
RIO DE JANEIRO--A corruption dragnet that has jailed dozens of
executives and erased billions from Brazil's state-controlled oil
giant has now snared some of the nation's top lawmakers, deepening
a crisis that is weighing on South America's largest economy.
Brazil's Supreme Court on Friday gave the go-ahead to federal
prosecutors to investigate 47 politicians, including Senate
President Renan Calheiros and Eduardo Cunha, head of the Chamber of
Deputies, as part of a widening corruption probe of Petróleo
Brasileiro S.A., known as Petrobras.
Both men are members of the PMDB party, Brazil's largest and a
key partner in President Dilma Rousseff's effort to pass austerity
measures to narrow a yawning budget gap. With the economy skidding
and Brazil in danger of losing its investment-grade sovereign
rating, the investigation could push top legislators away from
further tax increases and program cuts that have proved unpopular
with the public.
"As for me I will give all explanations in the light of day and
provide whatever information the courts desire," a post on Mr.
Calheiros's official Twitter account said. A post on Mr. Cunha's
Twitter account said the investigation "deserves due response as
soon as I have knowledge of its content."
Fear that fallout from the scandal would threaten budget cuts
has weighed on Brazil's stocks and currency. The Ibovespa stock
index declined by 3.1% this week, while the real plunged about 7%,
closing at 3.0536 reais to the dollar on Friday.
On Tuesday, hours after rumors emerged that his name was on the
list, Mr. Calheiros rejected an executive order from Ms. Rousseff
that would have increased payroll taxes to fill government
coffers.
Local press characterized the move as retaliatory, though it
followed a period of heightened tension between the two
politicians. The attorney general is independent of the
government.
"What happened this week is that the risks, which were already
there, became more visible," says Carlos Melo, a professor at São
Paulo business school Insper. "After Renan's move, it is clear the
government won't be able to push any kind of fiscal adjustment
through Congress without negotiating first." In practice, analysts
say, that stretches the odds of the government meeting its 1.2%
target for the primary budget surplus, seen by many as a
make-or-break goal in the effort to avoid a sovereign
downgrade.
Prosecutors say the PMDB, Ms. Rousseff's Workers' Party, and
other government-aligned parties suggested executives to run major
divisions at Petrobras.
One of the suspects, Paulo Roberto Costa, testified last year as
part of a plea bargain that he had been chosen by Brazil's
Progressive Party to head Petrobras' downstream division in 2004.
During eight years on the job, Mr. Costa said, he approved
multibillion-dollar contracts for refineries and other projects
that he knew had been inflated by a "cartel" of construction
companies. The companies then kicked back 3% of the value of the
contracts, on average, to Mr. Costa and party officials, he
said.
Petrobras has said it considers itself a victim in the scheme.
The construction firms alleged to have been involved either have
declined to comment, denied wrongdoing or have said they were
cooperating with investigators.
In all, Mr. Zavascki cleared prosecutors to investigate members
of five parties. Other politicians named to the list are former
Mines and Energy Minister Edison Lobão, Senator Gleisi Hoffmann,
who was also Ms. Rousseff's former chief of staff, and former
President Fernando Collor de Mello. Also included on the list was
Workers' Party Treasurer João Vaccari Neto, whom Federal Police
questioned last month in connection to the investigation. None
could be immediately reached for comment.
The Worker's Party said in a statement Friday night that the
party only receives lawful donations. It said accusations made in
plea bargains aren't to be trusted, and the party will prosecute
the authors of "lies."
The scandal has crippled Petrobras: The company's chief
executive resigned last month, its stock has fallen around 62%
since September and Moody's downgraded its debt to junk status last
month. Because of difficulties calculating corruption-related
losses, auditors haven't signed off on Petrobras' financial
statements since mid-2014.
That has effectively cut the firm off from global credit
markets, forcing it to slash investments and sell assets. The oil
giant has canceled projects and delayed some payments to accused
construction companies. That in turn has set off a wave of credit
downgrades and layoffs that is rippling across the economy.
Write to Paul Kiernan at paul.kiernan@wsj.com, Paulo Trevisani
at paulo.trevisani@wsj.com and Luciana Magalhaes at
Luciana.Magalhaes@dowjones.com
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