Brazil's Lula to take government role: Report

Jessica Hartogs, Special to CNBC

Brazil's ex-president Luiz Inacio Lula da Silva will accept a position in his successor's cabinet, according to a national newspaper, in order to protect himself from prosecution in a corruption case involving the state-run oil company, Petrobras.

Rio-based O Globo newspaper reported on Tuesday that Lula had told several close advisers that he would rejoin the cabinet, citing no sources.

"The rumors have been around for the last two weeks, but gained a lot of strength yesterday (Monday) when Lula traveled to Brasilia to meet with Rousseff," Jimena Blanco, head of Americas at Verisk Maplecroft, told CNBC by phone Tuesday.

Brazilian President Dilma Rousseff with former president, Lula Da Silva.
Mario Tama | Getty Image

Lula will meet with his successor as president, Dilma Rousseff, on Tuesday, according to O Globo.

Like Rousseff, Lula is under investigation for his involvement in the Petrobras scandal. He was briefly detained last week. He is accused of money laundering for concealing ownership of a beachfront condo, a charge he denies, according to Reuters.

If he is made minister by Rousseff, Lula could only be tried by the country's Supreme Court. This would put him out of the reach of the judge in the southern city of Curitiba who is leading the inquiry, according to the BBC.

Amid the country's worst recession in decades, the investigation into Lula has strengthened calls for Rousseff to step down. Over one million protesters took to the streets of Brazil on Sunday, calling for her to resign or be impeached.

Markets react negatively

Brazil's real declined 1.9 percent against the U.S. during Tuesday's trading following the report that Lula would rejoin the cabinet. The main stock index, the Bovespa, fell by 3.8 percent early in the trading session.

Worst could be to come — Verisk Maplecroft's Blanco said markets would react "very negatively," if the rumors proved true.

Brazil was recently hit with a two-notch downgrade by U.S. ratings agency Moody's, the third agency to strip the country of its investment grade.

"Giving Lula an appointment that gives immunity from prosecution gives the wrong signal to markets — the course of justice has been prevented," Blanco added.

Handing Lula a ministerial position would show "that the Rousseff government is clutching at straws," Blanco told CNBC.

"[This] sends the signal that the president is willing to resort to every possible means at their disposable to prevent the judicial investigation of Lula. It really sends the message that Rousseff is not as committed to cleaning the house as she claimed at the beginning of her first term," said Blanco.

Political and personal

Blanco told CNBC that Rousseff, who was handpicked by Lula to succeed him in 2010, was most likely considering making the appointment for both "political and personal reasons."

"Rousseff has never had the charisma Lula had," said Blanco. "There's a clear shift in the Lula rhetoric, he's taken a more confrontational position recently and has repeatedly come out in support of Dilma."

Lula has previously stated that he had not ruled out running again in Brazil's next presidential elections of 2018.

"They either sink or swim together," said Blanco.

"The bottom line is if they don't get their acts together, this is the end of both their political careers," Blanco told CNBC.

With contribution from CNBC's Katy Barnato. Follow CNBC International on Twitter and Facebook.