4 Brazil Reforms Likely If Rousseff Impeached
By Dimitra DeFotis
Eurasia Group expects Brazil Vice President Michel Temer to assume the presidency on a temporary basis Thursday after today’s impeachment vote.
The reason: the number of senators who have voiced their support for an impeachment trial for PresidentDilma Rousseff exceeds the simple majority threshold. The iShares MSCI Brazil Capped exchange-traded fund ( EWZ) is flat today, but is up 4% this week and a whopping 40% this year on anticipation of regime change. In comparison, the Vanguard Markets ETF ( VWO), also flat today, is up less than 1% this week, and is up 3% this year. The state-controlled, indebted energy producer Petroleo Brasileiro or Petrobras ( PBR) is up 76% this year to a recent $7.60, while telecom Oi( OIBR) is down 36%. PDG Realty ( PDGRY) is up 31% in over-the-counter U.S. trading this year.
While the politics play out, investors should be focused on economic reforms needed, and what’s likely. Higher taxes are probably not in the cards, while government spending cuts are. Making the labor code more flexible is somewhere in the middle among reforms likely to get tackled.
Here are some bullet points on potential reforms with high likelihood of approval in the months ahead, from Eurasia Group’s Christopher Garman, Joao Augusto de Castro Neves andCameron Combs:
Establishment of a minimum retirement age of at least 60 years for women and 65 for men, up from the average age of 60 for men. This constitutional reform is likely in the first half of 2017.
Decoupling of earmarked federal revenue for spending in other areas. This would allow Brazilian government bodies to apply 25% of earmarked federal revenue to other budget items, up from 20%. The vote on a fiscal constitutional reform, which must pass three more Congressional hurdles, is likely to be approved in the second half of 2016.
Scrapping the rule that Petrobras be lead operator in all exploration and production contracts in the deepwater “pre-salt” oilfields. Eurasia Group thinks Speaker Eduardo Cunha’s opposition to a related bill will soften under Temer in the second half of 2016. Legislative approval likely in the second half of 2016.
Mitigation of public landline concessions into a single regime, increasing broadband investment and helping beleaguered carrier Oi. Legislative approval likely in the first half of 2017.
See our posts Brazil: Wednesday Vote May Finally Impeach Rousseff and Brazil Heads Into Chaos As Rousseff Impeachment Fails?
Brazil, energy, impeachment, Reform, Rousseff, Telecom, Temer |
