Tide turning against Temer

While the eyes of the world have been focused on the fallout from the US election, domestic political risks have resurfaced in Brazil. The latest controversy surrounds allegations that President Temer intervened to support a government minister in a property deal. In response, junior parties in Congress have announced plans to launch impeachment proceedings against the President. Our sense is that these are unlikely to go anywhere, but further problems lie ahead. In particular, a plea bargain signed by the construction company Oderbrecht as part of the Lava Jato probe into kick-backs at Petrobras has been put to the judge leading the investigation. If accepted, it is rumoured to indict hundreds of lawmakers in various corruption allegations. All of this will make it more difficult for the government to pass much-needed fiscal reforms – a bill to cap government spending is due for a final vote in Congress early next month, while reforms to the welfare system are due to be presented to lawmakers within the next couple of weeks. This in turn will slow efforts to turn around Brazil’s economy and put the public finances on a more stable footing.