The political and legal saga that has shaken the country over the past three years is perpetually postponing the normalisation of the institutional environment. Accusations against the President are unlikely to prevent him from finishing his mandate, and the financial markets have reacted less virulently than during previous episodes. But the smooth implementation of structural reforms and the confidence of economic agents and investors are critical for fostering a solid, sustainable economic recovery. Faced with another bout of uncertainty, the central bank continues to support monetary easing in a persistently disinflationary environment.
Carnival (LON:CCL) marks summer’s end and the revival of the political and legal saga, which is detrimental to investor morale and the Brazilian real, …
In Brazil, the month of March signals the end of summer vacation. After the traditional Carnival festivities, the usual “back-to-business” period has been transformed in recent years into “back to court” as the political and legal saga resumes. Fall 2013 was marked by fierce protest movements against the rising cost of living, the exorbitant price tag of the 2014 Football World Cup, and corruption.
March 2014 will be remembered as the start-up of Operation Car Wash (Lava Jato), the corruption probe into Petrobras, followed a year later by the first accusations against elected officials, which ensnared the presidents of both houses of Parliament. Fall 2016 marked a major turning point in the political crisis as President Dilma Rousseff was suspended from her functions (and impeached in August) and replaced by Vice-President Michel Temer.
Convinced by fiscal austerity and the structural reform programme, investors regained confidence in the midst of a more buoyant international environment (fewer worries about China, rebound in commodity prices, and abundant liquidity in the international markets). The Brazilian currency (BRL) appreciated 28% against the dollar (USD) between early 2016 and mid-May 2017.
Unfortunately, fall 2017 was not spared this new tradition, and the political saga continues. In April, the Supreme Court opened a new case against a hundred politicians, including several government members. Although the Electoral Court acquitted Dilma Roussef and Michel Temer of charges of soliciting illegal campaign donations during the 2014 presidential election, since mid-May, the President has been caught up in the Lava Jato investigation for “passive corruption”, “obstruction of justice” and “participating in a criminal organisation”. The opposition party is calling for his resignation, but it seems unlikely that impeachment procedures will win the support of two thirds of Parliament, as stipulated in the constitution. The coalition may have been weakened, but it still enjoys an overwhelming majority, with 75% of the Assembly’s seats. The most probable scenario is that President Temer will complete his mandate in December 2018, after general elections in October.
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by Sylvain BELLEFONTAINE