Brazil president urges economy reforms, slams ‘psychological aggression’

Brazil’s acting president Michel Temer on Tuesday called for reforms to haul Latin America’s biggest economy back from crippling recession and slammed what he called “psychological aggression” against his government.

Temer, who took power May 12 after the suspension of president Dilma Rousseff pending her impeachment trial, is seeking to cement his authority in the face of multiple challenges on both the economic and political fronts.

He faces accusations from Rousseff of having engineered a coup, and suffered a blow when secret recordings were leaked Monday in which his key ally, planning minister Romero Juca, allegedly discusses a plot to remove Rousseff as a way of halting a huge corruption probe.

Juca, a pointman on economic reforms, was sacked Tuesday, the government announced.

Opening a meeting with ministers and congressional allies in the capital Brasilia, Temer said that restoring economic growth will require strong medicine.

“I want to emphasize that it won’t be 12 days or two months that will pull Brazil out of crisis,” he said.

The government says it is facing a record 170.5 billion reais ($48 billion) primary budget deficit in 2016, far higher than suspended president Rousseff’s earlier target of a 97 billion reais deficit.

To try and balance the books, Temer is proposing austerity measures and bringing efficiency to the bloated government. Congress was due to debate the plans later Tuesday.

The primary budget deficit is the difference between government spending and revenue, excluding interest payments on debt. It is a key indicator for creditors.

All three main ratings agencies consider Brazil’s credit rating as junk. Fitch Ratings made its latest cut to Brazil’s rating earlier this month, lowering by two points to BB with a negative outlook.

– Political instability –
In addition to high inflation, the effect of low commodity prices, and rising unemployment, investors are spooked by Brazil’s political instability. Rousseff’s trial could go on as long as six months and she has vowed to fight all the way.

The leftist leader is accused of illegal accounting tricks in 2014 and 2015 to mask the depth of government shortfalls. She says the maneuvers were common practice with previous governments and not an impeachable crime, alleging that the issue was blown out of proportion in order to get Temer, her vice president, into office.

Temer, from the center-right PMDB party which used to be in coalition with Rousseff’s Workers’ Party, has moved quickly to lay out plans to shift Brazil to more market-oriented policies, prompting an outcry from the left.

Temer, who was heckled live on television by activists shouting “putschist” during a public appearance Monday, dismissed such attacks Tuesday as “psychological aggression.”

“I know how this works. It’s psychological aggression to see if they can frighten the government,” he said.

“We’re not the slightest bit worried by this. We have to look after the country. Those who want to yell, let them do what they want.”

The leaked Juca recording and his subsequent firing have embarrassed Temer, who took office calling for an end to the instability, economic drift and corruption scandals of Rousseff’s last two years in power.

In the conversation taped in March, Juca appears to tell a former oil executive that impeachment of Rousseff would allow the shutting down of a huge anti-corruption drive centered on state oil giant Petrobras in which both of them have been implicated, along with a string of other high-ranking politicians and executives.

Juca, who says the comments have been misinterpreted, is heard saying that he has discussed the plan to impeach Rousseff with “the generals, the military commanders” and with members of the Supreme Court.

Rousseff said Monday that the remarks confirm “the putschist nature” of her impeachment process.

– Budget turmoil –
Temer’s economic measures have been welcomed by investors as a way to return Brazil from the wilderness. Just a few years ago the Latin American giant was one of the world’s stand-out emerging markets, but it is now in sharp decline

The economy shrank 3.8 percent last year, and the IMF has forecast 3.5 percent negative growth for 2016, although Brazilian economists expect more than 3.8 percent shrinkage.

Temer’s government has proposed sweeping spending reductions, including to social programs and the government itself.

But Temer has suffered setbacks, rowing back on an initial decision to ax the culture ministry after an outcry from several of Brazil’s best known actors and singers. The government also faces potentially bitter resistance to suggestions that cuts to pensions and health spending may be necessary.

A centerpiece of the proposed reforms announced by Temer on Tuesday — pegging public spending increases before debt servicing to the previous year’s inflation rate — will require Congress to approve a constitutional amendment.