Fresh corruption allegations shake Brazil

published 26 May 2017

Hopes that the political situation in Brazil were set to improve following the impeachment of former president Dilma Rousseff were dealt a major blow after her successor, Michel Temer, faced allegations of corruption and obstruction of justice, writes James McAdam Stacey. Brazilian stocks dropped by more than 10% on the news, while the currency suffered its biggest one-day drop in almost 15 years.

"Even in a nation hardened by allegations of crooked politicians", the news "has come as a shock", say Gerson Freitas and Tatiana Freitas on Bloomberg, especially as Temer had not been previously linked with the scandals within his administration. Temer has denied any wrongdoing and defied calls for him to step down. "It is far too soon to expect Temer to be forced out of office", says The Economist, noting that the president still has a "strong backing" in congress and the speaker of the lower house is also a "staunch presidential ally". However, investors fear that the unpopular but much-needed reforms that Temer introduced since coming into power could be "jeopardised or at the very least delayed", says Richard Beales on Breakingviews. These are centred around overhauling the country's unaffordable pension system, as well as the country's rigid labour laws.

The most market-friendly outcome involves "a quick and definitive refutation of the charges", say analysts at UBS, quoted in the Financial Times. The alternative would be "prolonged political uncertainty" and perhaps "another impeachment process and rising social tensions". The ultimate consequences of these revelations are, at this point, "incalculable", says The Economist. "But they are certainly not good."

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James has previously written about financial markets for MoneyWeek. He has a bacherlors degree in management and he has been awarded an investment advice diploma by The Chartered Institute for Securities & Investment (The CISI). James then worked at Moran Stanley as a U.S. Equity Sales Analyst for two years, then moved into hedge fund sales and investor relations at 36 South Capital Advisors, and then became the Global Multi-Asset Sales at Credit Suisse. Now, James is the Associate Director of US Equity Sales at Oppenheimer & Co. Inc, where he is responsible for servicing a range of clients including asset managers, hedge funds and wealth managers.