The speaker of Brazil's lower house of Congress, Eduardo Cunha has announced plans to open impeachment proceedings against President Dilma Rousseff, allegedly on violation of fiscal legislation. In practical terms this means further political upheaval in the months ahead in a country that has been rocked by the steepest recession in 25 years, job losses, and a corruption scheme of planetary proportions in oil giant Petrobras.
The decision to open proceedings against President Rousseff follows charges that she has violated Brazil's fiscal laws and manipulated government finances to benefit her re-election campaign last year. A committee comprised of members of all parties in the lower house will now decide on the merits of the case. It then needs 2/3 of votes in the lower house to suspend the president at which point the case moves to the Senate. The Senate then holds a 90-day trial after which a 2/3 majority in the upper house is needed to formally remove the president from office.
The opening of impeachment proceedings came on the same day that the ruling Workers Party of Rousseff decided to support proceedings at the Lower House Ethics council to remove speaker Cunha, who has been accused of receiving bribes from the Petrobras corruption scandal. Cunha strongly denied the allegations but finally the Swiss prosecution confirmed the speaker and family members had bank accounts in Switzerland with deposit dates and amounts closely relating to the charges from the Brazilian police.
The impact on markets and confidence of the latest events will be seen of Thursday's markets opening, but analysts from Capital Economics argue three reasons why financial markets may not nose-dive.
In effect the move is hardly a surprise. It has been in the offing for a while and, at least in part, is likely to have already been priced into the market. Secondly there is a big difference between opening impeachment proceedings and actually removing the president from office. Rousseff can still muster enough votes to hold off the challenge.
Finally, even if President Rousseff is impeached, it's not necessarily clear that this would be market-negative, since the leader is as unpopular with investors as she is with the Brazilian public, argues Capital Economics.
In effect Rousseff's government including Chicago trained economy minister Joaquim Levy have so far been unable to complete the much needed fiscal adjustment program, to lower a 9% GDP fiscal deficit, given the ongoing clashes with Congress, and must be added, includes a degree of rebellion among her own lawmakers contrary to severe austerity measures.
A final (and remotely) if Rousseff has to step down, she would be replaced by Vice president Michel Temer from the PMDB party, senior ally in the ruling coalition. The PMDB in a recent convention has already agreed that they will present their own presidential candidate on 2018, with a clear pro-business approach, and will continue support of the coalition given the very delicate political and social situation in the country, and the fact that they dispute the same electoral space as the main opposition party PSDB, whose leader Aecio Neves finished runner-up in the 2014 presidential double round election.
Neves, according to the latest public opinion polls is seen as the politician with most support if he plans to run for the presidency, even ahead of the until recently most popular and revered politician in the country, Lula da Silva, the iconic reference of the Workers party and sponsor of Rousseff.
But what is clear is that Brazil as the largest and leading Latin American economy with its current challenges and misfortunes is very bad news for Mercosur neighbors, and the region given its preponderance in trade and outgoing tourism.