Rousseff hangs by a thread after losing impeachment vote

Re-elected Brazilian President Dilma Rousseff delivers a speech following her win, in Brasilia.(Evaristo Sa, AFP)
Re-elected Brazilian President Dilma Rousseff delivers a speech following her win, in Brasilia.(Evaristo Sa, AFP)

Brasilia - Dilma Rousseff’s presidency is hanging by a thread after Brazil’s lower house of Congress voted in favour of her impeachment, a decision that’s likely to cheer investors just as it threatens to bring down the curtain on 13 years of leftist rule.

The opposition garnered 367 votes, 25 more than the two-thirds majority it needed to send the impeachment motion to the Senate.

“The commencement of the impeachment process is authorised,” lower house speaker Eduardo Cunha said at the end of the session that was broadcast live on public screens across the nation.

Most analysts agree it will be difficult for Rousseff to muster the votes needed in the Senate to stave off her ouster. A simple majority in the upper chamber is enough to force her to step down temporarily to make way for Vice President Michel Temer and surveys released on Monday by three major newspapers in Brazil show the president’s opponents have the votes.

That next step could happen within 15 days, said Senator Romero Juca, the head of Temer’s PMDB party, the largest in the country.

Yet the opposition should not take the Senate for granted, analysts at Eurasia Group said, noting that the government has been making inroads in the public opinion battle by focusing on allegations of corruption implicating PMDB figures, most notably Cunha.

“We give a 20 percent probability to a scenario where the Senate doesn’t accept the lower house’s decision,” Eurasia’s Christopher Garman and Joao Augusto de Castro Neves wrote in a research note.
Deeply Divided

Opposition legislators and a quarter of a million people on Sao Paulo’s mainavenue broke into cheers, waving yellow and green flags as the panel in thelower house showed the impeachment motion had been approved.

Attorney General Jose Eduardo Cardozo said that Rousseff is open to dialogue to seek solutions to the crisis, but that she won’t throw in the towel. She will make a statement later on Monday, he said.

“The vote by today’s chamber won’t demoralize President Dilma Rousseff,” he told reporters.

Two years of scandal, recession and political infighting have deeply divided Latin America’s largest nation. Markets have cheered the prospect of a more business-friendly Temer administration, prompting a 23 percent rally in the country’s benchmark stock index since the start of the year. Exchange-traded funds of Brazilian stocks in Tokyo and London jumped, heading for at least an 8-month high.

Yet room for stimulus measures is limited, distrust of politicians deep-seated, and the corruption scandal that rocked Brazil’s political elites far from over. Around 150 legislators in the lower house are under investigation for alleged wrongdoing, according to Congresso em Foco, a Brasilia-based publication specializing in legislative affairs. All that raises questions about whether the crisis will produce a leader with the mandate needed to put Brazil back on track.

“This vote is a stinging rebuke of Rousseff and 13 years of her party’s rule,” said Michael Shifter, head of the Washington-based think tank Inter-American Dialogue. “But anybody who thinks this is going to be resolved by simply ousting Rousseff is naive -- there will be social tension.”

Weeping, smiling

Television images showed some backers of the president weeping, while newspaper Folha de S. Paulo published an image of Temer smiling as he watched the voting from home.

Behind the charges of having masked budget deficits with illegal loans from state banks, opposition parties accuse Rousseff of having run the country’s public finances into the ground. Brazil’s budget deficit more than tripled since 2014 to 11% of gross domestic product, near a record.

Temer is not entirely untarnished either. While 61% of Brazilians want Rousseff to be ousted, 58% say the same about Temer, according to a Datafolha poll published early this month.

The sweeping Carwash probe into graft has ensnared leading members of his Brazilian Democratic Movement Party, including lower house speaker Cunha, who is being investigated for accepting bribes in offshore accounts. He has denied any wrongdoing.

“No government that is born this way will be able to pacify the country,” Attorney General Cardozo said.
Temer’s Plan

Last week the vice president gave a glimpse of his plan, when the media leaked a tape in which he laid out how he would govern in the event Rousseff is forced from office.

Calling for national unity and sacrifice, he pledged to sustain the government’s welfare payments while increasing the role of the private sector in the economy. His party has also called for raising the retirement age and reducing the amount of constitutionally-mandated spending. Many investors are upbeat Temer could help turn things around.

“This continues to be cathartic and traumatic for Brazil, but I think in the medium term it’s a positive,” said  George Hoguet, global investment strategist at State Street Global Advisors, which has more than $40bn in emerging-market assets. “You can see that in the market reaction, the rally that we’ve seen in the real.”

Pulling Brazil out of its downturn will be no easy trick. Even as the vice president’s chances of taking over rose in recent months, analysts surveyed by the central bank grew increasingly pessimistic about the economy, forecasting gross domestic product will contract by 3.8% for a second consecutive year in 2016.

“You’re still facing the same headwinds, which are no growth and a lot of corruption,” said Ilya Feygin, a New York-based managing director and senior strategist at WallachBeth Capital LLC. “The Brazilian crisis could last quite a long time.”

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