Impeachment path fraught with risk for Brazil

OREANDA-NEWS. December 04, 2015. Last night launch of impeachment proceedings threatens to oust Brazilian president Dilma Rousseff, opening a long and uncertain process that will further cripple the commodities-based economy and undermine the investment climate.

The tense process is an indirect outgrowth of investigations into years of systemic corruption at state-controlled oil company Petrobras.

Last night, Eduardo Cunha, the influential president of Brazil's lower congressional house, announced he had accepted one of more than 20 impeachment requests submitted to the lower house this year.

The request, made by a team of Brazilian lawyers, claims Rousseff violated fiscal responsibility laws in 2014 and 2015 by using state banks to cover government spending, an offense that was confirmed by the Brazilian court of auditors TCU in October.

The political bombshell dropped just hours after the populist ruling Workers Party (PT) abandoned Cunha in his push to quash a congressional investigation into corruption claims against him.

Cunha, from Brazil's PT-allied Democratic Movement Party (PMDB), allegedly received hefty bribes from dealings with Petrobras, claims that are currently under investigation by federal prosecutors in Brazil and Switzerland. Cunha denies the claims.

In a nationally broadcast speech last night, Rousseff denied any wrongdoing as well.

"I've committed no illicit act, there is no suspicion hanging over me of any misuse of public money. I don't have any offshore bank accounts, I have no hidden assets," a swipe at the allegations dogging Cunha.

Rousseff, who won re-election in October 2014 in a tight race, chaired Petrobras in 2003-10 and served as energy minister from 2003-05.

The lower house meets today to establish a 66-member special cross-party committee that will review the impeachment request. The committee has five technical sessions after receiving Rousseff's defense to consider and vote on the allegations against her. The sessions cannot take place during the congressional recess from 22 December to 2 February, suggesting that the process could drag on well into 2016.

If accepted by the committee, as seems likely, the request goes to a vote in the fractious lower house, where it must pass by a two-thirds vote of the 513 representatives.

If passed in the lower house, the vote goes to the Brazilian senate. Rousseff would step down and vice president Michel Temer, another PMDB member, would step in while the senate deliberates.

The senate must approve the impeachment by a two-thirds vote, or 54 of the 81 current members. If the senate debate exceeds 180 days, Rousseff would resume office until a vote is taken.

The whole process could be short-circuited if Brazil?s electoral court determines that Rousseff and Temer?s 2014 campaign was funded illegally, with money allegedly siphoned off of Petrobras.

The PT and PMDB are alleged to be the main beneficiaries of a scheme that diverted billions of dollars from inflated Petrobras contracts.

The scandal and the political standoff in Brasilia have weighed heavily on Brazil's economy, which contracted year-on-year by 4.5pc in the third quarter.

Petrobras has scaled back its growth plans anchored on the country?s extensive sub-salt oil and natural gas reserves. The company is seeking to sell more than \\$15bn in assets by the end of next year.

Foreign oil companies eventually stand to gain from the retrenchment of Petrobras, if they can withstand the unpredictable short-term path.

Yesterday Shell said it is on track to ramp up production at its Parque das Conchas offshore complex in early 2016, signaling that its long-term investment plans remain intact on the eve of its takeover of the UK?s BG that will make the European major Brazil?s largest producer behind Petrobras.

In 1992, president Fernando Collor de Mello was subjected to impeachment proceedings, but resigned before the senate could approve his removal. Collor, now a senator from the northern state of Alagoas, is now under investigation for receiving bribes from Petrobras.