BRASILIA (Reuters) - One of Brazilian President Michel Temer’s closest aides resigned on Friday following allegations he pressured the culture minister to approve a property development, unsettling investors with the prospect of renewed political turmoil in Latin America’s largest economy.

Brazil's Minister Chief of the Secretary Office of Government Geddel Vieira Lima looks on during a meeting with deputies and government leaders of the Chamber of Deputies, in his office at the Planalto Palace in Brasilia, Brazil, November 22, 2016. REUTERS/Ueslei Marcelino

The resignation of Geddel Vieira Lima from the key post of minister in charge of relations with Congress - along with accusations that Temer himself also lobbied Culture Minister Marcelo Calero to approve the luxury development - sent Brazil’s currency and stocks lower.

An announcement by the public prosecutor’s office that it was considering whether to open an investigation also stoked concern that the fallout from the scandal could derail efforts by Temer’s center-right government to tackle’s Brazil massive budget deficit and restore economic growth.

“It’s time to go,” Vieira Lima said in his emailed resignation letter made public by Temer’s office.

Vieira Lima’s departure deprives Temer of his point man in negotiations with Congress, a crucial post as the administration strives to enact unpopular austerity measures and spur recovery in an economy suffering its worst recession since the 1930s.

Temer’s six-month-old government has lost five Cabinet ministers. Calero resigned last week saying he refused to bow to Vieira Lima’s pressure.

Previously, three Cabinet ministers stepped down over graft allegations related to a sprawling bribery and kickback scandal at state-controlled oil company Petroleo Brasileiro.

Temer played down the incident in an interview with O Estado de S.Paulo newspaper in which he lamented that a “minor episode” had caused a political storm and said he doubted it would lose him vital support in Congress for his fiscal belt-tightening agenda.

Leftist opponents have called for a congressional inquiry into Temer’s role in the matter, with some even calling for his impeachment.

While that is unlikely to happen, the new scandal will further undermine the reputation of an unpopular president and fuel political uncertainty that could delay a recovery that is already taking longer than expected.

“The problem for Temer is that this happened at a difficult time when the economy is not reacting and Brazilians are angry with politicians trying to escape prosecution for corruption,” said political analyst Ricardo Ribeiro with consultancy MCM Consultores Associados.

“It creates doubts about the future of this government next year,” he said.

Brazil’s political establishment is bracing for more turmoil from a leniency deal to be signed by engineering conglomerate Odebrecht SA in the Petrobras case that could incriminate as many as 200 lawmakers.

The Brazilian real slumped as much as 2.2 percent to 3.4679 reais to the dollar, the biggest intraday drop since a day after U.S. President-elect Donald Trump’s unexpected victory. It recovered to close 0.3 percent lower.

Brazil’s main stock market index, the Bovespa, fell 1.3 percent before cutting losses to close 0.27 percent lower.

LUXURY APARTMENT

The latest corruption crisis came to a head following news reports late on Thursday that Calero told federal police that Temer pressured him to resolve a dispute with Vieira Lima.

The standoff involved a permit for construction of a luxury oceanfront building in which Vieira Lima had purchased an apartment and that needed approval by a culture ministry agency because it would be built in a historical preservation district in Vieira Lima’s hometown of Salvador.

After Brazil’s public prosecutor’s office said it was studying a possible investigation into the case, a presidential aide told Reuters early Friday that Vieira Lima’s situation had become untenable.

Adding fuel to the crisis, the Estado de S. Paulo newspaper reported on Friday that Calero secretly recorded his conversations with Temer and Vieira Lima to back his case.

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A presidential ethics panel decided on Monday to investigate whether Vieira Lima pressured Calero over the building.

The 30-story building project had already been denied a permit on historical preservation grounds.

A federal police source with knowledge of the statements said Calero told police that Temer had said to him last week that the permit refusal had created “operational difficulties for his government” and told him to find a solution with government lawyers.</s>Geddel Vieira Lima, the minister in charge of relations with Congress, signed a letter of resignation following an accusation that he and the President had pressured another minister to approve a real estate project.

In the letter, Vieira Lima says given the "dimensions" the "criticisms" have gained, he felt compelled to resign. He praised Temer as "serious, ethical and agreeable."

The latest scandal comes less than three months after former President Dilma Rousseff was impeached for breaking budgetary laws and Temer stepped in -- fueling fears that the political turmoil and economic problems in Latin America's biggest economy are far from over.

