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Brazilian stocks plunge amid another growing political scandal

Business Insider logo Business Insider 5/18/2017 Elena Holodny

Video by CNBC

Brazil's markets are getting slammed, falling more than 10 percent Thursday amid another emerging political scandal.

Shares of the ETF that tracks Brazilian stocks was down by about 18 percent Thursday.

The Brazilian real was down by 7.1 percent at 3.3598 per US dollar as of 9 a.m. ET.

Brazilian newspaper O Globo reported late Wednesday that a recording exists of President Michel Temer approving a payment to jailed former house speaker Eduardo Cunha to remain silent in the country's biggest-ever graft investigation.

Temer's office released a statement denying the allegations.

Brazilian markets climbed over the last year as investors looked favorably upon the Temer administration's reform program. However, some analysts now argue that the latest allegations could lead to shakier markets amid concerns about the country's overall economic agenda.

"The accusations call into question Temer's economic program and the political stability that had emerged in recent months," Marc Chandler, global head of currency strategy at Brown Brothers Harriman said. 

"The consequences for Brazil could be wide-ranging. Pension and labor market reforms, the former particularly key, could both be under threat," Craig Botham, emerging markets economist at Schroders, said in an emailed statement.

"Economic confidence had been on the rise in Brazil following the removal of former President Dilma [Rousseff], and this appeared to have led to a tentative recovery in economic activity. This could now surely be at risk," he added. "Against this, the central bank will need to weigh the likely weaker activity the economy faces if reforms fall flat and Temer is either ejected or spends the rest of his term battling for survival."

The latest allegation is just one part of a larger three-year long corruption probe dubbed "Operation Carwash." Over 80 people have been charged with bribery and money laundering to date, according to figures cited by CNN. Temer has repeatedly denied wrongdoing.

The president's approval rating stood around 10% ahead of these latest allegations.


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