Brazil plans cabinet shuffle as ally heads to exit

Bloomberg

Brazilian President Michel Temer is planning a cabinet shakeup to rebuild support for his proposed pension overhaul after the largest ally moved closer to abandoning his government.
Cities Minister Bruno Araujo, from the Brazilian Social Democracy Party, or PSDB, handed in his resignation, citing the lack of party support as the reason for his departure. Temer himself considers the exit of the PSDB as a given, and is planning a ministerial shuffle in coming weeks, a person with direct knowledge of his thinking said.
The PSDB has been steeped in turmoil as corruption charges against Senator Aecio Neves, who’s on leave of absence as the party’s president, exacerbated divisions as to whether it should abandon a highly unpopular president ahead of next year’s election.
Ironically, its departure may bolster Temer’s reform agenda by making room in the cabinet for
disgruntled allies wanting more power in exchange for support.
The PSDB, so goes the argu-ment, would continue to support measures such as capping pension outlays because of its market-friendly ideology.
“On balance, the split of the PSDB is positive for the pension reform,” said Newton Rosa, chief economist of Sul America. “Temer is likely to bring forward a cabinet shuffle.”
The Sao Paulo stock index reversed losses and the real strengthened on news of Araujo’s departure from government.
The cabinet changes, which were originally intended to be made next year, will likely be wide-ranging and could go beyond the ministries currently controlled by the PSDB, the person said. Temer will seek to use the shakeup to secure political backing for the pension bill.

INTERNAL STRIFE
Yet deep divisions within the party could weaken the prospects of its two market-friendly presidential hopefuls — Sao Paulo Mayor Joao Doria and Sao Paulo Governor Geraldo Alckmin. Opinion polls currently show leftist former President Luiz Inacio Lula da Silva and right-wing former Army Captain Jair Bolsonaro leading the 2018 race.
PSDB candidates have won or been runner-up in six out of the seven presidential elections since Brazil’s return to democracy. A messy exit from government may damage ties to Temer’s PMDB party, the largest in the country and a kingmaker for all governments in recent decades. “The doubt is what kind of departure it will be,” said Patricia Pereira, fixed income manager at Mongeral Aegon Investimentos, a Rio de Janeiro-based
investment firm.
The battle for leadership in the PSDB culminated last week when Neves, who had been temporarily suspended as Senator over corruption allegations, ousted the party’s interim president, Senator Tasso Jereissati. The party is expected to elect a new leader at a convention in December.
If the social democrats fail to mitigate the internal strife, current presidential poll leaders may win the elections with dire consequences, the PSDB’s most sen-
ior cabinet member, Foreign Minister Aloysio Nunes, warned last week. “At this pace we’ll hand the presidency to Lula in 2018.”