It's just one more crisis in a country that has been rocked to the core by a massive bribery investigation implicating top business leaders and powerful politicians -- most of them from Rousseff's Workers Party and Temer's centrist PMDB party. News of the resignation hit stocks and the Brazilian real in trading on Friday. In fact, Vieira Lima is the fourth minister to quit amid corruption allegations since Temer assumed the presidency. The scandal began after Marcelo Calero resigned as culture minister. According to state-run Agencia Brasil, Calero told police that Vieira Lima had pressured him to lift prohibitions on a luxury real estate development that was being blocked by cultural heritage regulations. Vieira Lima had invested in the property. Subsequently, Calero told police that President Temer had also pressured him on Vieira Lima's behalf, according to Agencia Brasil. Temer denies the allegations. His spokesman told Agencia Brasil that he did try to help resolve a dispute between his ministers.</s>Brazil’s president, Michel Temer, is facing possible investigation in an influence-peddling scandal that is the latest corruption crisis to rock his recently installed administration.

The affair cost him another member of his cabinet on Friday and the country’s chief federal prosecutor is considering including Mr Temer in an inquiry into the latest affair, in which a minister is accused of pressuring a colleague to favour a controversial building project in which he had a personal interest.

The scandal broke a week ago when culture minister Marcelo Calero, a career diplomat, suddenly resigned from cabinet after less than six months in the job.

He claimed he quit after his cabinet colleague Geddel Vieira Lima demanded he use his position to force federal preservation authorities to allow the building of a 30-storey apartment building in a protected historic district in the city of Salvador.

The government’s chief secretary, and one of Mr Temer’s closest collaborators, Mr Vieira Lima had bought an apartment in the luxury La Vue development off the plans and was furious that the department within the culture ministry charged with protecting Brazil’s historical patrimony had then embargoed it.

Mr Vieira Lima’s unit, estimated to be worth €750,000, was to be on the 26th floor of the building and he was left furious when preservation authorities said that to maintain the historic nature of the neighbourhood the project could not pass 13 storeys, leading him to seek out the culture minister.

At first the administration sought to downplay the matter and the government’s base in congress rallied around Mr Vieira Lima, seeing off efforts to haul him in for questioning before deputies.

But the scandal reignited after details emerged of a statement by Mr Calero to federal police in which he said the president, Mr Temer, had lobbied him on Mr Vieira Lima’s behalf. To back up his claims he said he had recordings of their conversation

In a meeting the day before he resigned Mr Calero said he was “cornered” by Mr Temer, who told him the the dispute over La Vue was creating “operational difficulties” in his office because Mr Vieira Lima was “pretty irritated” over the matter. Mr Calero told police he felt “disappointed” with the president’s attitude, quitting government the next day.

Mr Temer has admitted discussing the matter but denies any wrongdoing.

The supreme court passed the former minister’s testimony to the chief federal prosecutor, who can ask the court to open an investigation into the president.

News of the testimony and the fact Mr Calero had recorded conversations to back it up led Mr Vieira Lima to quit on Friday, before the affair further damaged the president. He is the sixth ministerial casualty in the last six months.

Despite the resignation of Mr Vieira Lima, the opposition is threatening to try and open impeachment proceedings against Mr Temer, just three months after he was formally sworn in following the impeachment of predecessor Dilma Rousseff.</s>RIO DE JANEIRO — Brazilian President Michel Temer is denying allegations that he lobbied a cabinet minister to allow the construction of a luxury building at the behest of another minister.

Former Culture Minister Marcelo Calero resigned last week. He told federal police this week that Temer pressured him to allow construction of the building in an historic preservation site in the city of Salvador, 1,000 miles (1,600 ) northwest of Rio de Janeiro.

Minister Geddel Vieira Lima handles legislative affairs in Temer's government and has bought a unit in the planned development. However, the construction is under legal review.

Temer's spokesman said Thursday night that the president simply intervened to arbitrate a dispute between cabinet members. Opposition members in Congress have begun calling for Temer's impeachment.</s>The resignation of Geddel Vieira Lima - along with accusations that Temer himself also raised the investment with then Culture Minister Marcelo Calero - rattled investors.

Brazil's currency and stock prices sank as traders worried the turmoil would derail Temer's efforts to overhaul government finances and restore economic growth.

"It's time to go," Vieira Lima said in his emailed letter made public by Temer's office, following an announcement by the public prosecutor's office that it was considering whether to open an investigation.

Vieira Lima's departure deprives Temer of his point man in negotiations with Congress, a key post for an administration striving to enact unpopular austerity measures to reduce a widening budget deficit and spur recovery in an economy suffering its worst recession since the 1930s.

