IHS Markit perspective
Outlook and implications
- Several parties within the ruling coalition are manoeuvring to remove President Michel Temer and replace him with the speaker of the Lower House, Rodrigo Maia.
- The business sector and the media groups that until now had supported Temer are also in favour of the move, driven by concerns that the president no longer commands sufficient political clout to effectively set policy.
- Temer's departure no longer is perceived as highly destabilising by financial markets, which now see Maia as a credible leader who supports economic reforms and enjoys solid support in the Lower House.
Government and policy instability; Regulatory risks
Sectors or assets
On 7 July, the leader of the Brazilian Social Democracy Party (Partido da Social Democracia Brasileira: PSDB) in the Lower House, Ricardo Tripoli, said that it was becoming untenable for the party to continue supporting the government of President Michel Temer. His comments followed those of the interim president of the PSDB, Tasso Jereissati, on 6 July; in which he claimed that Brazil under Temer had become "ungovernable". Temer is contesting charges of corruption, brought by Prosecutor General Rodrigo Janot, with the Lower House to vote on whether he should be tried for criminal offences.
According to Brazilian media, Temer is rapidly losing the confidence of his allies in Congress, including the PSDB, to the degree that they are now discussing a plan to replace him with Rodrigo Maia, the speaker of the Lower House and member of the Democrats (Democratas: DEM) party. Maia, who has hitherto been supportive of Temer, is the next in line for the presidency.
CCJ vote crucial
Rodrigo Maia, Brazil's Lower House speaker, from left, Geraldo Alckmin, governor of São Paulo, Michel Temer, president of Brazil, and Aloysio Nunes Ferreira, Brazil's foreign affairs minister, sit on stage during the Brazil Investment Forum 2017 in São Paulo, Brazil, on 30 May 2017.
There are indications that Temer is struggling to secure the 34 votes needed to reject the charges against him in the 60-strong Constitution and Justice Committee (CCJ), which is meeting this week. The final decision to levy charges rests with the House plenary, which will most likely meet in August, but if Temer loses the vote in the CCJ it would portray him as weak and most likely would trigger mass desertions. Temer has denied the allegations made against him and has refused to resign. However, the protracted battle with the prosecutor general is impairing his ability to keep his crucial labour and pension reform proposals on track. This is because the president is prioritising efforts aimed at his political survival, a situation that is distracting his attention from the labour and pension reforms. Several senators of the government base have also reneged on their promise to vote in favour of the labour reform, which faces a vote on 11 July. The latest indications suggest that the vote on the bill will be very close. This indicates that Temer is becoming a liability, and allies are now questioning whether it is worth supporting him (the PSDB, for example, wants to nominate a candidate for the 2018 presidential election and risks losing support if it continues supporting Temer). Until two weeks ago the approval of the reform, for which a simple majority is required, was a foregone conclusion.
According to media sources, the DEM and the PSDB are holding negotiations to put Maia in office, but for this to happen, Temer would need to resign. Temer could also be temporarily be removed from office if the Lower House approves the criminal charges made against him (two-thirds of the vote are needed); should that happen, Maia would become interim president. He would need to call an indirect election, where Congress would choose the next president, within 30 days if Temer is declared guilty. In such election, Maia is the favourite of the Lower House, most likely resulting in him formally becoming president until January 2019.
Maia acting as president in waiting
Maia's comments made to the media suggest he is already positioning himself as an alternative to Temer. On 6 July, he told journalists that no matter what happened with Temer, it was paramount that the labour and pension reforms remain on track. According to Valor Econômico, Maia made clear that the current economic team, led by highly respected finance minister Henrique Meirelles, would be maintained if he becomes president. The business community sees Maia, who has long been committed to the economic reforms, as better placed than Temer to get them through Congress.
Outlook and implications
The growing support for Maia both in Congress and in the business community points to a significant shift in Brazil's political dynamics. It appears that the potential departure of Temer no longer is perceived by Brazil's private sector as a major disaster that would derail the pro-business agenda he had promoted. The imminent loss of the PSDB's support has imperilled Temer even further, with most of PSDB leaders now admitting that their party's association with Temer is harming their aspirations of gaining office in the 2018 presidential election. All of this markedly increases the likelihood of Temer's removal from office. Maia appears now as the best-placed person to guarantee a relatively smooth transition and to keep economic reforms on track. However, against Maia counts the fact that he has little experience in government, as well as the fact that his name has been linked to the Lava Jato corruption investigation. The probable emergence of new corruption scandals involving the entire Brazilian political class, including Maia or any other politician that ends up replacing Temer, is likely to hamper the ability of any government to implement policy effectively. Under a scenario of Maia's presidency there is still the possibility that a diluted version of a pension reform would be passed. As such, most of the bulk of the reform would be left to the next government elected in October 2018.