Brazil graft scandal puts ambitious economy reforms at risk

RIO DE JANEIRO: Economic austerity reforms meant to put Brazil’s recession-damaged economy back on the rails are in danger now that President Michel Temer is on the verge of being ousted in a corruption scandal, analysts say.

Standard & Poor’s reflected the concern on Tuesday by warning it could further lower Brazil’s credit rating due to political uncertainty.

“The economy will be very much affected by the crisis,” said Gesner Oliveira at GO Associados consultants.

“It could be the third consecutive year of recession.”

For Temer – accused of corruption and obstruction of justice just as macro-economic signs are improving – last week was simultaneously the “best and worst moment” for his government.

Inflation is steadily dropping and growth is believed to be at the start of a modest recovery, even if unemployment remains dire at nearly 14%. After the economy contracted 7.2% in 2015-16, there were hopes for a renaissance.

Temer has pleaded for Congress to support him as calls for his impeachment grow.

“We can’t throw so much work for the benefit of the country into the garbage bin,” he said.

He needs Congress to push through austerity reforms backed by economists but highly unpopular among ordinary Brazilians. Chief among them is raising the minimum retirement age to try to reduce the unaffordable state pensions bill.

But the scandal has triggered just the kind of economic instability he says he is working to eradicate, with the Sao Paulo stock market falling 8.8% last Thursday and the real dropping about 8% against the dollar. – AFP