Brazil: Lula Out, Temer In

New government policies and reduced corruption helps foreign investors.

LATINVEX EDITORIAL

Two recent political events bode well for the business and economic outlook for Brazil.  

Last week, Brazilian prosecutors accused former president Luiz Inacio Lula da Silva of masterminding the Petrobras corruption scheme, the largest in Brazilian and Latin American history.

And late last month, President Dilma Rousseff was impeached by the Brazilian Senate and formally replaced by her former vice president Michel Temer for the duration of her term, which ends in January 2019.

The two events – while not linked in any way – will each in their own way help the South American giant recover from its twin political and economic crisis.

CORRUPTION AND WORKERS PARTY

Federal prosecutors say that Lula received at least 3.7 million reais ($1.1 million) in benefits and ran the so-called Carwash scheme that may have cost state-run oil company Petrobras as much as 42 billion reais, Bloomberg reported. 

While Lula claims he is innocent, he is also facing other criminal charges and the likelihood that he will end up in jail is significant. With Rousseff impeached and out of government that means that the Workers Party (PT) has been considerably weakened. Lula was until now the party’s only hope of returning back to power.

The economic recession and series of corruption scandals has cost the PT much of its previous support.

The probe into the Petrobras corruption scheme and arrests of prominent business people and politicians promises to help the fight for a cleaner Brazil, especially if Lula joins the likes of Odebrecht CEO Marcelo Odebrecht behind bars. 

“The effect of the current prosecutions on the way business is done in Brazil is real and significant," as Latin America FCPA expert Matteson Ellis from Miller & Chevalier told Latinvex recently.

TEMER STRENGTHENS POWER

Meanwhile, Temer has not wasted any time since becoming interim president in May and now Brazil’s formal president. During his three months as interim president he reportedly met with more lawmakers than Rousseff did in her six years as president.

And so far, it appears that he has been able to keep together the coalition that started the impeachment process against Rousseff earlier this year in order to pass badly-needed reforms to boost the economy, Latin America’s largest.

While Temer and his widely-respected finance minister Henrique Meirelles have introduced emergency measures, they both saw the formal ouster of Rousseff as key to moving forward on major reforms.

In one of the earliest such moves, the government last week launched a multibillion-dollar plan to auction off oil, power rights and infrastructure concessions, in an attempt by the new government to bolster private investment in a moribund economy, Reuters reported.

And in a promising move, a group of centrist parties – which represent more than 200 lawmakers in the 512-seat lower house -- last week pledged their support for Temer's plan to curb public spending and balance Brazil's overdrawn government accounts, raising the prospect for quick approval of a spending cap amendment he is seeking, according to another report from Reuters.

The legacy from Rousseff’s mismanagement of the economy will take some time to repair, but Temer and his team are implementing the right strategy.

And that, along with the hope for reduced corruption, is good news for foreign investors in Brazil.

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