As everyone expected, Brazilian financial markets were set to crash on Thursday following the latest political scandal. The iShares MSCI Brazil Capped ETF (EWZ), a heavily traded U.S. ETF that tracks Brazilian stocks, crashed more than 17 percent in the premarket Thursday.
Brazil’s stock market started the day crashing 10 percent over the market’s first hours. Meanwhile, the Brazilian Real lost 5 percent of its value against the U.S. Dollar.
Only one year after taking office, Brazilian President Michel Temer could be on his way out of office. He was allegedly caught on tape authorizing businessmen to bribe former House Speaker Eduardo Cunha.
According to a report, brothers Joesley and Wesley Batista, owners of JBS – the world’s leading meat company – secretly taped a 40-minute meeting on March 7 with President Temer. The Federal Police assisted in the recordings. The brothers have agreed to provide these tapes to the Supreme Court as part of a plea bargain.
Temer acknowledged he met with Joesley Batista, but denies said that the meeting went down as Batista claims.
Senator Aécio Neves, the runner-up in the 2014 presidential elections, was also taped asking for dirty money. He wanted Batista to give him 2 million BRL. The Supreme Court has ruled for the suspension of the senator and will decide if he should go to jail.
Reforms? Forget about it
Political and economic analysts have agreed that the scandal means the government will be unable to pass its reformist agenda. In fact, no one knows if there will even be a government by the end of the month.
And that creates even more uncertainty about the future of the Brazilian economy. Zeina Latif, head economist at XP Investments, told Estadão that “there will be a great destruction of wealth within the next few days.”