Brazil impeachment process begins its long road

Speaker of the House Cunha announced today that he accepted an impeachment request against President Rousseff. According to Cunha, of the 34 impeachment requests received, he rejected 32, as these were based on allegations that occurred in 2014, ie, not within Rousseff's current mandate. He did accept, though, the request from Helio Bicudo, which alleges unlawful acts practiced this year by the president. The request will be filed tonight, according to the speaker (he did not mention the final request).

This event will bring more volatility and uncertainty, rather than alleviate market concerns. President Rousseff's ability to govern is fairly low, and this puts the relationship between the Executive and Legislative branches in a fairly detrimental position. However, several factors make it far from clear that the impeachment process will be approved in the House of Representatives; ultimately, it only adds more noise to the already troubled agenda of the Congress.

Once the acceptance of the impeachment request is published, the speaker of the House will organize an investigation committee to verify the allegations contained in the request and prepare a final petition to be voted by the House floor. It is very unlikely that such a petition will be ready before the Congressional recess starts on December 22. If it is not, the impeachment request can be voted on only by February, and nothing guarantees that the Car Wash developments will, meanwhile, not change the configuration of Congress, as shown by the arrest of Senator Amaral last week, increasing the uncertainty of the process.

The impeachment process is now being carried by the speaker, who is himself entangled in several allegations of bribery and undeclared offshore accounts, and his mandate is threatened by a decision of the Ethics Committee to be made this Tuesday, December 8. If the Committee votes to remove him from the position, it is unclear if the impeachment process would have traction to continue moving forward. In addition, the speaker said that the impeachment request due to be filed will cover only 2015 fiscal accounts, which have not being analyzed by the Audit Court and are far from being approved or rejected by the Congress, as the year has not yet ended.

The PT party declared it will appeal to the Supreme Court against the impeachment process. Given that the justices' positions are unknown, this adds a further layer of uncertainty.

Ultimately, the effect on the fiscal outlook is likely negative, because the political agenda will leave very little space (if any) to discuss and vote on fiscal measures and budget adjustments for next year. The impeachment process should be long, which adds much more uncertainty and political noise throughout the next year, posing downside risks to the forecast of a 2.8% recession in 2016, followed by a 3.8% fall in real GDP this year.