Impeachment would send Brazil into 'uncharted territory'

Dilma Rousseff
Dilma Rousseff | Shutterstock

If initiatives in Brazil toward an impeachment of President Dilma Rousseff succeed, the country would enter an “uncharted territory,” Shelly Shetty, the primary analyst for Brazil at Fitch Ratings, said today during a teleconference to discuss a rating downgrade.

There are “considerable uncertainties regarding the impeachment and the feasibility of the impeachment” Shetty said during a call held one day after Fitch reduced the country´s long-term Issuer Default Ratings to “BBB-“ from “BBB,” keeping the outlook negative.

“If the impeachment does proceed, and that is a big if,” this would mean that “we would be entering into a fairly uncharted territory” in Brazil, she added.

The possibilities for an impeachment for a leader with an approval smaller than 10 percent “have increased since our last review in April, but is still not part of our base case,” she said.

The political outlook already assessed by the rating agency, however, is in part “capturing the uncertainty” that exists in the country and  in part related to the impeachment initiatives.

“Events in recent days have demonstrated uncertainties in that scenario,” Shetty added.

The comments came after the country´s federal account court ruled on Oct. 8 that the Rousseff government manipulated accounts last year to hide a fiscal deficit while she was seeking re-election.

Opposition legislators have shown an interest to impeach Rousseff, the first female president of Brazil. She is not scheduled to leave office until 2018.

Earlier this week, the country´s supreme court issued a decision that stopped some opposition efforts to move with an impeachment, but other initiatives continue.  Bolivian President Evo Morales and Venezuelan President Nicolas Maduro have said they think Rousseff is facing nothing but “coup” attempts.

“The longer the process, the longer the uncertainties are likely to be,” Shetty added, saying that if the impeachment process actually happens it could have negative rating implications as the situation could worsen during the process.

Following the downgrade of Brazil by one notch, the rating for Brazil is currently one notch below Colombia and Panama, and two notches below Peru. It is at the same level as Indonesia.

Weak confidence levels, continued uncertainties, negative impact on revenues and a further deterioration of the fiscal deficit are anticipated, along with a worsening economic performance that was projected just a few months ago, she said.

The reduced presidential popularity, rising unemployment and the expanded Petrobras investigation complicate the situation, she added.

Keeping an investment grade on the country was justified, however, as Brazil has a favorable debt composition with a relatively small percentage of debt in foreign currency.

“The (country's) Treasury still has cash to withstand volatility,” she said. There is also a certain level of economic diversity, and there have been some positive results of government actions like for example the “current account deficit has gone down so far in the year."

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