Rousseff impeachment won’t help economy – analysts
April 14, 2016, 10:50 pm

Impeaching Rousseff, analysts warn, could plunge Brazil into further political crises and divide the country [Xinhua]

Nevertheless, Brazilian markets have since the new year rallied over prospects that Rousseff might be impeached.

Every time there is a legal challenge to her rule or to her appointment of her predecessor into her cabinet the Brazilian real currency has strengthened against the dollar and the benchmark Ibovespa stock exchange in Sao Paulo has gained ground.

This is all been to hint that the business environment as such favors an impeachment and seems to indicate that her removal from office will significantly put Brazil’s battered economy back on track.

The Banco Central do Brasil (BACEN) – has since January several times revised downward the 2016 economic growth rate.

In early January, the forecast held at 2.95 contraction but now the International Monetary Fund says that contraction will hit 3.8 per cent for 2016.

In 2015, the economy contracted by 3.75 per cent, while it grew just 0.10 percent in 2014.

Analysts say that the economy is at its weakest since before World War Two, and the IMF says that Brazil is one of the worst performing emerging markets.

Some Brazilians, including the opposition, blame Rousseff and her cabinet’s fiscal policies for the economic debacle. They also charge her with having manipulated data ahead of her re-election in 2014 to show that a budget deficit was less severe than it actually was.

On Tuesday, a 65-member congressional committee voted in favor of recommending that impeachment proceedings against Rousseff proceed. The lower house of Brazil’s parliament is expected to begin voting on her impeachment on April 17.

The opposition and business community are hoping that impeachment will lead to Rousseff’s permanent removal and replacement with a leadership that is more market driven.

Her opponents say she is too interventionist; the Economist in 2013 called her “the meddler-in-chief” and said her policies were driving away investors.

The opposition hopes that reversing some of Rousseff’s leftist policies will encourage a return of foreign investors and strengthen the economy.

To do that, however, any new Brazilian government would have to implement hugely unpopular mandates, such as curbing flagship social welfare programs like Brasil Sem Miséria and Bolsa Família, which have brought millions out of poverty.

In 2013, when Rousseff’s cabinet had a popularity rating of 75 per cent, Brazil lifted 3.5 million people out of poverty and more than a million out of extreme poverty.

In February 2013, Rousseff raised the monthly stipend of 2.5 million people living below the poverty line.

Market-driven policies would likely introduce cuts and curbs – such as slashing minimum wage increases – which reverse the gains of these social welfare programs.

Additionally, a number of analysts caution that it would be premature to assume that the economy will reverse course and grow if she is impeached.

Jorge Arbache, a Professor of Economics at the University of Brasilia, says that many in Brazil insist that the crisis is of a political nature.

“But a look into Brazil’s case suggests that the crisis goes beyond the political nightmare and that political solutions are a necessary, but not a sufficient condition for the economy to resume growth,” he writes.

He believes that “vigorous reforms” transcending politics are necessary.

“A new development model is long overdue and the more Brazil procrastinates to recognize it, the greater will the challenges be to ensure a competitive and vibrant economy in the 21st century. A political consensus will definitely help, but, at this juncture, it will contribute, but will not determine better days ahead,” Arbache added.

Rousseff’s cabinet has already realized that it cannot sustain its welfare programs indefinitely at the current pace, not when they comprise a bulk of the government’s expenditure. She has tried to push through an unpopular austerity package which has been hung dry by the political impasse rocking the nation.

And the impasse is likely to continue even if Parliament votes to send impeachment proceedings to the Senate. If 2/3rds majority votes for her impeachment, Rousseff will likely be suspended for six months. Then, another vote will have to go through the Senate whether to remove her from office permanently.

In the meantime, the political turmoil is unlikely to end and markets will continue to speculate within that six-month period.

Her immediate potential successor (and supporter of her impeachment) Vice-President Michel Temer is himself implicated in corruption scandals and fiscal impropriety. A supreme court judge last week said that impeachment proceedings against Temer must also proceed.

On Monday, audio tapes purportedly showing Temer preparing for a victory speech after Rousseff’s anticipated impeachment were released.

Rousseff said that the tapes showed that a coup was in pace to remove a democratically elected leader from office.

Brazil, Rousseff said on Tuesday, is “living in strange times…times of a coup, of farce and betrayal”.

Meanwhile, another supporter of Rousseff’s impeachment is lower house speaker Eduardo Cunho, who is himself facing a slew of money laundering accusations.

Rousseff’s impeachment would likely plunge all Brazilian political establishments, especially Congress into a quagmire.

David Rees, an economist at Capital Economics, doesn’t believe the recent rallies on the heels of accelerated impeachment progress will last even if Rousseff is removed.

“A fractured Congress means that any government would struggle to pass the tough reforms that are required to put the economy onto a sustainable growth path,” he said in remarks carried by the media.

Factor in the global decline in commodity prices, the oil glut, continuing (but decreasing) worries about China’s slowdown and the likelihood of US interest rate increases later in the year and the picture becomes less clear.

Global conditions have also played a role in Brazil’s economic decline – as they have in all emerging markets – and her impeachment won’t change that.

On Thursday, the IMF said that Brazil’s primary deficit will continue until 2019.

There is no simple resolution to the political, economic and social crises in Brazil, writes Alfredo Saad Filho, Professor of Political Economy at the Department of Development Studies at London’s SOAS University.

He says that while Rousseff has lost political support and the confidence of capital amid media support for her ouster, her workers (PT) party, other left parties and many radical social movements remain strong.

“Even if Dilma and [former President Luiz Ignacio] Lula are struck off the political map, a renewed neo-liberal hegemony cannot automatically restore political stability or economic growth,” he writes.

The BRICS POST