Espresso for May 12th
QUOTE OF THE DAY
“Brazil is under some scrutiny and under some pressure,” White House spokesman Josh Earnest said in Washington. “We continue to have confidence in the mature, durable democratic institutions in Brazil to withstand the challenge.”
WHAT MARKETS ARE TALKING ABOUT
FINALLY: DILMA NOT PRESIDENT ANYMORE
A majority of Brazil’s Senate indicated it will vote to put President Dilma Rousseff on trial for breaking budget laws, signaling the end of 13 years of rule by the leftist Workers Party in the country. In a marathon session of speeches, 41 of the 81 senators in Latin America’s largest nation had indicated by the early hours of Thursday morning that they would vote to try Rousseff, a move that would suspend Brazil’s first woman president. The final vote, expected around dawn, would make Vice President Michel Temer acting president during her trial, which can last for up to six months.
After being approved by a simple majority (1/2+1, that is 41 of the 81 senators), Dilma has been removed from Brazil’s presidency for up to 180 days until the final decision is taken (political trial) while her vice-president Michel Temer has now taken her place temporarily. He is expected to take office today (Thursday) and cut ministries to 22 from 32. He will also announce his cabinet. And over the next six months, if 2/3 of the Senate (54 members, at least) subsequently approves the impeachment (54 of the 81 senators), Dilma is permanently removed and Michel Temer assumes office until the rest of term in 2018. Otherwise, she reassumes her mandate immediately.
Michel Temer has become President. Although this outcome comes as positive news for the market- Mr. Temer is widely viewed as more business‐friendly- we are skeptical about its effects on the Brazilian economy. The still fragmented Congress will continue to represent a significant challenge for the approval of the much‐needed fiscal measures that could allow the public finances to be restored and economic activity to rebound.
The last time a Brazilian president was suspended from office was in 1992, when Fernando Collor de Mello was placed on trial for corruption. He resigned from office shortly before he was found guilty by the Senate.
Mexico is a regional outperformer in converging to the official inflation target, strongly aided by structural reforms, frozen gasoline prices and persistent slack. The Pacific Alliance bloc (Colombia, Chile and Peru) suffered from currency depreciation and the “El Niño” effect. Price stickiness has impeded that consumers benefit from still-low oil prices. Still, Peru’s tightening cycle proved effective and might have come to an end.