Political Risk Analysis - Corruption Investigations Will Slow Reform Momentum - JUNE 2017

BMI View : The latest investigations resulting from Brazil ' s ongoing ' Lava Jato ' probe cut the closest to President Michel Temer yet and will likely delay and weaken the enactment of pension and labour reform legislation. Although Temer likely retains the ability to pass legislation, investor sentiment could sour as reforms under-deliver structural improvements to the country's public finances .

Brazilian President Michel Temer's reform agenda faces a more uncertain future after the country's Supreme Court authorised corruption investigations into 76 politicians spread throughout all levels of government. Announced on April 11, the investigations are the latest development in the ongoing 'Lava Jato' scandal and cut the closest to the administration. Testimony from Odebrecht executives details an entrenched system of alleged kickbacks and illicit campaign financing spanning multiple administrations. Former Presidents Fernando Henrique Cardoso, Luiz Inacio Lula da Silva and Dilma Rousseff are mentioned in the testimony, as are Temer and eight of his ministers. In total, nearly 200 individuals are now under investigation as a result of the probe, according to local media accounts.

The investigations will likely delay and weaken the enactment of pension and labour reforms, which could raise concerns over the sustainability of the country's fiscal trajectory and growth outlook. However, because we have long factored in the likelihood of legislative delays as a result of corruption investigations ( see 'Pension Reform Set To Progress Through Congress', February 6), our fundamental views on Brazil's political environment are little changed. We maintain Brazil's score on our Short-Term Political Risk Index at 59.2 out of 100. Ranking 10th out of 17 Latin American countries, Brazil's score reflects our assessment that key legislation will continue to pass, though delays and poor social stability will generate uncertainty.

Legislation Set To Advance, But Risks Substantial
Brazil - Short Term Political Risk Index And Select Components, Out Of 100
Source: BMI

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