Temer Hangs On

November 16, 2017

The presidential cycle that began with Dilma Rousseff’s victory in 2014 and will end when caretaker president Temer steps aside for the winner of the 2018 election, has been defined by the Lava Jato (Car Wash) corruption scandal. The ongoing anti-corruption movement claimed many of Brazil’s economic and political elite, while the ongoing corruption probes have hamstrung his presidency. Temer’s latest charge related to an audio recording of a compromising conversation between himself and Joesley Batista, the ex chairman of the Brazilian meatpacking firm JBS. However, the Brazilian constitution gives Congress the opportunity to stop a case against a president proceeding to the Supreme Court and, for the second time, it duly obliged.

A lame duck?

His success in seeing off the latest corruption vote at the end of October will likely ensure that he serves out the presidency. However, with his political capital exhausted and his approval ratings at record lows he will be unable to implement his more ambitious economic reforms. His controversial overhaul of public sector pensions and his plans for a tax shake-up now appear less likely.

The vote also seems to signal that Brazil’s anti corruption movement is running out of steam…

The vote also seems to signal that Brazil’s anti corruption movement is running out of steam. The success of the early Car Wash cases stemmed on the fact that business elites were prepared to plea bargain with prosecutors because they realised that politicians could no longer protect them. However, now the Senate and Congress, many of whose members are embroiled in their own corruption scandals, have closed ranks.

For investors the survival of Temer, who is far more popular with the market than with voters, is a big plus. It gives political certainty until 2018, and keeps a pro-business president at the helm. However, it’s unclear how much more a weakened Temer can do for the economy from this point onwards. Mario Marconini from Teneo Intelligence believes that Temer is a spent force politically. “The pork and patronage he doled out [was] sufficient to bar criminal charges in Congress but [will] not to convince a sufficient majority to vote for unpopular measures – such as a pension reform – in the middle of such an intense pre-electoral season.”

Economic legacy

However, other analysts are more generous. Walter Molano from BCP Securities believes the privatisation programme means that Temer can still deliver upside. “A slew of privatisations have been announced, including the sale of most of the thermo-electric generating plants at Eletrobras, the partial privatisation of the company and the sale of Petrobras’ network of gasoline stations…. The asset sales also include a slew of airports, port terminals and port authorities. This should boost the level of foreign investment in the country above the $70 billion that was recorded last year.”

Time will tell who is right but ultimately the economy will have the last word. Here Temer has notched up some successes. Inflation has been brought under control, which has allowed the central bank to cut rates, which has eased pressure on Brazil’s embattled consumers. Meanwhile the falling real has supported an export boom, with Brazil posting a surplus of $50billion so far this year. As a result economic growth is picking up, with analysts now expecting the economy to expand at 2.3% in 2018. At the moment Temer is a divisive, unpopular figure, widely thought to be corrupt and with an approval rating of just 5%. However, if he hands over a strong economy to the winner of the 2018 election, history may remember him as the president that guided Brazil out of its worst-ever recession.