Brazil's President Loses Legal Battle, Faces Impeachment Threat

BRASILIA (Reuters) - Brazil's besieged President Dilma Rousseff lost a major battle on Wednesday when the federal audit court rejected her government's accounts from last year, paving the way for her opponents to try to impeach her.

In a unanimous vote, the Federal Accounts Court, known as the TCU, ruled that Rousseff's government manipulated its accounts in 2014 to disguise a widening fiscal deficit as she campaigned for re-election.

The ruling, the TCU's first against a Brazilian president in nearly 80 years, is not legally binding but it will be used by opposition lawmakers to argue for impeachment proceedings against the unpopular leftist leader in an increasingly hostile Congress.

Rousseff's office said there were no legal grounds for the ruling and maintained in a statement that the audit court unduly penalized actions taken by her Workers' Party government to maintain social programs for Brazil's poor.

Opposition leaders hugged and cheered when the ruling was announced in Congress, though it was not clear whether they have enough support to impeach the president despite a widening corruption scandal engulfing state-oil firm Petrobras and Brazil's deepest recession in 25 years.

"This establishes that they doctored fiscal accounts, which is an administrative crime and President Rousseff should face an impeachment vote," said Carlos Sampaio, leader of the opposition PSDB partyin the lower house.

"It's the end for the Rousseff government," said Rubens Bueno, a congressman from the PPS party. He said the opposition has the votes to start proceedings in the lower house though perhaps not the two-thirds majority needed for an impeachment trial in the Senate.

In a last-ditch bid to win time, the government had asked the Supreme Court to delay Wednesday's ruling, but it refused.

Attorney General Luis Inacio Adams said the government would appeal again to the top court to overthrow the audit decision.

Earlier on Wednesday, Rousseff's government failed to get enough support in Congress to back her efforts to rebalance Brazil's public accounts. Rousseff is also reeling from a ruling on Tuesday that cleared the way for a separate probe on alleged irregularities in her re-election campaign last year.

Congress put off for a fourth time a session on whether to back or overturn her vetoes of two spending bills after her government was unable to obtain a quorum despite a cabinet reshuffle last week meant to bolster her support.

"It's as if the government has ceased to exist," said congressman Pauderney Avelino of the oppositionDemocrats party.

The congressional setback calls into question her ability to raise taxes to plug a widening budget gap that led the Standard & Poor's rating agency to strip Brazil of its investment-grade rating last month.

WEAK ECONOMY

Backed by a commodities boom, Brazil's economy posted several years of strong growth that pulled millions of people out of poverty. But the boom ended after Rousseff came to power in 2011, hit by weaker international prices for its products and her government's interventionist policies.

Uncertainty over Rousseff's ability to survive the political crisis and pull Brazil out of an economic tailspin has driven down its currency, the real, to its weakest levels ever.

In the ruling on Tuesday, Brazil's top electoral authority said there were grounds to investigate her re-election campaign, including the suspicion of illegal funding from kickbacks involving oil firm Petrobras. Rousseff served as chairwoman of the board of Petroleo Brasileiro SA, as Petrobras is formally known, from 2003 to 2010 when much of the alleged graft took place. She has denied knowing of or benefiting from the graft.

The TSE electoral court investigation requested by her challenger in last year's election, Aecio Neves, could lead to the invalidation of Rousseff's slim victory, though the judicial case is expected to last for months if not years and can be appealed to the Supreme Court.

The only good news Rousseff has had recently was the confirmation by Swiss authorities that her declared enemy in Congress, lower house speaker Eduardo Cunha, holds bank accounts inSwitzerland, which he had denied.

Cunha, who holds the key to starting impeachment proceedings in the lower house, already faces charges of corruption in the Petrobras bribery scandal. On Wednesday he said he had no intention of resigning.