LatinFinance - May/June 2016 - 2

MAY/
JUNE
2016
FRONT NOTES

EDITOR-IN-CHIEF Katie Llanos-Small
DEPUTY EDITOR Kevin Gray
SENIOR REPORTERS Aaron Weinman,
Mick Bowen
REPORTERS Jennifer P. Roig, Miluska Berrospi
ART DIRECTOR Rosa Matamoros-Sense
COVER ILLUSTRATION Flavia Santos
CARTOON ILLUSTRATION
Christopher Weyant

Impeachment road
It now looks all but certain that President Dilma Rousseff's days in office are numbered. The Senate is
expected to put the final nail in her political coffin after two-thirds of the lower house voted in favor
of her impeachment. Some in the markets have been celebrating the growing likelihood of an early
departure of the not so investor-friendly Brazilian president, although bond buyers have shown more
restraint.
But what comes next?
The widespread feeling among many Brazilians is one of relief and hope - but is it real, or wishful
thinking? The Rousseff administration has not been all bad news. She appointed the market-friendly
Joaquim Levy as her finance minister in 2015. But the Levy experience was too short, and he lacked
the political support to implement his fiscal reforms. Those reforms were eventually watered down by
Congress - the same Congress, incidentally, that has voted on Rousseff's impeachment and which will
need to support the next president's reform agenda.
Michel Temer, the vice president who will likely step into the presidency if the Senate completes
the impeachment process, has all the attributes to become the market's favorite. He's an experienced,
conservative politician with a penchant for orthodox economic policies. Temer has said he could appoint former central bank governor Henrique Meirelles as finance minister. Even if Meirelles may not
eventually be part of any potential government, his tacit acceptance will give Temer some credibility,
extending his support base. Indeed, the entire establishment has thrown its weight behind him - from
business groups to banks alike.
Market expectations are huge. The fiscal deficit, pension reform, inflation and the double-digit Selic
interest rate all need to be fixed. But any improvements could be a long time coming. First, because
Temer is a careful politician who naturally moves slowly. Second, because there will be a lapse in the
impeachment proceedings: a simple majority of the Senate will first have to vote to open the formal
impeachment trial against Rousseff; she will then have to step down, and Temer will then assume the
presidency. A second vote with a two-thirds majority of senators will then be needed to impeach her
and to confirm Temer as president until the end of 2018.
Between the two votes in the Senate, Temer will be able to form a government, but he may not be
able to launch significant reforms. Bigger changes may only be launched in November, after municipal
elections. This would leave his administration less than two years before fresh
presidential elections. This may be enough
to improve market conditions, but the
Brazilian economy will likely remain on
shaky ground.
And then, there is Lava Jato - the ongoing probes into the Petrobras corruption
scandal. If the new government is suspected of hushing up Lava Jato, public opinion,
which has played a key role in pushing the
impeachment momentum forward, will
quickly turn against Temer. Barring any
nasty surprise, the potential market impact
is bound to be positive. But there will be
little room for excitement - and indeed,
no Macri-style effect in the post-Rousseff
Brazil. LF
2 L ATINFINA NCE.COM - May-June 2016

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Table of Contents for the Digital Edition of LatinFinance - May/June 2016