Brazilian president Dilma Rousseff faces the threat of impeachment as soon as Monday after a senior Congress politician recommended that the legislature moves ahead with the process.
Jovair Arantes, the chairman of a special commission of the House of Deputies, the lower house, has recommended approval of the impeachment, saying there is evidence she violated fiscal laws, specifically manipulating budget accounts to allow her government to boost spending to shore up votes ahead of her 2014 re-election campaign.
This would be the biggest political shake-up in more than 30 years in Latin America’s already troubled largest economy and would bring Brazil one step closer to coming to a crunch as the country also battles an outbreak of the Zika virus and prepares to host the Olympic games in August.
The impeachment procedure against the president has been fuelled by the Petrobras bribery scandal that broke in 2014 and concerns the alleged misuse of company funds to finance Rousseff’s Workers Party election campaigns, as well as money laundering and fraudulent contract bidding.
Financial markets have rallied as the prospects for political change neared. But the process is not a quick one and, as one senior banker put it, resembles a hurdles’ race or “a byzantine process”.
The impeachment process has two steps, one in each house of Congress, but its length is largely undefined. The next steps are likely to be:
• April 11: the special commission votes in favour or against impeachment (the vote is not binding, as the case has to go to the plenary anyway)
• April 17: the plenary of the lower house votes in favour or against.
• April 18 (from): if approved by two-thirds of the votes, impeachment goes before the Senate
At the Senate, there are also two steps: if majority of the senate votes in favour of impeachment, Dilma has to step aside for 180 days; a new special commission is then set up at the Senate. The report is sent to the plenary to be chaired by the president of the Supreme court, of whom two-thirds are needed to impeach Dilma.
As this process can last for months, some investors feel that the more time it takes, the greater the damage to the economy. “The longer it goes on, the more difficult it gets,” said a senior investment banker.
On the other hand, some analysts stressed that it was important to respect the constitutional process. “You need some time to go through this. This is the rule of the game,” said Ramon Aracena, Latin America chief economist at the Institute of International Finance (IIF). “It is a period to defend your position, it is good to reflect on things, it is not a joke.”
A local banking executive with the knowledge of the political procedure said there were chances that the process might be concluded “very quickly”.
“The Senate is not a problem for those who defend the impeachment. The problem is the house of deputies,” where the Rousseff administration retains a stronger influence.
NAZI-LIKE TACTICS
The Brazilian economy is expected to register its second consecutive year of deep recession (around 4% annually) and the situation has recently deteriorated further as unemployment soared and pro and anti-impeachment demonstrators have taken to the streets.
Passions have been running high in the country — Rousseff has blamed “Nazi-like tactics” in order to foment “hatred” and an “attempted coup” against her. But markets have been reacting positively as a solution to the political crisis may be in sight, even though the outcome will not be an immediate one.
“Rousseff does not have any condition to pass the kind of structural reforms that investors want,” said Paulo Sotero, president of the Brazil Institute in Washington.
But the complexity of the impeachment process means the current market reactions may prove exaggerated, especially if the impeachment process lasts for months. Indeed, there may be various legal appeals that may cause delays to the Congressional procedures.
“I think the markets may have gone a little bit ahead of themselves when they express such optimism over impeachment,” said Aracena. “I cannot imagine the possible length and complexity of the process is not factored into the way the market is reacting. It is a bit odd to me,” said a senior investment banker.