Brazil's Depression
Endgame in Brazil?

The Brazil Real is rising, and investors are openly wondering if it’s time to buy Brazilian assets. The apparent cause? Hopes that President Dilma Rousseff has finally overreached and lost the support she needs to stave off impeachment. Reuters:

Former Brazilian President Luiz Inacio Lula da Silva was sworn in as chief of staff to his successor Dilma Rousseff on Thursday as a judge sought to block his appointment and Congress began proceedings to impeach her in a deepening political crisis.

Police used tear gas to disperse hundreds of opposition demonstrators who clashed with Lula’s leftist supporters outside the presidential palace where he was sworn in, while ministers and corruption investigators traded barbs throughout the day.

Spontaneous protests also blocked major avenues in Sao Paulo and Rio de Janeiro, spurred by anger that Lula’s appointment will shield the former president from prosecutors who charged him with money laundering and fraud as part of a sweeping graft probe centered on state-run oil company Petrobras.

Only Brazil’s Supreme Court has jurisdiction in cases against ministers. Shortly after the swearing-in ceremony, a federal judge in Brasilia issued an injunction against Lula’s appointment on the grounds it blocked “the free exercise of justice.”

Attorney General Jose Eduardo Cardozo vowed to appeal the injunction against Lula joining the government, which he called the decision of a partisan judge.

Lula’s fall is itself a remarkable event—he was a popular politician when he served as president. Now, he’s taking a position as his less-popular successor’s chief of staff to protect himself against ugly corruption charges.

The bigger story, of course, is the collapse of this onetime economic engine of South America. Has Brazil hit rock bottom? Only time will tell, and getting rid of Dilma probably wouldn’t itself solve anything besides the immediate gridlock—and it might not even solve that. Commodities markets have been more stable in recent weeks, but it’s not clear that the price of raw materials is about to rise any time soon. If China and other major manufacturing economies remain weak, global demand for timber, oil, and metals—Brazil’s major exports—won’t be strong enough to drive a recovery.

If Dilma is finally forced out of power, don’t let the sighs of relief distract you: whoever serves as president, Brazil will have a long and bumpy road ahead.

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