Brazil’s political instability could result in more economic stability, as a more market-friendly administration takes the reins for the next six months and possibly longer, sources told LatinFinance.
“We have a new government and, even if it doesn’t do anything, the economy will start to grow next year, but it won’t be too fast,” said Marcos Meireles, CEO of renewable energy developer Rio Energy. “The big question is if the new government will be able to create a majority in congress to make the changes we need.”
The Brazilian Senate voted 55 to 22 on Thursday morning to suspend President Dilma Rousseff for up to 180 days and put her on trial for allegedly breaking budget laws. Rousseff, who has vowed to prove her innocence, has been replaced for the time being by her vice president, Michel Temer.
Local asset manager Guide Investimentos said in a report that the overwhelming majority for impeachment in the Senate “signals that Temer will have support in congress and that the probability of Dilma’s return is very remote.”
Meireles put chances that Rousseff will be permanently removed from office at 99%. “I only give her a 1% chance because nothing is certain in life,” he said. “I don’t think the new government will have enough support at first to make changes, but if it is able to build a majority, then it will be able to make the changes in its second year.”
Temer has quickly formed a new cabinet and named Henrique Meirelles as the new finance minister. Meirelles, who headed the central bank from 2003 to 2011, during the two terms of Rousseff’s predecessor, Luiz Inácio Lula da Silva, has said he plans to support economic reforms and enact measures to tackle rising debt levels.
Ilan Goldfajn, chief economist at Itaú Unibanco, has been selected to become the new head of the central bank, a spokesperson at the bank confirmed.
Fitch estimated the government deficit will average 8% of GDP in 2016 and 2017, down from 10% in 2015. The rating agency also predicted the Brazilian economy will shrink 3.8% in 2016 and another 0.5% in 2017.
According to Paulo Prignolato, CFO at sugarcane processor Biosev, the Brazilian government’s real problem now is a lack of trust in the markets. But he said that Temer is trying to put together a reliable team of ministers to regain trust. “There is still a lot of things to be done, but this is the first step,” he said.
For a European-based emerging markets investor, Rousseff’s suspension has given a “big boost to credibility” in Brazil.
However, the Bovespa Index on the BM&FBovespa stock exchange in São Paulo only rose 0.90% on Thursday and the real slipped around 1.5% against the dollar.
The European investor said local fixed income investments offered the best opportunity in Brazil because they offer high yields as inflation keeps declining. Brazil’s 12-month inflation rate came to 9.28% in April, down from 9.39% the previous month, according to figures from the government statistics agency IBGE.
But not all market watchers approved of the impeachment process or believed ousting Rousseff would provide stability to the Brazilian economy. “The country is facing its second impeachment in less than 25 years, and we’re talking about stability?” the source said.
Fernando Collor, who is now a Senator for the state of Alagoas, was impeached in 1992 and resigned from the presidency as the trial got underway. Collor voted to impeach Rousseff on Thursday.