Brazil government denies illegal funding, says can defeat impeachment

BRASILIA (Reuters) - Brazilian President Dilma Rousseff’s government rejected new accusations on Thursday that her election was illegally funded with graft money and expressed confidence it can block an attempt to impeach her.

President Dilma Rousseff addresses a news conference after visiting the new Embraer KC 390 military transport aircraft in Brasilia, Brazil April 5, 2016. REUTERS/Adriano Machado - RTSDP79

Executives from Brazil’s second-largest engineering company testified that Rousseff’s 2014 re-election campaign was partly funded by kickbacks from large infrastructure projects, according to a report by the Folha de S. Paulo newspaper.

The testimony, part of a plea bargain with 11 executives of builder Andrade Gutierrez [AGIS.UL], would be the strongest link yet between Rousseff’s campaign and a widening corruption investigation that has toppled her associates and dozens of other political and corporate officials.

The main opposition party PSDB has demanded that electoral authorities strike down Rousseff’s 2014 victory and call for new elections later this year. The effort is separate from ongoing impeachment proceedings in Congress over allegations Rousseff manipulated budgetary accounts to boost her 2014 re-election campaign.

Uncertainty over the leftist leader’s future has riled Brazilian markets, with investors banking on more business-friendly policies if she is removed. Risk consultancy Eurasia sees 75 percent odds Rousseff will not finish her term as she battles impeachment, a deep recession and a Zika virus outbreak as Brazil prepares to host the Olympic Games in August.

Rousseff’s Workers’ Party and her spokesman Edinho Silva, who was her campaign treasurer, rejected the new allegations as false and said all campaign donations were legal and duly reported to electoral authorities. They also dismiss the alleged irregularities in the impeachment effort.

Rousseff, Brazil’s first female president, slammed the deliberate leaks to the media of plea bargain testimony obtained by prosecutors and said the disclosures were politically motivated to oust her.

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“The use of selective leaks is clearly aimed at creating the conditions for a coup,” she said in a speech to women’s rights groups, once again using language that increasingly portrays efforts to oust her as unconstitutional. “The leaks have gone too far.”

An impeachment committee is expected to recommend to the lower house of Congress next week that Rousseff be impeached for hiding overruns in the government budget to boost her re-election prospects. A vote in the full chamber is expected in 10 days.

Brazil’s attorney general Jose Eduardo Cardozo told foreign reporters on Thursday the government is absolutely confident it can muster enough votes to prevent impeachment based on its conviction the president committed no impeachable crime.

The Andrade Gutierrez executives said bribes were paid to win contracts in projects, including the Angra 3 nuclear power station, the Belo Monte hydroelectric dam and three stadiums built for the soccer World Cup held in Brazil in 2014, Folha reported.

The alleged bribes are similar to those first uncovered in the far-reaching graft probe around state-oil company Petroleo Brasileiro SA, or Petrobras.

Plea bargain deals are confidential in Brazil until the testimonies are accepted as evidence by a judge. Andrade Gutierrez declined to comment.

Reporting by Silvio Cascione and Anthony Boadle; Editing by David Gregorio and Andrew Hay