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Markets appear to bail on Brazil’s president

. Oct 27, 2017
Brazil’s president Michel Temer markets us dollar Photo: Lula Marques/AGPT
Michel Temer markets us dollar

Photo: Lula Marques/AGPT

Last year, Congress ousted Dilma Rousseff from the presidency. Though technically her removal was for having doctored the federal budget, the markets and business sector wanted her out because of her disastrous economic policy. Investors saw her vice-president, Michel Temer, as a man capable of conducting a peaceful transition towards the 2018 election – all while pushing for austerity measures that would “fix” Brazil’s economy.

The reality is that Temer’s short reign has been anything but smooth. He has paltry approval ratings (3 percent), has not been able to fully redress the economy, and has had two indictment requests presented against him. To avoid losing his office, Temer decided to spend big money to please congressman and obtain their sympathy, contradicting his discourse for austerity. Meanwhile, the federal public deficit grew 108 billion BRL between January and September – a record.

</p> <div class="infogram-embed" data-id="355b2d92-d705-4c4f-8c0a-8a165131f6b8" data-type="interactive"></div><script>!function(e,t,s,i){var n="InfogramEmbeds",o=e.getElementsByTagName("script"),d=o[0],r=/^http:/.test(e.location)?"http:":"https:";if(/^\/{2}/.test(i)&&(i=r+i),window[n]&&window[n].initialized)window[n].process&&window[n].process();else if(!e.getElementById(s)){var a=e.createElement("script");a.async=1,a.id=s,a.src=i,d.parentNode.insertBefore(a,d)}}(document,0,"infogram-async","//e.infogram.com/js/dist/embed-loader-min.js");</script> <p>Now, one and a half years later, markets have seemingly come to terms with the realization that Temer isn’t living up to his projected image. Brazil’s President does want to push for a radical austerity agenda that would please investors – he just doesn’t have the popular support or congressional power to do so.</p> <p>Wednesday’s vote to block the indictment against Temer illustrates how the head of state is nothing more than a lame duck. Temer had only 251 supporters this week – 12 fewer than in August’s vote. And to push for the reforms Temer wants, he would need <em>at least</em> 308 votes each time. The pension system overhaul wanted by the government? Forget about it. According to 6 party leaders polled by <strong>The Brazilian Report</strong>, there is absolutely no chance of approving pension system reform before the 2018 election. Even a trimmed-down version has become a longshot.</p> <h3>Nervous markets</h3> <p>Temer is now safe from indictment requests and should be able to complete his term without further hiccups. But instead of generating confidence among investors, the vote served only to prove that his collation will probably not be strong enough to pass the legislation wanted by the markets when they supported him.</p> <p>As a result, markets are now avoiding risks in Brazil. The Brazilian Real lost 1.22 percent against the U.S. Dollar (3.2846 BRL). On Monday, the American currency had reached its highest rate since May 2017.</p> <div class="infogram-embed" data-id="81120adc-4aa3-4d57-97c1-1984bc55319e" data-type="interactive"></div><script>!function(e,t,s,i){var n="InfogramEmbeds",o=e.getElementsByTagName("script"),d=o[0],r=/^http:/.test(e.location)?"http:":"https:";if(/^\/{2}/.test(i)&&(i=r+i),window[n]&&window[n].initialized)window[n].process&&window[n].process();else if(!e.getElementById(s)){var a=e.createElement("script");a.async=1,a.id=s,a.src=i,d.parentNode.insertBefore(a,d)}}(document,0,"infogram-async","//e.infogram.com/js/dist/embed-loader-min.js");</script> <p>“A 251 score has diminished the government’s probability to approve the pension system reform – even a trimmed down version,” said Guide Investimentos, an investment consultancy. It’s the same diagnostic given by the party leaders we interviewed.</p> <p>And Brazil’s president has yet another strike against him: because of his inability to whip his majority to vote for him, he has a track record of bending to Congress. It means that not only Temer is not pushing for his promised reforms, but he is also spending money that the federal administration simply doesn’t have.</p> <p>If markets do abandon Brazil’s president, the economy will further deteriorate. And the long, time-consuming impeachment process will have been for nothing.

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