Brazil’s Timorous Temer Transfer
Brazilian stocks extended their 30 percent MSCI topping climb as the House handily reached the two-thirds majority to recommend President Rousseff’s impeachment on budget manipulation grounds, setting the stage for her defense and Senate consideration up to a six-month period while Vice President Temer occupies the post. She labeled the action a coup and called Workers party members into the streets for support, and visited New York in an attempt to mobilize UN outrage against the “undemocratic” push. Temer’s PMDB party had already left the ruling coalition and he reportedly sent feelers to well-known past economic policymakers about serving in the interim administration under a business-friendly platform. The opposition PSDB associated with a free-market approach initially spurned the advances, but the presumed President-to-be, himself still facing criminal investigation, has vowed a “national unity regime. Commodities and the currency likewise strengthened in March, with the real above 4/dollar as the central bank intervened to curb further pressure and inflation moderated to projected high single digits with the depreciation trend pause. The fiscal deficit at 10 percent and public debt toward 70 percent of GDP remain stubborn in contrast with states, including Rio soon to host the Summer Olympics, getting debt relief in the form of 20-year longer maturity and 40 percent reduced monthly installments. Governors have appealed to the Supreme Court for additional savings by arguing they should pay simple rather than compound interest which could entail another $90 billion in lost revenue. Banks have thus far been spared major crisis fallout but the courts have also ruled they must compensate depositors for miscalculations during the hyperinflation era decades ago. However creditors may soon be stung by a spate of high-profile corporate bankruptcies in a wide industry range, including the $15 billion default by airline Oi, which has far-flung operations and foreign bondholders trying to organize as a single committee. They will test new Brazilian insolvency procedures as the offshore market has yet to reopen with the continuing travails of bellwether quasi-sovereign borrower Petrobras. Finance Minister Barbosa made the rounds of the Inter-American Development banks and IMF-World bank meetings with an air of reassurance pension and social security spending would finally be pared, but investors were skeptical of any near-term dramatic shift amid deepening recession with output due to drop 4 percent.
Mexico was dragged into the pension mess as the government agreed to assume Pemex liabilities under the private participation transition plan, which factored into a Moody’s negative outlook downgrade on fiscal consolidation delay. First quarter GDP growth was 2.5 percent, with slack industrial production countering good car and retail sales. Inflation is around the same level, and the central bank is expected to stay on hold with the US Federal Reserve. Pemex’s chief executive toured the US to drum up interest after an estimated $30 billion loss last year, but joint venture partners are wary until the global oil price stabilizes and bond investors await asset sales to burnish the balance sheet. Finance Minister Videgary was on the road show after his reputation was tarnished by a suspect property deal as President Pena Nieto’s team struggles to solidify anti-corruption and drug credentials, with missing university students allegedly impeached at the sad source.
