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AUGUST, 2016

Temers first
100 days
and beyond

For Temer, this could bring both relief and new pressures. On the one hand, he will
be able to act with the assertiveness of the true holder of the office until the end of
2018. On the other hand, he is already being called on to deliver concrete measures to
support an economic recovery.
In the first 100 days since Temer assumed the office, on May 12, the levels of business
and consumer confidence have risen, with the change in the administration breathing
new life into them. To try to keep these indicators on the rise, Temer has been working
to ensure his governability and to give manufacturers, domestic and foreign investors
and the Brazilian public signs that he will succeed in lifting the country from its worst
economic recession ever.
Part of this effort also involves a change in foreign policy, which, until now, has seen the
biggest changes from the prior administration. Temer wants to show the international
community that Brazil will give more attention to the worlds major economies, such
as the United States and the European Union, compared to the former government,
leaving behind the former South-South policy and the closer relationships with leftist
governments in Latin America, which was the line adopted by the Workers Party (PT).
One of the outcomes from this shift is that, with the new government in Argentina, the
two countries are now aligned again, which became clear in the opposition voiced by
both countries to Venezuela temporarily assuming the presidency of Mercosul.
In terms of social policy, the interim president maintained the status quo. The flagship
federal welfare program Bolsa Famlia, whose reach extends to 14 million households

CP DC Press /

Now its for real. Brazils

interim President Michel
Temer will be confirmed
in office within two weeks,
after the senate approves the
impeachment of suspended
President Dilma Rousseff
(two-thirds of the Senate has
already declared their plans to
vote for the impeachment).

Temer wants
to show the
community that
Brazil will give
more attention to
the worlds major
economies, such
as the United
States and the
European Union

Some studies
show that each
real given to
these households
generates at least
50% more in
terms of GDP

classified as poor or extremely poor, costs only 0.4% of GDP. Some studies show that each real
given to these households generates at least 50% more in terms of GDP. So, slashing social
programs could further slow the economy and would have a very high political cost for Temer.
After 100 days, Temer has yet to gain the full confidence of Brazilians. Surveys show that
confidence in Temer is at 27%, which is similar to the level of confidence in measures to
combat inflation and unemployment. And it does not stop there. Many analysts say that
the measures announced to date will not be enough to get the country out of its quagmire,
since the level of employment, which is critical to a recovery in consumption, the main
driver of GDP growth, could stagnate or fall.
If the most sensitive part of the human body is our pockets, as a prominent Brazilian
economist has said, then that is where Temer must make a difference.

Getting Out of the Quagmire

Since he took office, Temer, along with his finance minister, former banker Henrique
Meirelles, has been stressing the importance of keeping federal deficits under control,
recovering investor confidence, lowering interest rates (currently one of the worlds highest)
and jump starting the economy.
Consistent with this strategy, he sent to congress a draft bill for a constitutional amendment
to limit the growth in government spending to the rate of inflation measured in the previous
year. He is also working to establish a higher percentage of tax receipts that federal and
local governments can use freely without any linkage to a spending line in the budget. This
is a proposal originally submitted by Dilma Rousseff to congress, but that, like many others,
failed to pass due to the weakness of the now suspended president.
The main question is how much the spending cuts will affect those who most need the
government (the poorer strata of the population) and the impacts that they will have on
government investment. And if the economic scenario does not improve, it will be difficult
for private-sector companies to resume more robust investment.
On the other hand, questions and criticisms have been raised by the agreement with state
governments to set a spending limit that features fewer benefits for them than the initial
proposal made by President Dilma. Also along these lines, the interim president announced
a wage increase for federal civil servants, while the government revised its budget deficit
for this year to R$170 billion and gross public-sector debt has reached 70% of GDP, which
is a huge weight on an emerging and stagnant economy. In his defense, Temer said that
the increases in the coming years would lag inflation. It was what he could do to not cause
further wear on the relationship with public servants and avoid strikes and demonstrations.
But the measure, amidst discussions of budget constraints, raised questions as to just how
tight this control would be.
The reforms linked to government spending do not stop there. Two of the measures, which
are related directly to workers rights, are thorny issues, which is precisely why they were
put on hold until after Temer is confirmed in office: the social security and labor law reforms.
The government wants to raise the minimum age for retirement and increase the flexibility
of negotiations between workers and employers. These will be two big tests and with an
approval timeframe that is impossible to predict.
At the central bank, the challenges with controlling inflation which erodes the purchasing
power in particular of the poor brings further uncertainty as to the future. Moreover, the
Brazilian real, whose depreciation had been helping exporters, has strengthened in recent
days. If this trend were to continue, the trade balance would take another hit.
For these and other reasons, when questioned about the pace of the changes, which
many consider slow, Temer says the country has three branches of power. In other words,
everything must be subjected to negotiations.

Amidst the reforms, in order to attract investors, the interim president
is studying how to transfer assets to the private sector. Temer
has already clearly stated that he is in favor of a comprehensive
privatization program. The list of companies to be privatized has been
promised for the 25th of this month. This could be a good opportunity
for foreign investors, given the weaker local currency in recent months.
Not by chance, the first provisional presidential decree was the
so-called Investment Partnerships Program (PPI). The program is
expected to carry out bidding processes in the energy and oil, basic
sanitation and urban mobility sectors. So far, it has announced the
privatization of four local companies.
In the oil industry, he supports a change in the rules that would
eliminate the requirement that Petrobras hold at least a 30% interest
in new pre-salt projects. Although he is in favor of a minimum local
content requirement.

With regard to
2018 presidential
elections, his answer
is emphatic: he will
not run. He will fix
house until then and
then hand over the
office on January
1, 2019 to whoever
succeeds him
When it comes to the investigation of his
campaign accounts, when he shared the slate
with Dilma Rousseff as her vice-president,
Temer says he has nothing to worry about.
Likewise, he states has is not concerned
about any information related to illegal
donations and Operation Car Wash, Brazils
largest investigation ever into corruption, and
in which his name has been cited.
With regard to 2018 presidential elections,
his answer is emphatic: he will not run. He
will fix house until then and then hand over
the office on January 1, 2019 to whoever
succeeds him.

Around the world

The infrastructure topic will certainly be on Temers agenda on his
international trips aimed at attracting capital to the bidding processes.
The interim president said he would start travelling as soon as he is
confirmed in office. He must increase the level of confidence in him
and in his administration in order to secure foreign investment in
Brazil. His first destination should be China, for the G20 meeting, and
then the United States, to participate in the UN General Assembly.
But before any of that, through appointments to the Ministry
of Foreign Affairs, he is seeking to forge closer relationships
with those he considers important to Brazil. One example is
the nomination of Srgio Amaral to the Brazilian embassy in
Washington D.C. Amaral held the office in 1992 and said he is
already working closely with Washington to close deals in various
areas, including to facilitate trade.

Paulo Andreoli

Chairman, MSLGROUP Latin America


Claudia Mancini

Publicis Consultants

This article reflects the authors personal opinion.