Brazil Judge Suspends Lula's Appointment to Rousseff Cabinet (3)

A federal judge in Brazil issued an injunction to suspend the appointment of Luiz Inacio Lula da Silva as President Dilma Rousseff’s chief of staff, further deepening a political crisis that has paralyzed Latin America’s largest nation.

Judge Itagiba Catta Preta Neto from Brasilia argued that Lula’s appointment could lead to his interference in police and judicial activities, according to a copy of the decision. He also said that Rousseff may have broken administrative laws.

Attorney General Jose Eduardo Cardozo said the government is appealing the injunction, adding that the cabinet appointment was legal. Lula is a minister, though he can’t perform all functions until the legal problems are resolved, he said.

The legal wrangling underscores the volatile political situation in Brazil, where Rousseff is struggling to remain in power amid a rising clamor for her ouster. Lawmakers on Thursday afternoon formed a multi-party committee that will recommend whether to impeach her, as thousands of protesters in major cities rallied for her removal.

"The political crisis spilled from the presidential palace to Congress, to the streets and now to the courts," said Gabriel Petrus, a political analyst at business consulting firm Barral M Jorge. "She made a risky bet by tapping Lula. It doesn’t look like it’s paying off."

‘Coup Supporters’

Earlier on Thursday, Lula joined the cabinet in a ceremony at the presidential palace, where government supporters chanted “There will be no coup.” Outside the palace in Brasilia, as well as cities including Rio de Janeiro and Sao Paulo, protesters demanded Lula’s arrest and Rousseff’s ouster.

“Coup supporters won’t bring me to my knees,” Rousseff said at the ceremony.

Vice President Michel Temer skipped the event, increasing speculation that his PMDB party, the largest in Congress, would depart from the ruling coalition.

Tension escalated on Wednesday after Federal Judge Sergio Moro released phone recordings that, according to critics, suggest Rousseff appointed Lula as minister to shield him from a criminal probe. The conversation between Rousseff and Lula, obtained through a police wire tap, aired on television and sparked demonstrations around Brazil, with rallies carrying on into the night.

Financial markets surged Thursday on bets that impeachment could pave the way for a new government with a stronger mandate to revive economic growth. The real appreciated 2.6 percent to 3.65 per U.S. dollar in late-afternoon trading.

(Updates with government appeal in third paragraph.)

--With assistance from Carla Simoes To contact the reporters on this story: Anna Edgerton in Brasilia at aedgerton@bloomberg.net, Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net, Raymond Colitt in Brasilia at rcolitt@bloomberg.net. To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Randall Woods

By: Anna Edgerton, Arnaldo Galvao and Raymond Colitt

©2016 Bloomberg News