Until last week, everybody knew that Michel Temer, Brazil’s president, was a crook but nobody could prove it. Until now, that is. On May 17th, O Globo, a Brazilian newspaper, revealed that Mr. Temer was caught on tape inducing Joesley Batista, a billionaire whose family controls JBS, the world’s largest meatpacker, to pay a bribe to Eduardo Cunha, formerly a speaker of the lower house, to keep silent. Mr. Cunha, a conservative evangelist who would not be out of character in House of Cards (the role of Frank Underwood doesn’t seem to be a stretch), is jailed for 15 years given his involvement in the Lava Jato (Petrobras) corruption case and reputedly knows intimate corruption details of nearly every politician that served or serves in Congress. Joesley and his brother Wesley are notoriously unethical businessmen and are being investigated for many wrongdoings, including payment of bribes to advance their business interests and to obtain cheap funding for JBS and El Dorado, a pulp company, from BNDES and other state-owned banks. Mr. Temer also advised the Batistas to contact a congressman from his party to resolve an issue for their holding company J&F Investments. The congressman was paid BRL 500,000, which was taped on video. Joesley and Wesley made the recordings as part of a plea bargain with prosecutors in connection with the Lava Jato case (with the aim to reduce their sentence).

Wannacry…

All this happened only in March and April of this year. You just wonder what Temer, a constitutional lawyer by training, was thinking as he must have understood the risks he was taking. He was already named in another corruption case where Odebrecht, a construction company, allegedly paid USD 40 million to his Brazilian Democratic Movement Party in 2010. Although in Brazil a president can not be prosecuted for misdeeds done prior to getting into office, this is not the case for misdeeds done whilst in office. Obviously, Mr. Temer has denied the accusations but calls for impeachment can be heard from nearly every corner in Congress. However, impeachment is a time-consuming procedure and time is not on Brazil’s side. In any case, the current speaker of the lower house, who needs to approve the impeachment procedure, is a Temer ally. Another possibility would be to hold new elections but Brazil’s constitution does not allow this. An amendment to the constitution would be required to allow for elections unless the electoral court annuls the elections of 2014 because of illegal campaign financing (a hearing is set for June 6th). All these options will take a lot of time to come to fruition (also new elections will take time to prepare and most politicians in Congress, for obvious reasons, are probably not looking forward to it) and will delay overdue reforms to Brazil’s pension system which are needed to bring back the country’s debt trajectory on a sustainable path.

As Mr. Temer’s position has become untenable (his popularity ratings, hovering at 4%, indicate he is not loved by the Brazilian people) and it is unlikely he has any political capital left to govern the country effectively, we believe he would do his country a service to step down and hand over the keys of the Planalto. This would allow Congress to elect a new president with an untainted record who could steer the country (and lead the required reforms) until the elections in October of next year (effectively until January 2019, when the new president would be inaugurated). In our view, there is only one man who could do this, good old Fernando Henrique Cardoso. Henrique Meirelles should be ditched as minister of finance for one because he is not so special but more importantly because he is compromised, having been intimately connected to J&F as a board member. Armínio Fraga would make an excellent replacement. In our view, Messrs. Cardoso and Fraga can save Brazil from the slaughterhouse…