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Why Rousseff’s impeachment may be good for Brazil

Brazil's Congress launched impeachment proceedings against the country's president, Dilma Rousseff, late on Wednesday, as the economic and political turmoil worsens in Latin America's biggest economy.

Lower house speaker, Eduardo Cunha, finally agreed to open proceedings against Rousseff, who is accused of manipulating government finances to get re-elected last year.

Rousseff slammed the move, for which she said there was no legal justification.

"My present and my past vouch for my honesty and my unquestionable commitment to the law," Rousseff said in a televised address, according to the Wall Street Journal.

The impeachment proceedings began when Cunha's party, the centrist Democratic Movement Party (PMBD), broke ties with Rousseff's center-left Workers Party (PT) in September.

Cunha said he had rejected most of the 34 previous impeachment requests as they happened before Rousseff's current mandate in 2014. The petition he did accept included accusations covering 2015 and was filed by several jurists, including Helio Bicudo, one of the PT's founders.

Dilma Rousseff, president of Brazil
Ueslei Marcelino | Reuters
Dilma Rousseff, president of Brazil

Will the impeachment go ahead?

Not necessarily, as the PT party has said it will appeal to the Supreme Court if Rousseff were impeached.

In addition, Cunha is under investigation for allegedly accepting bribes and holding undeclared offshore accounts as part of the sprawling Petrobras graft scandal. His mandate is threatened by a decision of the Ethics Committee to be made next Tuesday.

"If the Committee votes to remove him from the position, it is unclear if the impeachment process would have traction to continue moving forward. In addition, the speaker said that the impeachment request due to be filed will cover only 2015 fiscal accounts, which have not being analyzed by the Audit Court and are far from being approved or rejected by the Congress, as the year has not yet ended," Bruno Rovai, an economist at Barclays, said in a report on Wednesday.

Cunha is one of several senior politicians under investigation as part of the "Operation Car Wash" into Petrobras. Ongoing arrests means there is uncertainty over which of Rousseff's supporters and detractors will be eligible to take part in a final House vote on her impeachment.

"Nothing guarantees that the Car Wash developments will… not change the configuration of Congress, as shown by the arrest of Senator Amaral last week, increasing the uncertainty of the process," Rovai said.

Would Brazil do better without Rousseff?

Brazil is mired in a deep recession and lack of congressional support for Rousseff means she is struggling to push through cuts to inflated government spending.

"President Rousseff's ability to govern is fairly low and this puts the relationship between the Executive and Legislative branches in a fairly detrimental position," Rovai said.

On Thursday, Brazilian official statistics showed industrial production fell in October, down by 0.7 percent from the previous month and 11.2 percent from a year earlier.

Earlier in the week, the country posted a record 4.5 percent year-on-year drop in gross domestic product (GDP) in the third quarter. Economists at BNP Paribas forecast the economy will shrink by nearly 4 percent in 2016 as well, as households, companies and the government (at a slower rate) continue to cut expenditure.


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However, it is unclear that Vice President Michel Temer, who would be next in line for the presidency if Rousseff were impeached, would enjoy broader support, allowing him to push through economic reforms.

"The current lethargy would likely be maintained, with a persistence of the uncertainty on the political and economic fronts. This is not to mention the instability and volatility that would probably occur between the House voting for an impeachment and Rousseff actually losing her position," Rovai said.

Longer-term, Brazil's prospects could improve if a new government is voted into power in the next elections, scheduled for 2018.

"Brazil is a democracy. If Brazilians don't like the current situation, they know what they must do," Eduardo Yuki, head of investment solutions at BNP Paribas Asset Management in Sao Paulo, said at a conference on Wednesday.

"Once Congress improves, the situation will improve and it could improve very rapidly," he later added.

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