On August 31st, 61 senators voted in favor of President Dilma Rousseff’s impeachment. Rousseff had been suspended from her functions since May 12 by a Senate decision, with various procedures undertaken in Congress as from that date. In the interim, the merit of the impeachment request and the evidence presented were analyzed, while prosecution and defense witnesses were heard in order to ensure the president’s right to a full defense.

Given the result of the vote, with more than the minimum number established by the 1988 Federal Constitution voting in favor of the motion (2/3 of the senators: 54 votes), Dilma Rousseff will suffer the penalties provided for in the constitution, which include losing the presidency. In a separate vote, senators decided that Dilma will not be barred from holding any public office for eight years.

Thus, vice-president Michel Temer, who had been acting as interim president since May, will officially become president of Brazil. One should highlight that, even as interim president, he already had full powers to govern the country, announcing changes in the ministry and the directives that govern decisions of the executive branch. Indeed, there has been a noticeable change in the direction of economic policy, with the proposal of structural fiscal measures that depend on congressional approval.

From now on it will be important to monitor the passage of projects that are already on the agenda of the lower house and the Senate, and assess the consistency of the measures that are already expected to be proposed, but whose details have not yet been ironed out. Thus, the legislative matters that will remain in focus in the months ahead are the Constitutional Amendment Proposal (PEC), which establishes a ceiling for public spending and is currently being analyzed by a special lower house committee, and social security reform, which is still being structured by Michel Temer’s team.

Therefore, it is possible to say that there is already an agenda to be pursued over the next few years, and that the impeachment reinforces our expectation of continuity of the public management rationalization process. However, one should bear in mind that a large part of the measures include delicate themes that are currently difficult to discuss given the electoral calendar – municipal elections will be held in October this year. The postponement of important decisions may weigh on agents’ confidence, undermining the Brazilian economy’s still incipient recovery.

This is because, in the absence of structural changes, the public debt/GDP ratio will continue to increase in the years ahead, thus worsening the Brazilian economy’s long-term outlook. It is only with a consistent improvement in medium and long-term prospects that we will see a recovery of the Brazilian economy.

If steps are not taken in this direction, we admit that the risks to our projections are a deterioration of the outlook, with activity and various other macroeconomic indicators resuming their downward path.

A investor call with Itaú Asset Management is being hosted at 9:30am GMT on 15 September 2016. Click here to register