By Anthony Boadle
BRASILIA (Reuters) - The arrest on Sunday of Joesley Batista, a billionaire meatpacker who implicated President Michel Temer in a corruption scandal, has actually improved the Brazilian leader's prospects of surviving graft allegations and serving out his term through 2018.
But the three-month political crisis triggered by the plea bargain allegations by Batista, formerly chairman of meatpacker JBS SA <JBSS3.SA>, has consumed precious time that Temer has to pass legislation to overhaul Brazil's costly pension system and avoid a fiscal crisis in Latin America's largest nation.
Temer and his coalition allies in Congress are confident they can block a second corruption charge that Brazil's top prosecutor, Rodrigo Janot, is expected to file against the president by the end of the week.
A Supreme Court judge on Tuesday authorized a new probe of Temer for suspected corruption involving a decree regulating ports, a day after a separate police probe into Temer's allies kept pressure on the president.
Yet as long as Temer is in office, any charges against the president must be approved by the lower house of Congress in which he has retained enough backing to avoid trial by the Supreme Court.
"Temer's political standing in Congress has improved a lot, because the economy is starting to grow again and the pressure of another corruption charge is falling," said the government's deputy whip in the lower house, Beto Mansur.
"The prosecutor's case has been weakened and the next charge will arrive here with little credibility," he told Reuters.
A new poll by Arko Advice consultancy, however, shows that most lawmakers do not expect pension reform to clear Congress until 2018, and passing the unpopular measure in the run-up to next year's elections may be an uphill struggle.
A proposed overhaul of the pension system, the main contributor to Brazil's record budget deficit, was headed for approval in the lower house of Congress until accusations against Temer in May derailed his plans.
In a bombshell plea bargain agreement in May, Batista confessed to bribing hundreds of politicians and gave prosecutors a taped conversation of the president. The recording appeared to show Temer condoning hush money payments to silence a witness in a sprawling corruption scandal.
Just two weeks ago, however, another tape inadvertently submitted to prosecutors by Batista with other documents appeared to show he had been helped by a close aide to Janot in crafting the deal. The Supreme Court revoked his immunity and ordered his arrest for concealing other crimes.
Beyond the embarrassment to Janot in his last days in office - he steps down as top prosecutor on Sunday - the revelation has given Temer's lawyers an opening to try to dismiss evidence provided by Batista, while strengthening the president's hand in Congress to fight any further charges.
The credibility of Temer's accuser was further undermined on Wednesday by the arrest of Batista's brother Wesley, the chief executive officer of JBS SA, for alleged insider trading to avoid hefty losses related to the May plea bargain.
WIDER CONGRESSIONAL BACKING
Temer mustered enough support to block Janot's initial corruption charge from putting him on trial, in a 263-227 vote in the lower house on Aug. 2. That margin is expected to widen if a second charge comes before the house.
"There is no motivation in Congress to remove president Temer. Many of the politicians who will vote are being investigated, so why would they empower the public prosecutors at this time?" said Lucas de Aragão, a political scientist and partner at Arko Advice.
Still, Aragão said fighting the next charge will cost Temer more pork barrel and patronage for lawmakers and at least a 30-day delay for pension reform, leaving the Senate with little time to pass the bill in 2017.
No less than 83 percent of lawmakers believe pension reform will not be passed this year, according to an Arko poll of 201 Congressmen last week.
Temer has ordered his minister to restart the pension reform debate in Congress immediately so that it can be put to the vote in the house my mid-October.
"The country lost 90 days. The economy could be recovering faster and growth would have been more robust if it had not been for this artificial crisis," said a Temer aide who requested anonymity because he was not authorized to speak publicly.
Speaker Rodrigo Maia is expected to expedite the pension bill after Temer signed off on a bailout for his bankrupt state of Rio de Janeiro, a source on the economic team said.
(Reporting by Anthony Boadle; Additional reporting by Silvio Cascione; Editing by Matthew Lewis)