Over to you Dilma


Jan Dehn, head of Research at Ashmore, discusses how the remaining downside risks in Brazil moved a little closer last week. In Turkey, President Erdogan’s strategy of going to war to restore his parliamentary majority is working so far. Argentinean Economy Minister saves President Cristina’s blushes and opens the door for presidential candidate Daniel Scioli to move to the centre in politics by declaring that the holdout issue must be resolved.

Odds shorten for Brazilian downside risk

The two remaining downside risks in Brazil moved a step closer to materialising last week. The odds of the first – a downgrade to the sovereign credit rating from investment grade – shortened when an act of parliament increased the public sector wage bill. While the vote is not final, it demonstrates the parliament’s power vis-à-vis President Dilma Rousseff and adds further strain to Brazil’s already challenging public finances.

The other risk – impeachment of Dilma herself – also increased last week as leaders of PMDB and the opposition PSDB parties began discussions on the logistics of the impeachment process itself. Some 66% of Brazilians would like to see the president impeached, though importantly there is no evidence of serious social unrest. Indeed, about a quarter of Brazilians still support the government, despite Dilma’s very low personal approval ratings. But given her splintering government coalition, the damage caused to the PT party of the ongoing corruption probes Dilma is certainly ripe for the plucking.

Still, the question is not whether impeachment can happen – it can – but whether it will. Would the opposition benefit from impeaching her at this point in time? Sure, opportunities to successfully impeach a president do not come around every day, so there is an argument for striking while the iron is hot.

On the other hand, Brazil is going through a serious economic adjustment, which will go on for some time, so anyone taking over the government now would quickly end up paying a high political price for power. Certainly, timing would be better, say, after the downturn in the economy has abated or closer to the next election.

So far Dilma has not responded to parliament’s moves against her. This is important – the president still has considerable powers, including the power to grant cabinet positions. And it just happens that a few of them became vacant recently, when two junior coalition partners left the government.

Finally, it is worth bearing in mind that the whole impeachment train gained momentum as a diversion orchestrated by the president of the Lower House, Eduardo Cunha, who himself has been accused of corruption. His next steps depend on the severity of the charges against him. These charges will be known in the near future. Given the self-serving motivation behind the impeachment process it could easily be seen, in the public eye, as a kind of coup orchestrated by parliamentarians trying to save their own skin from an ongoing anti-corruption campaign run by the judiciary.