Temer stays, but the Republic will continue to crumble while the judiciary

tries to hold the fort

The rise to power of vice-president Michel Temer in August 2016, after Dilma Rousseff
was impeached, did not put an end to the economic and institutional crisis affecting
Brazil. While it will not get much worse in 2017, the country is unlikely to make a quick
recovery either. Interest rates are to remain high, inflation is steady, and the
unemployment rate is settling at over 11%, indicating that at best we can expect the
economy to stabilize or grow by a percentage point in 2017. This will continue weighing
down on already devastating public accounts, in spite of a recently adopted 20-year cap
on public spending.

The political crisis, which in 2016 seemed to affect mainly the Workers Party (PT),
has spread throughout the political spectrum with widespread corruption charges
against members of Cabinet and Congress. The allegations point to systemic deficiencies
which will be hard to address as long as political elites unite to salvage their grasp on
power. The Judiciary is in a crusade against graft – to the delight of public opinion. But
in doing it has affected the separation of powers and created legal uncertainty, which
might aggravate the ongoing institutional crisis even further in 2017.

Yet, this doomsday scenario will not be enough to catapult Temer from the Alvorada
Palace. Contrary to Dilma, Temer is an expert political waltzer, with deep and
longstanding support from political and economic actors alike. His public approval is
still very low, but grassroots organizations are more divided than they were throughout
the impeachment process. Unless the economic situation takes a further plunge, citizens
are unlikely to take to the streets.

Nonetheless, this economic desert presents some opportunities in 2017. A privatization

and concessions plan is in place for projects in advanced planning stage. State
governments which are close to bankruptcy are already starting to resort to
privatizations and public-private partnerships in their recovery plans. Local content
requirements in the oil and gas sector, and possibly in the automobile industry, will be
reduced with the expectation of attracting investments.

Overall, there is no short-term magic for Brazil in 2017. But it may still bring good
return for investors willing to get on board before the start of way more promising 2018.