Following Rousseff's "Coup", Brazil's Problems Are Only Just Starting

Following today's Brazilian Senate vote, which as reported earlier was expected to vote overwhelmingly to endorse Dilma Rousseff's impeachment and did just that in a 55-22 vote, Rousseff appealed to the public in a televized broadcast and condemned the move to impeach her as a "coup" and a "farce", denying she has committed any crimes.

She was addressing the nation on TV for the first time since senators voted overnight to suspend her for budgetary violations and put her on trial after being accused of illegally manipulating finances to hide a growing public deficit ahead of her re-election in 2014. Rousseff responded that her government was "undergoing sabotage".

In her TV speech in front of supporters at the presidential palace, Mr Rousseff said that she may have made mistakes but had committed no crimes, adding: "I did not violate budgetary laws." She said: "What is at stake is respect for the ballot box, the sovereign will of the Brazilian people and the constitution." Branding the process "fraudulent", she vowed to fight the charges against her and said she was confident she would be found innocent.

Rousseff accused the opposition of leading the impeachment because they had vehemently opposed all the advances she and her predecessor, Luiz Inacio Lula da Silva, had made for the Brazilian poor and lower middle classes. After her speech she left the presidential palace and shook hands with supporters lining the pathway.

In terms of immediate next steps, the following flow chart highlights the key developments over the next 6 months.

 

Meanwhile, as Rousseff continues to fight for her political life, things in brazil are already in motion as another controversial figure, vice president Michel Temer became interim president as soon as Ms Rousseff was suspended. A few key bullet points summarizing his rocky relationship with Rousseff courtesy of BBC:

  • The 75-year-old law professor of Lebanese origin was Ms Rousseff's vice-president and was a key figure in the recent upheaval
  • Up until now, he's been the kingmaker, but never the king, having helped form coalitions with every president in the past two decades
  • He is president of Brazil's largest party, the PMDB, which abandoned the coalition in March
  • In recent months, his role has become even more influential; in a WhatsApp recording leaked in April, he outlined how Brazil needed a "government to save the country".

There is an amusing and unconfirmed anecdote circulating how Temer became president as summarized in the following tweet:

 

What is less amusing, however, is that if Brazil is indeed seeking to cleanse its corrupt political class, Temer is hardly the right guy to do it. In fact, if markets believe that the Brazilian political situation will stabilize following the Rousseff "coup" as she calls it, we would be sellers for one simple reason. As AP puts it, the man who may become Brazil's next president is almost as unpopular as the leader facing impeachment now, and stained by scandals of his own.

Just like in technocratic Europe, where unelected politicians are thrust upon the public to quietly transfer wealth, Vice President Michel Temer, who hasn't won an election on his own in a decade, is famed as a backstage wheeler-dealer, and his critics say he's leading the plot to replace his boss, embattled President Dilma Rousseff.  

And with Temer now the acting president, the AP frames the big question as follows: can he avoid ouster himself.

Among his documented transgressions, he signed off on some of the allegedly illegal budget measures that led to the impeachment drive against Rousseff and has been implicated, though never charged, in several corruption investigations.

The son of Lebanese immigrants, Temer is one of the country's least popular politicians but has managed to climb his way to the top, in large part by building close relationships with fellow politicians as leader of the large but fractured Brazilian Democratic Movement Party.

Think Frank Underwood.

 

While the 75-year-old's reserved manner has earned him the nickname of "butler," he is not without flash. His wife is 32-year-old Marcela Temer, an ex-beauty pageant contestant who tattooed Temer's name on her neck.

 

Allies, such as former Rio de Janeiro Gov. Wellington Moreira Franco, say Temer's ability to cut deals will help him unify the country at a time when deep polarization has exacerbated the worst crisis to face Latin America's largest economy since the 1930s.  "Michel is a man of common sense," Franco told The Associated Press. "He never wanted to be in this position, but he feels someone needs to end the division soon."

We wonder how much it cost Temer to buy this "admission" from his friend.

Meanwhile critics, and there are many, say Temer is anything but a statesman simply looking out for the future of his nation.

"Captain of the coup," former Finance Minister Ciro Gomes called Temer, using the term used by Rousseff to describe the impeachment process."

If (Temer) becomes president, I will campaign for his impeachment the next day," Gomes recently told reporters.

While Rousseff and Temer have long had a frosty relationship, their political alliance formally ruptured last week when Rousseff publicly accused him of plotting against her. Temer has said he won't address the impeachment matter until the Senate decides.

And amid months of political maneuvering on all sides, one incident involving Temer stands out as bizarre: a 13-minute audio of him rehearsing an inauguration speech days before the impeachment vote. Temer said it was "accidently leaked," though detractors say more likely it was done to gauge public sentiment.

As president, Temer would inherit a long list of problems. The economy is expected to contract by nearly 4 percent, the Zika virus has ravaged poor northeastern states, and sharp budget cuts combined with political instability are fueling worries about the country's readiness to host the Summer Olympics in August. Just earlier this week, a famous Brazilian football player urged people not to come to the Olympics or risk bodily harm, even death.

* * *

Whether the Rio Olympics in just over two months are a disaster or not, however, one thing is certain - for months, the business community has been hoping that Temer would take over from the leftist Rousseff. But whether he'll have the ability or appetite to take on major reforms, such as overhauling a costly pension system, is unclear.

"I think that Temer is not going to be able to govern if he assumes the presidency," said Jandira Feghali, a Rousseff ally and Brazilian Communist Party representative, arguing that Temer won't have legitimacy without a presidential election.

Like some 60 percent of Congress' 594 members, Temer faces allegations of corruption, including in the massive kickback scheme at the state oil company Petrobras. In a recent plea bargain by a key senator, Temer was accused of supporting one of the company's former directors involved in overpricing contracts for bribes. Investigators suspect the payments went to Temer and his party.

The vice president has also been accused of involvement in an illegal ethanol-purchasing scheme and of being on a list of secret payments made by constructor Camargo Correa, presumably for contract favors. Temer has denied wrongdoing.

As an elected official, he enjoys a high level of immunity; only the country's highest court can decide to try him. A respected constitutional scholar, Temer got into politics in the 1960s. His first government job was in the education department for Sao Paulo, Brazil's most populous state.

He worked during the administration of Gov. Adhemar de Barros, whose management style was described by many Sao Paulo residents as "steal but get things done."

But Temer's biggest problem is that at the end of the day, he is just as unpopular as Rousseff, if not more:

In 2006, the last time he ran for an election on his own, Temer was one of the least voted-for deputies from Sao Paulo. Still, because his party was crucial in the governing coalition, he became speaker a third time in 2009 and was Rousseff's running mate in the 2010 and again in 2014.

 

Only 2 percent of Brazilians said they'd vote for him for president in 2018, according to a recent nationwide poll by Datafolha. The April 9 poll also found that 58 percent of Brazilians would want him impeached if he takes over for Rousseff. The margin of error was 2 percentage points, and 2,779 people were interviewed in 170 cities.

 

"If he goes out and says he won't run for re-election, he'll be given the status of a statesman," said Marcos Troyjo, a professor at Columbia University's School of International & Public Affairs. "That would give his government a grace period."

So has the market once again gotten ahead of itself by soaring nearly 50% since the start of the year on hopes that Temer will "fix" things? Absolutely. Which is why there may have never been a clearer case of selling the news.

And while we wait for the algos to realize just how truly devastated Brazil's depressionary economy is, here are another gratuitous photo of Michel "Butler" Temer's 32-year-old wife, Marcela.

 

... and her sister, Fernanda Tedeshi, captured here during her time as a Playboy model.