Brasilia/Sao Paulo: Former Brazilian president Luiz Inacio Lula da Silva will take over as chief of staff for his successor Dilma Rousseff in a bid to save her from impeachment, raising the prospect of a shift away from austerity measures to jumpstart a moribund economy.
The head of the government coalition in the lower house of Congress, Jose Guimaraes, confirmed the appointment on Twitter after a meeting of Rousseff, Lula and senior ministers on Wednesday morning.
The move offers Lula short-term protection from prosecutors who have charged him with money laundering and fraud, while his charisma and connections could help Rousseff navigate a political crisis threatening to topple her government.
Lula's return to government may also spell a change of economic tack, as he has openly criticized austerity efforts and called for more public spending to end Brazil's worst recession in decades.
Brazil's central bank chief Alexandre Tombini may step down if Lula's return brings a major economic policy shift, a senior member of the government's economic team said on Wednesday, asking not to be identified.
Brazil's currency slid nearly 2 per cent on Wednesday and has lost almost 7 per cent this week as Dilma's invitation to Lula raised expectations of a sharp policy swing.
Finance Minister Nelson Barbosa and other members of Rousseff's inner circle joined her early meeting with Lula, according to reporters at the Alvorada presidential residence.
Rousseff is trying to shore up her government against a storm of corruption allegations, drawing on Lula's keen political instincts and deep relationships with Congress to avert an impeachment process.
Lula's return to Brasilia on Tuesday was overshadowed by a barrage of fresh corruption accusations by Senator Delcídio do Amaral, a close Workers' Party ally of the president until he was arrested last year.
In plea bargain testimony, Amaral said Rousseff knew about a massive graft scheme at state-run oil company Petrobras and one of her ministers had tried to buy his silence.
Rousseff's popularity has been pummeled by Brazil's worst economic downturn since the Great Depression and the sprawling two-year-old corruption investigation stemming from Petrobras.
More than a million people marched in demonstrations across Brazil on Sunday, calling for Rousseff's impeachment and applauding the graft probe that has turned up evidence of political kickbacks paid by Petrobras contractors.
Once appointed, Lula can only be tried in the Supreme Court, placing him out of the reach of ongoing state and federal probes.
The Supreme Court will meet on Wednesday to decide on the rules of the impeachment process launched against Rousseff in December by her political archenemy in the lower chamber of Congress, Speaker Eduardo Cunha.
Cunha's Brazilian Democratic Movement Party (PMDB), the main partner in Rousseff's coaltion, is moving closer to breaking with a president they blame for ruining Brazil's economy, but the party remains divided over her impeachment.
Cunha said this week he plans to speed up the process with the appointment of an impeachment committee as soon as the Supreme Court sets the rules.