Markets look for show of strength by Brazil's Temer after impeachment

viernes 26 de agosto de 2016 11:10 GYT

By Bruno Federowski

SAO PAULO Aug 26 (Reuters) - Brazil's interim President Michel Temer will need to quickly demonstrate his commitment to cutting the country's budget deficit if he is confirmed in office next week, in order to sustain investor optimism after a major rally in financial markets this year.

Suspended President Dilma Rousseff is expected to be found guilty of breaking budget laws by the Senate and dismissed from office on Wednesday, leaving former vice president Temer to serve the rest of her term until the end of 2018.

Rousseff, whose trial in the Senate began on Thursday, denies any wrongdoing and describes efforts to impeach her as a "coup".

Hopes that Temer would reverse the interventionist policies pursued during 13 years of leftist rule by Rousseff's Workers Party have helped Brazil's Bovespa stock index and real currency rank among the world's best-performing assets this year.

But traders say that if the market is to maintain confidence in Temer, he must prove before year-end that he has the political clout to push through a fragmented Congress a constitutional amendment to curb growth in public spending.

"He will not be given carte blanche for a full 18 months," Nomura Securities strategist João Pedro Ribeiro said, referring to the countdown until the 2018 presidential elections.

Temer will need provide "a very strong signal in the second half of this year that the spending ceiling will be approved in Congress and that he will take substantial action in pension reform in the next year."

After nominating a group of market-friendly economists to his economic cabinet, Temer has made his flagship proposal a constitutional amendment that limits annual growth of public spending to the previous year's inflation rate.   Continuación...