Latin America's Most Unpopular Presidency Grinds to Standstill

(Bloomberg) -- Earlier this week Brazil’s President Michel Temer called the ten Senate leaders of his ruling coalition to discuss the year’s legislative agenda. Only four showed up.

Later that same day, the plenary of the lower house, which was due to vote on key bills to help the country recover from the worst recession on record, was conspicuously empty. Instead, many legislators focused their attention on a soccer match on the wide-screen TV in the nearby coffee lounge.

Whatever hope was left that the Temer administration could push at least the less controversial market-friendly reforms is quickly evaporating. While the president was never popular, the political savvy he accumulated in over half a century in politics allowed him to secure congressional approval for pro-business reforms, including last year’s deregulation of the labor market. Now legislators are mostly concerned with the October general elections and Temer is seriously weakened after corruption scandals that don’t seem to stop. Last month two people close to him were arrested on corruption charges.

"The government is dead," said Marcos Montes, a lawmaker from the ruling coalition’s PSD party. "The government burnt a lot of fat defending itself, it has no reserves left."

Cruise Control

At stake are proposals that include the privatization of state-owned utility Eletrobras for an estimated 12.5 billion reais ($3.57 billion). Other bills that have been sidetracked include granting the central bank formal autonomy and establishing a credit registry that could reduce borrowing costs and help fuel economic growth.

"I doubt anything will be done in terms of reforms, unfortunately," said James Gulbrandsen, a Rio de Janeiro-based money manager at NHC Capital, which oversees $3.5 billion. "It definitely feels like the government is on cruise control."

Even within Temer’s MDB party there is a sense of defeat and frustration. Fabio Ramalho, MDB member and vice-president of the lower house, blames sagging support for the administration on a cabinet shuffle earlier in April that ignored demands of key allies.

"Eletrobras, credit registry, forget it. It’s all been buried," Ramalho told Bloomberg News. "The government is weak, it doesn’t have the votes."

The government denies the claim that Congress is effectively paralyzed, but acknowledges its working pace has slowed.

"At this moment, when the elections are approaching, lawmakers prefer to vote on non-controversial matters," said Government Secretary Carlos Marun, who acts as the Temer administration’s liaison with Congress. He insisted that the government would make the most of its remaining time. "Our government is two years, rather than four years, and we don’t have the luxury to stop for eight months."

Investors may be disappointed, but given the extent of Brazil’s political crisis and the scandal surrounding Temer, the surprise may be that he got anything done at all. Temer’s approval rating is in the single digits.

"It’s closing time in Congress," said Claudio Goncalves Couto, a political science professor at the FGV business school. "Whatever the government had to do, it did it last year."

--With assistance from Aline Oyamada and Paula Sambo

To contact the reporters on this story: Samy Adghirni in Brasilia Newsroom at sadghirni@bloomberg.net, Simone Iglesias in Brasília at spiglesias@bloomberg.net.

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Raymond Colitt, Bruce Douglas

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