SAO PAULO – Trading was temporarily halted on the Sao Paulo Stock Exchange Thursday morning via a so-called circuit-breaker mechanism after its benchmark index plunged more than 10 percent amid a corruption scandal that is directly implicating President Michel Temer.
The mechanism, which suspends trading for a half-hour when the exchange’s benchmark stock index, the Ibovespa, declines by 10 percent, was activated Thursday.
The sharp drop occurred because the share price of several leading Brazilian companies, including state oil company Petrobras and state-run Banco do Brasil, plummeted by nearly 20 percent.
The Brazilian real, meanwhile, plunged to 3.315 per United States dollar at the market opening, a sharp decline of 6.89 percent.
The severe market turbulence was triggered by a media report on Wednesday night.
Leading daily O Globo said the chairman of Brazilian meatpacking giant JBS, Joesley Batista, told prosecutors as part of plea-bargain testimony that he had secretly recorded a conversation with Temer about hush-money payments to a former top lawmaker and close ally of the president who had been convicted of corruption earlier this year.
The newspaper report said Batista told Temer that payments were being made to a former lower house speaker, Eduardo Cunha, sentenced to 15 years and four months in prison in March for receiving bribes from a crude-production contract that state oil company Petrobras signed in the African nation of Benin, as well as for money laundering and tax evasion.
Upon hearing about the payments, Temer said on the recording that they needed to continue, according to the report.
Cunha was the driving force behind last year’s legislative effort that led to President Dilma Rousseff’s ouster from office for violating budget laws. She was replaced by Temer, who had been her vice president.
Along with Cunha, dozens of high-profile politicians and company executives also have been ensnared in a massive bribes-for-inflated-contracts scandal centered on Petrobras.
The stock market mechanism was activated Thursday for the first time since October 2008.
When trading resumed after the morning stoppage, the Ibovespa pared some of its losses but was still down around 8.4 percent at noon (1500 GMT). But should the decline in the index widen to a 20 percent drop, trading would be halted indefinitely.
Market analysts say investors are fearful the explosive revelations will doom the economic reforms being pushed by Temer’s government, particularly his plans to overhaul Brazil’s pension system to reduce a large budget deficit.
Since taking office last year, Temer has implemented austerity measures that are deeply unpopular in a recession-hit country with sky-high unemployment.
Temer, of the Brazilian Democratic Movement Party (PMDB), denied the allegations in a statement Wednesday night and a political ally of his, Sen. Sergio Petecao, said the head of state told him at a meeting Thursday that he was the victim of a conspiracy.
Petecao told Radio Senado that Temer was calm and guaranteed him that the crisis touched off by the alleged audio recordings would not lead to his ouster.
Brazilian opposition parties, including Rousseff’s Workers’ Party (PT), as well as some lawmakers who are part of the ruling coalition, have called for Temer to step down in the wake of O Globo’s report.