esidents of Brazil’s biggest city, São Paulo, had bigger things on their minds late on Wednesday than the news that opposition politicians had begunimpeachment proceedings against President Dilma Rousseff.
Palmeiras, the São Paulo-based football club, beat Santos, the port city team, in the Brazil Cup, sending supporters on to the streets honking car horns and exploding firecrackers into the small hours.
But even those with the worst hangovers would have perceived that something had changed in Latin America’s largest country when they emerged from their beds on Thursday morning (or afternoon).
Brazil’s politicians, rather than uniting to rescue an economy that was already in freefall, have opted to plunge the country into further uncertainty by starting what promises to be a long and possibly inconclusive impeachment process. The political class is fiddling while Brazil burns.
The merits of the impeachment process are a matter of hot debate in Brazil. The opposition parties led by the pro-business PSDB argue that Ms Rousseff fiddled the public accounts to produce politically more acceptable budget deficits, violating a law that requires the government to be fiscally responsible. Supporters of Ms Rousseff’s left-leaning ruling Workers’ party, or PT, for their part, argue that this is not sufficient grounds to start an impeachment process.
Whatever the technical arguments, however, an impeachment in Brazil is essentially a political process. With the economy shrinking 4.5 per cent year on year in the third quarter and unemployment rising fast, Ms Rousseff has record low approval ratings and is vulnerable to impeachment.
The problem with the current process, however, is its author — Eduardo Cunha, the leader of the lower house of Congress. He is said to have launched the process now because Ms Rousseff’s PT did not support him against efforts to remove him from Congress over allegations he was involved in corruption related to state-owned oil company Petrobras.
While he has denied any wrongdoing, analysts believe his ousting as congressional head is all but inevitable, with Swiss authorities transferring a criminal case against him for alleged money laundering and bribery to Brazil. His backing for the impeachment process therefore undermines its credibility.
Worse, the launch of the process near the end of the year threatens to prolong any impeachment at a time when Brazilian policymakers need political certainty so that they can focus on stabilising the economy.
The process will start with a special all-party committee that will hold 15 sessions to formulate its opinion on the impeachment request. The matter will then go to a vote in the lower house, with two-thirds needed to elevate it to the Senate, which will then spend six months on a formal inquiry. At the end of this period, the Senate votes. A two-thirds majority would be needed for the president to be removed.
With Brazil’s Congress due to go into recess later this month until after carnival in February, the impeachment question is unlikely to be resolved until some time next year.
Meanwhile, Ms Rousseff, who has been trying to stabilise the economy by implementing an austerity programme against the wishes of many in her own PT, will be tempted to lean further to the left and abandon some fiscal discipline to convince her party to support her in any impeachment vote.
This means that much-needed fiscal reform in Brazil could stall, leading to a rise in the country’s public debt and opening the way for rating agencies Fitch and Moody’s, to follow the lead of Standard & Poor’s and downgrade Latin America’s biggest economy to junk.
Although Brazil’s debt is low by European standards at 66 per cent of gross domestic product as of September, the country has some of the highest interest rates of any large economy. Worse, the public debt is soaring on the back of Ms Rousseff’s inability to implement the full fiscal programme because of the chaos in Congress.
Santander warned that public debt could hit 75 per cent at the end of next year and almost 90 per cent in 2019 if nothing was done.
Some argue that a quick impeachment of Ms Rousseff and the installation of a new pro-business leader would be all the country needed to find its feet again. But whatever the merits of an impeachment, the priority should be on getting the process done quickly and without the interference of anyone involved in corruption allegations.
Otherwise the impeachment process risks bogging down Brazil further, extending its crisis and further alienating voters who are already more interested in football than politics.