By Paulo Trevisani 

BRASÍLIA--An alleged corruption scandal at Brazil's largest company is threatening President Dilma Rousseff's ability to govern Latin America's biggest nation.

Police have arrested former executives of Petróleo Brasileiro SA, or Petrobras, in their investigation into alleged price rigging of contracts and bribery at the state-controlled firm. Some executives have struck plea deals with prosecutors, officials say.

In testimony that local media have said was leaked to them, these executives have implicated high-profile politicians, among them members of Ms. Rousseff's ruling Workers' Party.

No charges have been filed. And the politicians have denied wrongdoing.

But the developments appear to be emboldening an opposition that gained seats in the new Congress set to open in January. Opposition lawmakers are calling for deeper investigations into Petrobras's management and political links and are threatening to block government legislation.

In a further distraction to Ms. Rousseff's rule, opposition legislators this week passed a measure to bring politicians to testify in Congress over Petrobras.

The accusations are feeding an "opposition mood" in Congress, said Ricardo Caldas, a political scientist at the University of Brasília.

The president's office didn't respond to a request to comment.

Government allies in Congress on Tuesday sought to play down any political risks.

Due to the Petrobras scandal, "It won't be an easy discussion with the opposition, but at the end common sense will prevail," said Sen. José Pimentel, government's leader in Congress.

Prosecutors allege that Petrobras executives who were political appointees took kickbacks from the company's suppliers and contractors. The employees then passed part of that money along to political parties, prosecutors said. Local media, citing leaked reports from Petrobras executives, say the parties allegedly used the money to finance election campaigns.

Ms. Rousseff, who hasn't been accused of wrongdoing, acknowledged that public money was diverted at the company and pledged to support all investigations.

Some of the alleged wrongdoing occurred when Ms. Rousseff was Mines and Energy minister in the administration of President Luiz Inácio Lula da Silva, whom Ms. Rousseff succeeded as president. As energy minister, Ms. Rousseff was also Petrobras's chairwoman. Mr. da Silva hasn't been accused of wrongdoing.

The developments appear to be complicating Ms. Rousseff's task of selecting a cabinet ahead of her Jan. 1 inauguration following her narrow election in October to another four-year term. That is because she wants to avoid naming someone who could end up in the growing suspects list, said Murillo de Aragão, founder of Arko Advice, a political analysis firm in Brasília.

"It isn't only who she chooses as minister, but also whose recommendation that was," Mr. Aragão said. "You don't want to take somebody's recommendation who down the road may be named as a suspect in the case."

While Ms. Rousseff "is taking her time the situation gets worse," he said. "It delays the re-establishment of credibility in the economy [and her] ability to govern depends on that," he said.

The Brazilian leader's task is further complicated by the fact that her cabinet contains 39 ministerial positions, and those top-level jobs are typically traded with political parties for their support in congress.

Ms. Rousseff has said that she will appoint a new finance minister to succeed Guido Mantega, who has said he was retiring.

The situation increases uncertainty at a time of sputtering economic growth and rapidly rising prices. Brazil's gross domestic product is likely to expand only 0.2% this year, according to a central-bank survey of economists, while the 12-month inflation rate is above the central bank's 2.5%-to-6.5% target range.

Government spending is rising faster than revenue, leading to a deterioration of Brazil's fiscal profile and raising questions about the country's ability to keep its investment-grade credit ratings.

The Petrobras scandal will add to President Rousseff's growing list of problems. Given Brazil's notably slow judicial system, the affair could remain a distraction well into the president's second term.

"It will suck up a lot of energy and wear out her popularity," said political analyst Humberto Dantas, adding that the case also weakens her standing with Congress. "Even political allies may take advantage and increase their demands on the president."

Edla Lula contributed to this article.

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