Brazil Political Anylisis – What happened in 2017 and What to expect in 2018

MJAB 15.12.17

Brazil is enduring a long period of political and economic crisis, which
has consolidated the second presidential impeachment in less than 25 years.
In 2017, the latest President to take office was faced with the
possibility of being ousted. In less than 6 months, the President was
twice charged with obstruction of justice and with being part of a criminal
conspiracy that involved a kickback scheme. The General Prosecutor’s Office
sent these Requests for Proceedings to the Chamber of Deputies (SIPs 1 and
2/2017) and to the Superior Electoral Court, where they were processed and
shelved after a great effort of political negotiation with the Government’s
congressional base.
In parallel, the country suffers historic unemployment rate and the
highest Presidential popular rejection.
Despite this scenario, the Government approved relevant tight economic
measures, which are starting to show small signs of progress. As far as
market liquidity, the Government made available deposits from a mandatory
unemployment fund (FGTS); sped up the timing of payments between credit
card companies and retailers; and facilitated access to subsidized credit
of the National Bank for Economic and Social Development (BNDES) to SMEs.
In addition, tax programs were approved to enable tax payers to pay
their debts in installments.
It is also worth noting the success of the oil and gas bidding rounds,
which was contemplated with 32 contender companies, 6 of which had never
took part in these auctions. It resulted in a collection of $ 3.8 billion
reais to the Government.
The political agenda was also highlighted by structural reforms with the
Labor Law Reform. Now the Pension Fund Reform is on the dockets as the
highest governmental priority. The Speaker of the House has also hinted
that the following are on the pipeline: a Health Plan Reform,
privatizations and a new regulatory regime for the pre-salt to incorporate
the concession model.

At this point, the implementation of governmental measures and the
effective solution of the political and economic crisis are uncertain,
especially since they depend on some decisive factors.
The first aspect to consider is the ability of the Government gather the
votes and to recover the loyalty of allied parties, especially PSDB, PP
and others that form the so-called “Centrão”, important group that has
shown little adherence to the President Temer’s priorities. According to
their response, it will be possible to assess the likelihood of approving
the Pension Reform, as well as specific fiscal adjustment measures
necessary to lead to the recovery of the economy and full governability.
Another relevant fact is how the parties will position themselves in the
first months of 2018, an electoral year that significantly affects the
decision-making process, whether due to the possible fall in political
productivity (as politicians need a closer contact with their constituents)
or to the fact that candidates tend to avoid unpopular votes. Not to
mention the uncertainty of the elections, considering that the trend of
confirmation in favor of one or another presidential candidate is likely
to have different effects on business decisions with reflects on the
Another element that must be taken into account is the Car-Wash Operation
and its unfolding. Being pragmatic, as far as the decision-making and
governmental agendas, it is a matter of verifying the accusations against
political actors and their repercussion on the agenda. It is likely to
have an impact on the decision-making process timing and content.
At the moment, these are the main elements to be closely monitored over
the coming months, with a view to reducing the instability and
unpredictability of the agenda and the measures to be taken by the