With Carnival Over, Brazil Braces for the ‘End of the World’

BloombergBrazil’s unpopular and unelected president, Michel Temer, has done much to pave the way for recovery in Latin America’s largest economy. Yet with his inner circle crumbling and support in Congress wavering, an ambitious reform agenda now looks like a tall order.

After losing half a dozen cabinet members in his first six months in office, Temer’s foreign minister has departed and his chief of staff’s future in government remains uncertain. At the same time, part of his party in Congress has rebelled in a struggle for power. Neither bodes well for the passage of a pension bill requiring Brazilians to work longer.

Since taking office in May, Temer has won praise for privatizing swathes of Brazil’s infrastructure and opening up its oil fields to foreign companies. His administration also steered a controversial spending cap bill through Congress, helping to strengthen the real. The stock market is up 72 percent in dollar terms over the past year. But failure to defuse the pension time bomb would nullify the government’s earlier achievements and pave the way for a widespread asset selloff.

Complicating the political scenario is the imminent publication of the so-called “end of the world” plea bargain testimony from Odebrecht executives involved in the Carwash corruption scandal. Analysts expect politicians from all of Brazil’s major parties to be implicated.

“The market today is not pricing the risk from this troubled political environment correctly,” said Rafael Cortez from Tendencias Consultoria. “The situation is very delicate.” …



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