Presidential ambitions put stress on Brazil's new government

September 7, 2016 12:42 PM EDT

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By Anthony Boadle

BRASILIA (Reuters) - A pledge by Brazil's new President Michel Temer not to run in the 2018 election enticed political rivals to back his coalition but pressure from his party might lead him to break the promise, jeopardizing the support he needs to push through reforms.

Temer needs the backing of a fragile coalition of 21 parties in Congress to pass a raft of legislation aimed at dragging Brazil from a budgetary crisis and ending its worst recession since the Great Depression.

First and foremost is a constitutional cap on spending that Temer aims to push through this year.

The 75-year-old conservative lawyer, who was sworn in last week to finish the term of impeached leftist Dilma Rousseff, is also targeting an overhaul of Brazil's costly pension system and labor laws to restore economic competitiveness.

His government has pledged to present the pension reform bill this month, but with local elections looming in October, members of his Brazilian Democratic Movement Party (PMDB) are seeking to delay the bill until after the vote.

Temer has said repeatedly he will not be a candidate at the 2018 presidential election, casting himself as a transitional leader who will restore political and economic stability in a short presidency of just over two years.

But one of his aides told Reuters that a Temer presidential run "has not been ruled out", especially if the economy recovers.

Lower House speaker Rodrigo Maia, from the allied Democrats party, said the PMDB would want Temer to run if he is able to push through reforms, restore confidence among investors and deliver on economic growth.

"With those variables in place, Temer would decide the 2018 election, whether he is candidate or picks someone else to run," Maia told Reuters in a recent interview.

However, to make progress on reforms, Temer relies on the support of the centrist Brazilian Social Democratic Party (PSDB), which agreed to back him as long as he takes austerity measures to balance Brazil's books and restore growth.

After narrowly losing the 2014 election to Rousseff, the PSDB's leader Aecio Neves is eyeing 2018. So are several other senior party figures, including Temer's foreign minister, Jose Serra.

There are already signs of friction in the coalition after Temer's PMDB, which faces a number of corruption investigations, proposed a hefty pay rise for Brazil's Supreme Court justices.

"The PMDB made it explicit that Temer would not be a candidate when we negotiated support for his government to put the country back on tracks," said PSDB Senator Ricardo Ferraço.

"If he becomes a candidate, it will undermine efforts to pass these measures," Ferraço said in comments delivered through a spokesman. He complained Temer was sending mixed signals by allowing pay raises for public sector employees.

Neves bluntly warned Temer last week not to ease up on his government's belt-tightening promises, saying it could not survive without PSDB support.

UNPOPULAR REFORMS

"The PSDB's plan is to have Temer carry out these unpopular reforms that are urgently needed but have a high political cost," said Welber Barral, a policy consultant for multinational corporations in Brazil. "A good part of the PSDB backing for Temer hinges on a guarantee that he will not run."

On Thursday, another government ally, Senator Ronaldo Caiado of the Democrats party, declared he would vote independently of the Temer coalition in the Senate because of the planned salary increase for Supreme Court justices, which raise the bar for pay in the rest of the judiciary, a bill that Rousseff had vetoed.

In another dispute, both Neves and Caiado blasted Temer for not keeping his party in line when a majority of PMDB senators voted to allow Rousseff to retain her political rights after she was removed from office.

The PMDB is Brazil's largest political party. It has not occupied the presidency since 1990 but has held a series of governments together - foregoing fielding a presidential candidate so it could build alliances for gubernatorial and congressional races.

But it has said it intends to run its own candidate in 2018.

After two failed presidential bids, Serra has yet to throw in the towel and is striving to make his mark in Temer's government by revamping Brazilian foreign policy with a pro-business focus.

Finance Minister Henrique Meirelles is also believed to be considering a run for president.

The Temer aide said Serra raises economic issues in cabinet discussions and that it bothers Meirelles, a former CEO of BankBoston and governor of Brazil's central bank form 2003 to 2010.

Managing such political egos will be a test even for an experienced back-room negotiator like Temer, who helped build alliances between his PMDB party and every government in power for the last two decades.

The idea of Temer as a transitional figure who could absorb the cost of unpopular decisions helped attract heavyweights such as Meirelles and Serra to his government, said Thiago de Aragao, partner at Arko Advice consultancy.

"They trusted his pledge not to run, and that made it easier to get them to come in," Aragao said.

(Reporting by Anthony Boadle; Editing by Kieran Murray)



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