Infighting muddies Brazil transition

OREANDA-NEWS. April 04, 2016. A possible political transition that many investors hope this week?s break-up of Brazil?s governing coalition will expedite is becoming entangled in party infighting.

The Democratic Movement Party (PMDB) abandoned embattled president Dilma Rousseff's coalition on 29 March, but some PMDB cabinet ministers are reluctant to give up their posts.

The historic political crisis, precipitated by a multifaceted corruption scandal centered on state-controlled Petrobras, is weighing on all sectors of Brazil's ailing economy and has pushed the oil company to undertake aggressive cost-cutting measures.

The PMBD?s formal withdrawal of support for Rousseff comes just weeks ahead of a planned impeachment vote over manipulated public finances. The decision was seen as a major blow for Rousseff and increased odds the president would not survive to the end of her second-four year term in 2018.

But the jockeying underway in Bras?lia suggests that a transition will be neither swift nor smooth.

Influential PMDB leader and senate president Renan Calheiros says the party?s decision to abandon the government was premature. Other PMDB leaders say the move was miscalculated.

PMDB ministers, such as mines and energy minister Eduardo Braga and agriculture minister K?tia Abreu, were expected to leave their posts following the party vote. So far only one, tourism minister Henrique Alves, of PMDB's seven cabinet members have resigned.

Abreu has said she will not leave and is considering defecting to another party in Rousseff's coalition. Braga has remained mum.

Rousseff is now courting smaller coalition partners that could replace PMDB cabinet members to bolster support.

Rousseff's Workers Party (PT) and the PMDB are alleged to have been the main beneficiaries of a massive kickback scheme that diverted billions from Petrobras.

The PMDB?s ambivalence and Rousseff's courting of minority partners reflects the increasing complexity of Brazil's political crisis, even though for most analysts they do not diminish the odds of the president's ouster.

Rousseff needs 172 lower congressional house votes to survive an impeachment vote now planned for 14 April in the fractious 513-member lower house. Her supporters and the opposition each claim to have the upper hand.

If the vote passes in the lower house, Rousseff would be forced to step down and vice president and PMDB leader Michel Temer would take over, while the senate mediates for up to 120 days.

The senate, where Rousseff has traditionally enjoyed more support, could decide to immediately archive the proceedings.

The market has responded positively to the prospect of a Temer presidency, which they see as a pro-business, no-nonsense successor. There is hope among investors that a Temer presidency would resuscitate the oil industry by sanctioning legislation that would lift a requirement that Petrobras hold a minimum 30pc operating stake in sub-salt oil projects.

A version of the bill that would relieve Petrobras of its obligation has already been passed by the senate and is expected to be put to a vote in the lower house by May, the same month Rousseff could be definitively removed from office.

But Temer himself is also facing pressure from the colossal investigation into Petrobras corruption. Rousseff and Temer could be removed from office by the federal electorate court TSE as part of its probe into claims money stolen from Petrobras helped fund their 2014 campaign.

Rousseff is not under investigation and has not been implicated in the Petrobras scandal. She denies any knowledge of corruption at the company, which she chaired between 2003-10.

But new allegations that Rousseff knew of corruption in the suspect 2006 acquisition of the 100,000 b/d Pasadena refinery in Texas have further sullied her image.

The grounds for impeachment relate to alleged manipulation of 2014 federal accounts, which some legal scholars say is not an impeachable offense. The efforts to remove Rousseff have enlivened the PT's base, which have taken to the streets in recent days to prevent what they say amount to a coup attempt.

Rousseff's mentor and successor Luiz In?cio Lula da Silva, known as Lula, has been rallying the party's base in a last-ditch effort to block the impeachment, but his reemergence has also increased pressure on Rousseff.

On 17 March, Rousseff appointed Lula as her chief of staff, a controversial move that gave the popular former president a high degree of judicial immunity.

That appointment has been blocked by the supreme court, but yesterday the same court voted to assume a mounting probe into Lula?s dealings with major Brazilian contractor embroiled in the Petrobras scandal.

The decision is a major setback for the two-year-old Lava Jato investigation, led by high-profile prosecutor federal judge Sergio Moro, who has taken on hero status. The case may still be returned to Moro, but the court's alignment with PT has eroded some of the optimism about Brazil's maturing institutions, seen as the scandal?s silver lining.

Petrobras, also facing lower oil prices, has been most acutely affected by the crisis. In an effort to keep its costly sub-salt projects on track, Petrobras is cutting staff and operational costs.

Today the heavily indebted company announced a voluntary termination program aimed at some 12,000 employees. The plan will cost around R4.4bn (\\$1.22bn), but should generate savings of around R33bn through 2020, Petrobras says. Earlier this week, the company made deep cuts to its non-operational management staff to save around R1.8bn/yr.

At the same time, the company is renegotiating contracts with suppliers in an effort to trim more than 13pc from its operational costs.