The drawn-out political drama over the ouster of President Dilma Rousseff of Brazil has sent local stocks reeling and recovering again and again. On May 9, investors, who’d already factored in a transition period under Vice President Michel Temer, were spooked when the impeachment process was briefly put into doubt by a legislative maneuver. After that was ironed out, the march toward Rousseff’s trial and likely removal from office pressed on, and stocks and the Brazilian currency rallied. Brazil's Senate voted to suspend Rousseff from office early Thursday.
With political gridlock paralyzing the nation’s capital since last year, corporate Brazil has been living with uncertainty—and that’s been bad for business. Although executives have been reluctant to take sides publicly in the debate over the charges against Rousseff (using state-run banks to cover up a budget gap, an alleged breach of a fiscal responsibility law), they’ve bemoaned the lack of clear governmental policies. Bureaucrats have been sitting on their hands as Rousseff’s government and the country’s lawmakers ran from ring to ring in the impeachment circus. “If you hear absolutely nothing from the president regarding what concerns us the most, which is a year and a half of the economy at a halt, it becomes clear that she has no solution to present to us,” says Antônio Emílio Fugazza, chief financial officer at homebuilder Eztec Empreendimentos e Participações.
At the top of the corporate list of concerns are tax and labor reforms that executives say will help them hire and invest more. There are also more specific measures that affect industries from telecom to auto manufacturing. Oi, the struggling phone carrier, has been waiting for months for an overhaul in regulation that would free it from investing in outdated, money-losing fixed phone lines. The proposal has been stuck between the communications ministry and Anatel, the industry’s governing body, which says it needs more study.
Automakers saw car sales fall about 28 percent for the first four months of 2016 from a year earlier, on top of a 27 percent full-year drop in 2015. They’ve been waiting since last year for the government to sign a plan to give consumers incentives such as rebates to upgrade their vehicles.
If Temer does step into a caretaker president role, his long experience in Brasília should ensure he has the clout to quickly address the crisis of economic growth, according to Antônio Delfim Netto, a former finance minister and longtime economic adviser to top Brazilian politicians. The vice president is expected to enact more business-friendly policies than Rousseff, whose Workers’ Party has resisted measures that could sacrifice protections for labor. Temer is likely to replace current Finance Minister Nelson Barbosa, the third such change in the post in 18 months. “The people that are coming in know what needs to be done, and they know it needs to be done quickly,” says Paulo Bilyk, chief investment officer at Rio Bravo Investimentos.
Sérgio Fischer, chief executive officer of Log Commercial Properties, a real estate company based in Belo Horizonte, says there are indications that business will pick up once Temer steps in. “I’m already feeling it,” he says. “We’ve been getting requests, big ones, from companies who are already considering a better scenario in the future.”
Once her impeachment trial begins, Rousseff must temporarily step down. The Senate has almost six months to make a final ruling. If a two-thirds majority votes against her, Temer would continue as president until 2018.
For now, Temer says he wants to use his interim mandate to ease rules on government procurement and give the private sector a bigger role in the oil industry. His plans to eliminate a third of ministries are being scaled back, and tax increases have been ruled out for the time being, according to two Temer aides, who asked not to be identified because the discussions aren’t public.
Brazil will eventually need to deal with longer-term structural issues. Its corporate tax rate is 34 percent, among the highest in the world. And its labor laws are notoriously restrictive, with enforced working hour limits and a 30 percent extra payment for vacation time. “It stifles any entrepreneurship,” says Fernando Simões, CEO of JSL, a cargo transportation and logistics company. “It ends up hurting the worker himself, since you think twice about hiring anybody.”
Temer has other challenges. He’s almost as unpopular with the masses as Rousseff, and the scandal that’s sinking her administration over Petrobras, the national oil company, has ensnared some of his allies. If his reforms are seen as harmful to the poor, he may provoke demonstrations and protests.
—With Anna Edgerton, Arnaldo Galvao, and Cristiane Lucchesi
The bottom line: Companies have been stalled as the Rousseff impeachment paralyzes the Brazilian government and important reforms.