It seems as though Brazil can’t get through a single day without some piece of political news or economic data creating confusion and turmoil.
Last weekend, millions of Brazilians took to the streets to call for the ouster of President Dilma Rousseff whose political career and legacy hang in the balance.
An impeachment bid tied to allegations she cooked the fiscal books in 2014 looms large and when the ever-expanding car wash probe ensnared former President (and Rousseff mentor) Luiz Inácio Lula da Silva, some assumed it was just a matter of time before Dilma buckled under the pressure.
But Rousseff had other plans.
Just as a Sao Paulo state judge said a decision on Lula’s arrest should fall to federal judge Sergio Moro, Dilma offered Lula a ministry position. In his new position, he plans to revive the flagging economy with what the market assumes will be a series of leftist policies. That explains why the BRL retraced all of the gains it posted when Lula was first detained.
Of course Lula himself denies that he would pursue policies that may harm the country's fiscal position. According to Valor, Lula’s plans wouldn’t include a shift to the left. Nor would they include expanding credit. Or rate cuts. Or tapping Brazil’s FX reserves. Or social security reform. In short, it isn’t exactly clear what they would include but whatever the case, “investors see risk of government resorting to an economic policy shift in a last-ditch attempt to save President Rousseff’s mandate,” Luciano Rostagno, chief strategist at Banco Mizuho do Brasil told Bloomberg in a phone interview.
And it’s not just investors that are unnerved.
BCB President Alexandre Tombini is reportedly “giving signs” that he may resign. “The possible nomination of Lula points to deep economic policy changes, with repercussions in monetary policy and FX policy,” Valor reported on Wednesday, explaining Tombini’s reservations about Lula’s new post. The BCB chief worries Lula may tap FX reserves and put pressure on Tombini to cut rates, Valor continues, without citing sources.
Needless to say, this is all weighing heavily on the BRL:
Meanwhile, Senator Delcídio do Amaral - whose arrest in November unnerved markets and suggested sitting lawmakers are not in fact immune from investigation - copped a plea-bargain and gave testimony which indicates that Rousseff knew of and tried to cover up bribery at Petrobras.
"According to the plea documents released Tuesday, Ms. Rousseff was aware of all the details of the 2006 purchase of an oil refinery in Pasadena, Texas. Prosecutors suspect Petrobras used the refinery deal to generate funds it allegedly used to pay for millions of dollars of bribes and personally benefit some Petrobras executives, according to the documents," WSJ recounts, adding that "Mr. do Amaral also alleged Ms. Rousseff pressured Justice Minister José Eduardo Cardozo to free jailed suspects caught up in the graft probe, according to the documents. Mr. Cardozo left his post in late February, saying he was weary of 'political and personal pressure,' without being more specific."
Amaral also says Rousseff's former chief of staff and current Education Minister, Aloizio Mercadante tried to pay for his silence, allegations which Brazilian weekly Veja says it can prove via tape recordings. Lula is also implicated in the testimony.
According to the latest, Lula is set to become Rousseff's Chief of Staff.
As you can see, this is a veritable circus. Throw in the fact that Lower House Speaker Eduardo Cuhna, the ringleader of the bid to impeach Rousseff, is himself facing impeachment for hiding Swiss bank accounts, and you have a political dynamic that is just about as poisonous as one could possibly imagine.
We wish Brazil's beleaguered populace the best of luck in tossing the whole lot of them, because unless and until someone cleans house, the economic malaise is going to continue and the BRL will never have any lasting respite.
But not everyone is worried...