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Brazil Analysts: Outlook Better for Rousseff;Worse for Economy
SAO PAULO (MNI) – Congress returned from its summer recess Tuesday, and impeachment proceedings against President Dilma Rousseff will soon return to the agenda.
Rousseff has increased her chances of survival, but the policies needed to pull Brazil out of a deep recession remain highly unlikely, analysts told MNI Tuesday. And in a chaotic political scenario, her removal from office this year remains plausible, though possible aftermaths there too are unclear.
“Right now its hard to see a light at the end of the tunnel,” Alessandra Ribeiro, an analyst with the Sao Paulo consultancy Tendencias, told MNI.
Ribeiro sees a 55% chance of Rousseff remaining President until the end of her mandate in 2018.
Her recent cabinet reshuffle may have helped her achieve the bare minimum of support she needs in Congress, where a two-thirds majority in both houses is needed to remove her.
Vice President Michel Temer PMDB party is in alliance with Rousseffs PT party but that link has frayed, and Temer late last year attempted to present himself as a plausible replacement but failed to gather support.
“Right now her biggest advantage is that the opposition is split, so there is no plausible Plan B,” Ribeiro said.
But with the economy in free fall — GDP contracted around 4% last year and is expected to fall another 3% this year, with unemployment likely to rise into double-digits — and with Rousseff deeply unpopular, if the opposition unites behind impeachment, it could succeed, Ribeiro said.
Ribeiro also noted that new Finance Minister Nelson Barbosa is associated with heterodox economic policy in the past, and the central bank once again appears to be suffering political interference.
Monetary policymakers had been issuing hawkish comments until Central Bank President Alexandre Tombini had an unscheduled meeting with Rousseff shortly before the central bank Monetary Policy Committee (Copom) held its January 20 meeting.
The Copom then reversed course from what its previous signals indicated and held rates steady, rather than tightening.
Another political wild card is that the countrys highest electoral court, the TSE, is considering whether kickbacks from corruption financed Rousseffs 2014 election.
If the TSE finds incriminating evidence, it could annul the 2014 election and call for a new vote. But with everything about the TSEs deliberations secret, no one can do more than guess about its decision and when it will be issued.
For Carlos Melo, political science professor at Insper, a university in Sao Paulo, whether or not Rousseff stays in office, the outlook is grim.
“Right now there is no unified political force in favor of the structural reforms the country needs,” he told MNI Tuesday.
Melo said Temer has shown himself incapable of even uniting his own party, while the main opposition party, the PSDB, is deeply divided among leaders with conflicting personal ambitions.
Meanwhile Rousseffs capacity to govern has only worsened. Her popular support continues to fall as the economy gets worse, corruption investigations move closer to her mentor, ex-president Luiz Inacio “Lula” da Silva, and her health ministry appears helpless to stop the Zika virus.
“Its not clear that she has an agenda, and if she did, her chances of implementing it are minimal,” he said.
With that absence of economic leadership, the country is heading to another primary account deficit this year and a steadily rising debt-to-GDP ratio.
Luciano Rostagno, chief strategist for Mizuho Banks Brazil operations, sees at least one possibly optimistic scenario.
Rostagno agreed that at present the opposition is too divided either to remove Rousseff from office or to govern effectively if it replaced her, but he said that given how institutionally difficult it is to remove an elected president from office, an impeachment would only happen if a popular groundswell combined with a united opposition.
“The last protests in favor of impeachment were very weak. If the protests scheduled for March gather mass support, we could see the opposition come together,” he told MNI.
Rostagno noted that Vice President Temers PMDB party last year issued a pro-market political program, and the opposition PSDB party is a traditional supporter of such policies.
But if Rousseff stays in office, a recovery from recession is unlikely until after the end of her term in 2018, Rostagno said.
“I dont think well see a default or capital controls, but we would see the government trying to balance its books though inflation,” he said.