Brazil Outlook: New Government, Policy Paralysis

Protesters in capital Brasilia on March 13 in favor of impeaching President Dilma Rousseff. (Photo: Agencia Brasil)

Former president Luiz Inácio Lula da Silva and current president Dilma Rousseff last week. The impeachment against Rousseff could be completed as early as the beginning of May. (Photo: Roberto Stuckert Filho/PR)


New government on track to be established in Brazil; policy paralysis likely until 2018.

BY CARLA SELMAN
AND CARLOS CAICEDO

On March 17, a congressional commission began analyzing impeachment procedures against Brazil's president Dilma Rousseff, on the grounds that she manipulated fiscal accounts in 2014. This came a day after the nomination of former president Luiz Inácio Lula da Silva as cabinet chief on 16 March triggered anti-government protests attended by thousands across Brazil's main cities, including São Paulo and the capital Brasília. Government opponents complained that his nomination was an attempt to protect him from prosecution by São Paulo officials with concealing ownership of real estate assets. He is also being investigated as part of the "Lava Jato" corruption probe into politicians allegedly demanding bribes from construction companies in exchange for contracts with state-run oil company Petrobras (Lula denies all wrongdoing).

Lava Jato investigation likely to further implicate senior politicians

The political crisis has been driven by the weakening of Rousseff, perceived as powerless to tackle Brazil's deepest economic recession since the 1930s (IHS expects a 3.7% economic contraction in 2016). She has alienated members of her own Workers' Party (Partido dos Trabalhadores: PT) and of its main government ally, the Brazilian Democratic Movement Party (Partido do Movimento Democrático Brasileiro: PMDB), by proposing unpopular austerity measures. Meanwhile, the Lavo Jato investigation continues to close in on the president. Brazil's business elite have also been implicated. On March 8, Marcelo Odebrecht, the CEO of construction company Odebrecht was sentenced to 19 years in prison as part of the Lava Jato investigation. The Brazilian media has reported that Odebrecht is negotiating a plea bargain, which could result in him revealing incriminating information about illegal funding of Rousseff's 2014 re-election campaign.

Presidential impeachment increasingly likely over the next two months

Impeachment procedures against Rousseff were opened by the speaker of the lower chamber Eduardo Cunha (PMDB) in December 2015 after the Federal Court of Accounts (TCU) rejected the 2014 fiscal accounts, providing legal grounds to initiate impeachment. Rousseff now has 10 sessions to present her written defense to a congressional commission, which can take up to 4 weeks. The commission will then have five extra days to make a decision on whether to open impeachment procedures. According to Brazilian media, 35 of the 65 commission members have signaled they are likely to vote against her, 24 in favor, and 6 remain undecided. If the commission decides to open proceedings, two-thirds of the lower chamber (342 out of the 513 deputies) have to vote for impeachment. It then must be ratified by a simple majority at the Senate (40 out of 81). Rousseff would then be constitutionally suspended from office for up to 180 days while senators engage in further discussions. Her mandate would finally be revoked if two-thirds (54) of the senators vote to do so after these discussions. The whole impeachment process is likely to take between 45 days and 2 months, and could be completed as early as the beginning of May. The 1992 impeachment of then-president Fernando Collor de Mello for corruption took one month in the lower chamber and three in the Senate.

How the PMDB decides to vote will be vital to Rousseff's impeachment. The government ally is likely to mostly vote against Rousseff. Senior party members, especially Eduardo Cunha, president of the Chamber of Deputies, have been staunch critics of the PT-led government and are currently assessing whether the PMDB should quit the ruling coalition. Until before Congress's break in late December, Rousseff's strength lied in the Senate, as its president Renan Calheiros (PMDB) was seen as friendlier towards Rousseff and closer to Lula. Indeed, Lula's cabinet nomination on 16 March was partly an attempt to rebuild alliances with the PMDB and the government's collapsed mandate with Lula's charisma and popularity. However, the extent of protests on 16 March and thereafter testifies to how much political capital Lula has lost since being tainted with corruption and by his closeness to a deeply unpopular president. The Supreme Court is now trying to block his cabinet nomination, arguing there are indications that it was aimed at him avoiding prosecution (the government will appeal this ruling).

Popular support for impeachment is likely to push the PMDB towards quitting. Pro-impeachment demonstrations gathered approximately 3 million demonstrators nationwide on 13 March, followed by spontaneous protests since Lula's nomination. In addition, a Datafolha opinion poll released on 19 March revealed that 68% of Brazilians favored impeachment.

After Rousseff

If Rousseff is impeached, Vice-President Michel Temer (PMDB) would take office for the remainder of her term (until 1 January 2019). However, he is also vulnerable because the national electoral court is currently assessing if the 2014 re-election of the Rousseff-Temer ticket was financed with bribes for Petrobras contracts. If the charges are upheld this year, the 2014 election will be annulled, and Temer will also have to step down, with Cunha taking office for 90 days and calling for fresh elections. However, Cunha is also being investigated as part of Lava Jato (he denies any wrongdoing). If the ruling is issued in 2017, Congress would have to select a caretaker president until the 2018 general election.

Outlook and implications

With the main political figures in Brazil being investigated by Lava Jato or potentially being investigated in the future, whoever replaces Rousseff if she is impeached, even Vice-President Temer, will not have the support of Congress or the public. If Rousseff survives the widening calls for impeachment, she will remain deeply unpopular and politically divisive. Either way, Brazil's presidential office will lack authority until a new mandate is earned and a new government inaugurated in January 2019. Until then, and in the absence of a highly unlikely recovery in global commodity prices, Brazil's democratic government will lack the co-operation necessary to formulate a comprehensive response to its economic deterioration.

Carla Selman is a Latin America & Caribbean analyst at IHS Country Risk.  Carlos Caicedo is Senior Principal Analyst for Latin America & Caribbean at IHS Country Risk.

This article is based on an analysis issued by IHS. Republished with permission from IHS.




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