Dilma Rousseff faces impeachment in Brazil

Joe Leahy, Financial Times – 08/25/2016

Brazil’s senators on Thursday begin the final phase of impeachment proceedings against leftwing President Dilma Rousseff as the nation’s chief justice Ricardo Lewandowski warned them of the gravity of the decision they were about to take.

The senate will hold several days of debates, with Ms Rousseff due to appear before a final vote next week that is expected to lead to the president’s replacement with her former centre-right deputy, Michel Temer.

Ms Rousseff was suspended in May after the Senate voted overwhelmingly to open a formal impeachment process. Mr Temer, her vice-president, has since acted as interim president.“The parliamentarians gathered in this house have been transformed by the law into judges and should as a consequence, as far as is humanly possible, leave aside their opinions, ideologies, political preferences and personal inclinations,” said Judge Lewandowski, who is presiding over the session.The final round of the impeachment process, in which Ms Rousseff has been accused of manipulating the budget, comes four days after Brazil closed the 2016 Olympics in Rio de Janeiro.Ms Rousseff has attacked the process as a parliamentary coup and her Workers’ party has tried to generate opposition to it at home and abroad, but proponents of the impeachment say it is being conducted according to the constitution.Mr Temer, a skilled insider in Brasília’s arcane political world, will have been hoping for a boost to his low popularity rating from the feel-good atmosphere after the Olympics, in which Brazil won its first football gold medal.The impeachment is expected to pass by more than the necessary two-thirds margin of the 81-seat senate, putting Mr Temer into the hot seat, with business and markets expecting rapid advances on the economy once he takes over.

“Mr Temer’s challenge is about restoring domestic and foreign investor confidence and citizens’ trust in the government, which is a very tall order,” said Paulo Sotero, director of the Brazil Institute at the Washington DC-based Wilson Center. “But there is no alternative.”

The benchmark Bovespa index has gained nearly 70 per cent in dollar terms since the opening of impeachment proceedings in April against Ms Rousseff, whose interventionist policies were seen as partly to blame for Brazil sinking into its deepest recession on record over the past two years.

Brazil looks to build on goals beyond football success

Hopes rise that the national team’s path to the Olympic final presages a broader economic revival

In particular, markets want to see Mr Temer’s finance minister, Henrique Meirelles, deliver reforms to rein in Brazil’s ballooning budget deficit and place public finances on a sustainable track.

The keystone reform is a new law that would rule out real increases in public spending for the foreseeable future.

Solid progress on reforms would coincide with a nascent economic recovery that economists predict will begin in Brazil next year.

Capital Economics forecast in a note that Brazil’s gross domestic product would grow 1.5 per cent next year after an expected 2.5 per cent in 2016 — a more optimistic forecast than many other economists, who are expecting a fall of 3 per cent or more this year.

“Brazil’s economy is bottoming out and, while the recovery will be slow going, our 2017 GDP forecast is slightly above the consensus,” said Capital Economics.

One of the biggest threats to Mr Temer is that his fiscal reforms could be watered down in congress, with resistance already under way to efforts to include health and education in the budget cap.

While he has been able to use the impeachment as an excuse for his not getting reforms through until now, the clock will start ticking if Ms Rousseff is removed next week as expected and he is formally installed as president until the next elections in 2018, analysts said.

Mr Sotero of the Wilson Center said that whatever happens, Brazil will be forced to confront its problems over a lack of accountability in public finances and budget overspending.

Public spending in Brazil constantly rises no matter whether tax revenues increase or fall, with public debt on track to reach 90 per cent of GDP by 2018, considered unsustainable given Brazil’s high interest rates.

“Now we are finally going to have the good debate and the necessary fight we have been postponing for years,” said Mr Sotero.

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