Imagine this: two impeachments in one year. It’s a long shot, but it could happen to Brazilian president Michel Temer, the beleaguered ex-vice to Dilma Rousseff, the country’s first lady president, and the second to be forced out of office since democratic rule in the early 1980s. Brazil apparently likes to do things in two’s, so history is our guide, Temer could ultimately step down. In this worst case scenario for Brazil, what happens to the blockbuster economic reforms the unpopular Temer government is overseeing now in congress?
Jens Nystedt, a senior portfolio manager for Morgan Stanley Investment gives the odds of pension reform passing under two scenarios.
“If Temer stays, then the odds of pension reform passing is maybe 20-30% according to the market. It will be even more diluted than it already is,” he says. “If Temer steps down or is asked to resign, then the market take is that the probability of reform actually goes up…say 75%,” he says. “Social security reform has surely not become more popular over the last few weeks in congress, but the underlying reason to support it hasn’t changed. At the margin, it will be more costly for the federal government because congress will ask for more incentives from the president to convince them to approve the law.”
With Temer gone, they might get those incentives, which means things like aid to their state, or federal approval for pet projects back home. …