What next for Brazil?


Photo: Reuters

What happened

On the evening of May 17th, “O Globo” newspaper, one of Brazil’s largest newspapers, leaked parts of an audio transcription. The audio allegedly involved President Michel Temer in a cover-up scheme to bribe the former House of Representatives Speaker, Eduardo Cunha, to remain quiet while he was in jail.

As part of the Lava Jato (Car Wash) corruption investigation, the allegations were made by two senior executives from the Brazilian meat processing company JBS, Wesley and Joesley Batista. The “JBS brothers” entered a leniency agreement with Brazilian authorities in exchange for reduced sentences.

On Thursday morning, the São Paulo stock market benchmark dropped 10.47 per cent as market regulators were forced to trigger a circuit breaker interrupting operations for 30 minutes. The Brazilian real weakened 7 per cent against the US dollar. The presidential press office released an official note acknowledging the meeting between Michel Temer and Joesley Batista in March 2017, it however vehemently denied the misconduct allegations. At 4 p.m, during a live press conference, Temer was fierce in affirming he would not resign.

Late afternoon on Thursday the records became public, proving that President Temer had been taped consenting to the JBS brothers’ bribes to a prosecutor and two judges. The audio, however, was inconclusive on the bribe to Eduardo Cunha. Few hours later, Temer’s support base in Congress began eroding: two parties left the government.

What may happen

infograficopolitica

Temer resigns – The speaker of the House of Representatives, Rodrigo Maia (PMDB-RJ), temporarily takes office to call indirect elections. Congress elects a President until December 31st, 2018. Regular direct elections will take place in October 2018, and the new President takes office for four years starting January 2019.

The 2014 elections Dilma-Temer ticket is annulled – The Supreme Electoral Court (TSE) will judge in early June whether the Dilma Rousseff and Michel Temer ticket during the 2014 elections received unlawful contributions from companies involved in the Lava Jato investgations. If the Court finds that there has been fraud, indirect elections are called. There is, however, a less likely possibility of direct elections. Congress may vote in the coming weeks a Constitutional Amendment Proposal (PEC) to allow direct elections if Temer is ousted.

Temer is impeached – As what happened with former President Dilma Rousseff, Congress may oust Michel Temer from the presidency. The House of Representatives needs two thirds of representatives to open the impeachment proceedings and temporarily remove Temer from office. Then, the Senate also needs two thirds to approve Temer’s impeachment. These proceedings may take months. After that, indirect elections are more likely.

Temer stays – An unlikely possibility. Temer reverts the adverse situation and recovers his governability until December 2018.

Impacts

At his press conference yesterday, President Michel Temer stated that "My government has experienced its best and worst moment this week. Indicators of a falling inflation, economic growth and job generation have created hopes of better days. Optimism returned. And the reforms were advancing in the National Congress". This statement is relatively accurate, except that the next few weeks (or days) of the Temer government promise to be even worse.

With the political crisis that began on May 17, the schedule of reforms - labor and social security, considered essential for economic recovery – enters a cryogenic state. The Brazilian economy, which in fact was giving some signs of recovery, will again retreat. Michel Temer now manages a moribund government. The president himself becomes a political zombie, just like Dilma Rousseff before her impeachment in August 2015. His government’s support starts to run away from the resulting stench.

The credibility, political capital, and power of coordination of a government that has always been unpopular further increases the unsustainability of Temer - who, by not resigning during his official speech yesterday, may gain some time to legally prepare himself for what lies ahead. But this additional time for Temer prolongs even further the political crisis and its uncertainties, which in turn extends the economic crisis.

The consequences of this new crisis can be harsh, starting with a new period of inertia, economic turmoil and unpredictability. Greater uncertainty faced by international investors in Brazil will make other markets more attractive for new investments, at least for the time being. The solution to this crisis remains unknown. The most urgent, however, is to resolve Temer's fate, and politics itself, by renewing it. The challenge is to do so amid a conservative, archaic (and not rarely delinquent) Congress.

While the fate of Temer, and the country, is not defined, the former president of the Supreme Court, Joaquim Barbosa, called upon this Friday: "There is no other way out: Brazilians should mobilize themselves, go to the streets and forcefully demand the immediate resignation of Michel Temer”.

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Melanie Wahl