Temer's six-month-old government has lost five Cabinet ministers. Calero resigned last week saying he refused to bow to Vieira Lima's pressure.

Previously, three Cabinet ministers stepped down over graft allegations related to a sprawling bribery and kickback scandal at state-controlled oil company Petroleo Brasileiro.

The latest resignation will further damage the reputation of an unpopular president and fuel political uncertainty that could delay a recovery that is already taking longer than expected.

"The problem for Temer is that this happened at a difficult time when the economy is not reacting and Brazilians are angry with politicians trying to escape prosecution for corruption," said political analyst Ricardo Ribeiro with consultancy MCM Consultores Associados.

"It creates doubts about the future of this government next year," he said.

Brazil's political establishment is bracing for more turmoil from a leniency deal to be signed by engineering conglomerate Odebrecht SA in the Petrobras case that could incriminate as many as 200 lawmakers.

The Brazilian real slumped as much as 2.2 percent to 3.4679 reais to the dollar, the biggest intraday drop since a day after U.S. President-elect Donald Trump's unexpected victory. It later pared losses to trade 0.6 percent lower on the day,

Brazil's main stock market index, the Bovespa, fell 1.3 percent before cutting losses to trade 0.2 percent lower.

The latest corruption crisis came to a head following news reports late on Thursday that Calero told federal police that Temer pressured him to resolve a dispute with Vieira Lima.

The standoff involved a permit for construction of a luxury oceanfront building in which Vieira Lima had purchased an apartment and that needed approval by a culture ministry agency because it would be built in a historical preservation district in Vieira Lima's hometown of Salvador.

After Brazil's public prosecutor's office said it was studying a possible investigation into the case, a presidential aide told Reuters early Friday that Vieira Lima's situation had become untenable.

Adding fuel to the crisis, the Estado de S. Paulo newspaper reported on Friday that Calero secretly recorded his conversations with Temer and Vieira Lima to back his case.

A presidential ethics panel decided on Monday to investigate whether Vieira Lima pressured Calero over the building.

The 30-story building project had already been denied a permit on historical preservation grounds.

A federal police source with knowledge of the statements said Calero told police that Temer had said to him last week that the permit refusal had created "operational difficulties for his government" and told him to find a solution with government lawyers.</s>Though no more was needed, Friday’s resignation of another minister in Brazil over graft allegations is proof that the impeachment of Dilma Rousseff in August has resolved none of the ethical challenges the country faces from its political class.

She was forced out after the discovery of a massive corruption scheme inside state oil giant Petrobras that prosecutors say was orchestrated by her Workers Party.

But the administration of the man who replaced her, Michel Temer, is as compromised by the Petrobras affair as Rousseff’s was and its leading lights seem as uninterested in virtuous public service as turkeys are in Christmas.

Bizarrely, considering heightened public anger at corruption, Temer said this week’s scandal in which one of his most powerful ministers tried to bully a junior colleague for personal gain amounted to nothing more than a routine dispute between ministers.

After so long in Brasília he seems to think it normal that one minister would forcefully lobby another in favour of his own personal interests.

Geddel Vieira Lima has fallen anyway despite Temer’s best efforts to keep him on board, but the president was not the only person in Brasília this week displaying just how out of touch Brazil’s political class has become.

The city is in a panic about the impending plea-bargain testimony by Brazil’s biggest construction conglomerate Odebrecht with federal prosecutors in the Petrobras case.

Politicians of all stripes are terrified about what Marcelo Odebrecht and almost 80 of his executives might reveal.

So scared are they that congress once again ignored the bleeding economy and instead insisted on trying to force through measures that would amount to an amnesty of corruption, money laundering and embezzlement.

Meanwhile, the government leader in the senate, Romero Jucá, himself forced out of Temer’s cabinet after being caught on tape conspiring against the Petrobras investigation, managed to sneak through a measure that would allow the relatives of politicians to benefit from an amnesty for repatriating undeclared assets abroad.

But many analysts say such manoeuvres could amount to little more than rearranging deckchairs on the Titanic.

“The Odebrecht plea-bargain agreement has the potential to tip the entire political class into a black hole,” says André Pereira César of CAC, a political consultancy in Brasília.

“It will likely involve the whole system and reveal just how rotten it is. But the question is, what comes then?”
Brazilian Minister Geddel Vieira Lima resigns following allegations he and President Michel Temer pressured a fellow cabinet minister into approving a real estate project.