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The world’s socialist dominoes are continuing the fall. Biggest of them, Brazil, has been teetering for some months but started listing yesterday when its President Dilma Rousseff was badly defeated in the vote that “authorises” the process of her impeachment. Those who want her ejected got 25 votes more than the two third majority required in the Lower House of Parliament to proceed to the the next step where, within two weeks, a simple 50% Senate majority will put Jacob Zuma’s BRICS ally on effective suspension. This is confirmation of key global trends emanating from the end of QE-inspired easy money. The receding tide is exposing countries with deficient economic policies, primarily socialist-run nations who have now run out of other people’s money to spend – Venezuela, Argentina, Brazil, India and, as we well know here, South Africa. Voters have already ushered in a new deal for India and Argentina. With Rousseff on the brink, a similar swing away from the left is certain in Brazil. Another facade being shattered is BRICS. The politically instigated grouping of emerging countries is coming apart at the seams. With massive internal priorities, the new regime in India has lost its BRICS enthusiasm, a perspective likely to be shared in Brazil post Dilma. A lower oil price is pushing Russia towards bankruptcy and capital flight from China has put massive pressure on its own internal investment programme. It can’t be long before the expensively created BRICS Bank is written off as another politically-inspired blunder. – Alec Hogg
(Bloomberg) — Dilma Rousseff’s presidency is hanging by a thread after Brazil’s lower house of Congress voted in favour of her impeachment, a decision that’s likely to cheer investors just as it threatens to bring down the curtain on 13 years of leftist rule. The opposition garnered 367 votes, 25 more than the two-thirds majority it needed to send the impeachment motion to the Senate.
“The commencement of the impeachment process is authorized,” lower house speaker Eduardo Cunha said at the end of the session that was broadcast live on public screens across the nation.
Most analysts agree it will be difficult for Rousseff to muster the votes needed in the Senate to stave off her ouster. A simple majority in the Senate is enough for her to have to step down temporarily and make way for Vice President Michel Temer. That could happen within 15 days, said Senator Romero Juca, the head of Temer’s PMDB party, the largest in the country.
Opposition legislators and a quarter of a million people on Sao Paulo’s main avenue broke into cheers, waving yellow and green flags as the panel in the lower house showed the impeachment motion had been approved.
Attorney General Jose Eduardo Cardozo said that Rousseff is open to dialogue to seek solutions to the crisis, but that she won’t throw in the towel. She will make a statement later on Monday, he said.
“The vote by today’s Chamber won’t demoralize President Dilma Rousseff,” he told reporters.
Two years of scandal, recession and political infighting have deeply divided Latin America’s largest nation. Markets have cheered the prospect of a more business-friendly Temer administration, prompting a 23 percent rally in the country’s benchmark stock index since the start of the year. An exchange-traded fund of Brazilian stocks jumped 4.5 percent in early Tokyo trading as the opposition extended its lead.
Yet room for stimulus measures is limited, distrust of politicians deep-seated, and the corruption scandal that rocked Brazil’s political elites far from over. Around 150 legislators in the lower house are under investigation for alleged wrongdoing, according to Congresso em Foco, a Brasilia-based publication specializing in legislative affairs. All that raises questions whether the crisis will produce a leader with the mandate needed to put Brazil back on track.
— Bloomberg (@business) April 18, 2016
“This vote is a stinging rebuke of Rousseff and 13 years of her party’s rule,” said Michael Shifter, head of the Washington-based think tank Inter-American Dialogue. “But anybody who thinks this is going to be resolved by simply ousting Rousseff is naive — there will be social tension.”
Television images showed some backers of the president weeping, while newspaper Folha de S. Paulo published an image of Temer smiling as he watched the voting from home.
Behind the charges of having masked budget deficits with illegal loans from state banks, opposition parties accuse Rousseff of having run the country’s public finances into the ground. Brazil’s budget deficit more than tripled since 2014 to 11 percent of gross domestic product, near a record.
Temer is not entirely untarnished either. While 61 percent of Brazilians want Rousseff to be ousted, 58 percent say the same about Temer, according to a Datafolha poll published early this month. The sweeping Carwash probe into graft has ensnared leading members of his Brazilian Democratic Movement Party, including lower house speaker Cunha, who is being investigated for accepting bribes in offshore accounts. He has denied any wrongdoing.
“No government that is born this way will be able to pacify the country,” Attorney General Cardozo said.
Last week the vice president gave a glimpse of his plan, when the media leaked a tape in which he laid out how he would govern in the event Rousseff is forced from office. Calling for national unity and sacrifice, he pledged to sustain the government’s welfare payments while increasing the role of the private sector in the economy. His party has also has called for raising the retirement age and reducing the amount of constitutionally-mandated spending. Many investors are upbeat Temer could help turn things around.
“This continues to be cathartic and traumatic for Brazil, but I think in the medium term it’s a positive,” said George Hoguet, global investment strategist at State Street Global Advisors, which has more than $40 billion in emerging-market assets. “You can see that in the market reaction, the rally that we’ve seen in the real.”
Pulling Brazil out of its downturn will be no easy trick. Even as the vice president’s chances of taking over rose in recent months, analysts surveyed by the central bank grew increasingly pessimistic about the economy and forecast the second straight annual contraction this year.
“You’re still facing the same headwinds, which are no growth and a lot of corruption,” said Ilya Feygin, a New York-based managing director and senior strategist at WallachBeth Capital LLC. “The Brazilian crisis could last quite a long time.”
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