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Brazil stock market falls 10% on presidential bribery allegations scandal

Brazil's Bovespa stock exchange fell 10% and halted trading amid news that President Michel Temer was recorded discussing paying off a jailed associate.

Trading was halted Thursday on Brazil’s Bovespa stock exchange after falling 10% in value soon after the market opened amid news that President Michel Temer, was secretly recorded on tape discussing money transfers to pay off a jailed associate, Eduardo Cunha.

Cunha is the former speaker of the lower house who was jailed as a result of the “Operation Car Wash” corruption investigation into the state oil company Petrobras. The investigation has been ongoing since 2014 when former president Dilma Rousseff was in power. Rousseff, who was on the Petrobras board of directors from 2003-2010, was never formally accused of corruption in the investigation.

Temer addressed the country on Saturday, saying he will petition the Supreme Federal Tribunal to suspend an investigation into him until the recording can be verified. He claims the recording was manipulated.

The Ibovespa Brasil Sao Paulo Stock Exchange Index at 10:05 a.m. local time on May 18, 2017. Image: Bloomberg Markets

The Brazilian Treasury also canceled a government bond auction which was set for Thursday.

Ongoing corruption allegations

A third of Temer’s cabinet and other leading lawmakers have been caught up in the systematic bribery investigation in return for political favors and contracts with state-run companies. Petrobras stated in 2015 that its corruption costs had exceeded $2 billion, and that the company would have to write off $17 billion due to losses from graft and overvalued assets.

The tapes were presented to prosecutors as part of a plea bargain by the brothers who run the country’s biggest meat-packing firm, JBS.

According to The Guardian, the tapes incriminate several Brazilian politicians including former presidential candidate Aecio Neves and former finance minister Guido Mantega.

An O Globo report states that JBS Chairman Joesley Batista is heard telling Temer that JBS was paying Cunha to stay quiet; the president is alleged to have responded “You’ve got to keep this up, OK?”

Cunha previously stated that he had compromising information about several senior politicians linked to Petrobas, according to a Reuters report.

Temer denies the bribery report, but acknowledges meeting with JBS chairman Batista in March. His office said in a statement the president “never asked for payments to obtain the silence of the former deputy Eduardo Cunha.”

Temer became president of Brazil on August 31, 2016, after Dilma Rousseff was impeached from the office. Temer is serving out the remainder of Rousseff’s second term which ends on January 1, 2019.

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