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Brazil’s Lula hit with near-10 year sentence over corruption

Brazil`s former president Luiz Inácio Lula da Silva has been sentenced to nine years and six months in jail on corruption charges in a decision that promises to send shockwaves through Brazil`s political establishment.

The once wildly popular leader of the leftist Workers` Party or PT, who ruled Brazil between 2003 and 2010, was accused of accepting favours from construction companies in exchange for helping them secure business with government companies. He will remain free pending an appeal.

The former president was accused of receiving the use of a beachside luxury apartment from construction company OAS. While the apartment was never held in his name, prosecutors allege it was meant for his use.

The president has denied the charges and his lawyers have maintained they will appeal against any conviction.

If the ruling is confirmed by the appeals court before the elections in 2018, Mr Lula da Silva would face jail and would be ruled out from competing in the poll.

He has consistently maintained he would compete in next year`s elections and is presently the favourite in opinion polls.

While current president Michel Temer is himself facing corruption charges, investors are hoping Mr Temer will have enough political capital to push through his reform agenda, including the much-needed pensions overhaul.

The country’s benchmark Bovespa stock index rose 1.5 per cent on the news, while the Brazilian real extended its earlier gains to trade 1.4 per cent higher at R$3.2079 per dollar — a two-month high. The advance was enough to push the real back into positive territory for the year.

Brazilian bonds also rallied. The yield on Brazil’s 10-year dollar bond, which had been lower in morning trading as part of a broader global bond surge following US Federal Reserve chair Janet Yellen’s dovish comments on inflation, extended its drop to 11 basis points to 4.722 per cent.

“Given that a Lula victory would quash any hopes of much-needed economic and fiscal reforms, this would have been market-negative,” said Neil Shearing, chief emerging markets economist at Capital Economics. “It follows that today’s ruling is likely to give a boost to Brazilian markets. Expect the real to strengthen and long-dated local currency bond yields to drop over the next 24 hours.”

Born to a poor family from Brazil`s impoverished north-east, the former president became a unionist and rose to become the country`s first president from a humble background.

He was credited with lifting millions of Brazilians out of poverty during the boom of the first decade of this century through social transfer programmes.

But his statist policies, particularly during his second term, and high levels of government spending were blamed for partly laying the ground for Brazil`s recession of the past two years, which is regarded as the worst in its history.

His government also presided over the biggest corruption racket in Brazil`s history, the plundering of state-owned oil company Petrobras.