CHART OF THE WEEK
As the polls predicted, Brazil’s Senate voted to go forward with impeachment proceedings against President Dilma Rousseff (PT, the workers’ party), who is now suspended from office until the end of her trial, to be held within 180 days, when Senators will vote for or against ousting her completely. The interim President will be her Vice-President Michel Temer, a former ally and head of the centrist Brazilian Democratic Movement Party that left the PT coalition at the end of March. 55 Senators voted for the President to stand trial, which is 14 votes more than the simple majority required, and also surpasses the two-thirds majority that will be necessary to permanently oust Dilma Rousseff. The President will no doubt mobilise Brazilians in her attempt to overturn what she calls a “coup”, increasing the risk of social tension and street protests.
Our Analysis
Senator’s voting intentions indicate the most likely scenario is that Dilma Rousseff will be removed from office and Michel Temer will run the country until the next presidential elections in October 2018. An alternative scenario that cannot be completely ruled out is that the Supreme Electoral Court, which for several months has been investigating alleged campaign financing irregularities by Dilma Rousseff and the Vice-President, actually declares the 2014 presidential election invalid. If the investigation concludes before the end of 2016, then the 2014 presidential elections could be invalidated and new elections held within three months.
One of the main challenges facing the Temer administration will be to consolidate public finances without damaging the economy further. In principle, it has enough Congress support to push through structural reforms requiring a constitutional majority, such as raising the retirement age. However, time is running out. Local elections scheduled for October could hinder approval of these unpopular measures which would increase the risk of Congress’ support waning and the likelihood of new twists in the Petrobras affair coming to light. The good news is that monetary policy could soon help out the Government. At its last meeting, Brazil’s central bank ruled out an imminent rate cut, but indicated that rates could be lowered if inflation and inflation expectations continue to fall.
The opinion expressed above is dated May 13th, 2016 and is liable to change.
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