BRASILIA • Even in Brazil, a country that is no stranger to crisis, the recent, rapid-fire succession of financial, economic and political blows has been breathtaking.
After a week in which the nation's top young financier was thrown in jail alongside a senator - pushing his bank, Grupo BTG Pactual, into a struggle for survival - and Goldman Sachs Group warned that the economy was slipping into a full-blown depression, impeachment proceedings were initiated on Wednesday against President Dilma Rousseff.
Though the hearings will ultimately centre on whether Ms Rousseff violated fiscal laws, the root of her unpopularity is the same that landed the banker, Andre Esteves, in jail and crippled the economy: An unprecedented graft scandal - known as Carwash - that has hamstrung the country's biggest firms and triggered policy paralysis in the capital.
With gross domestic product now shrinking at an annualised pace of almost 7 per cent and the Budget deficit swelling to the widest in at least two decades, Brazil's currency and local bond markets have posted deeper losses than those of any other developing nation this year.
"The important thing is that Brazil has a political resolution at some point over the next few months," said Mr Pablo Cisilino, who helps manage about US$42 billion (S$59 billion) in emerging-market debt at Stone Harbor Investment Partners in New York. "If impeachment is the way to get it, then it'll be welcomed by the market, but there are so many twists and things that can happen between now and then."
Lower House Speaker Eduardo Cunha on Wednesday said he accepted one of 34 requests to impeach Ms Rousseff on charges that range from illegally financing her re-election to doctoring fiscal accounts this year and last. Impeachment hearings could take months and ultimately result in her ouster. She is expected to challenge any proceedings in the Supreme Court.
Mr Cunha's move threatens to paralyse Ms Rousseff's economic agenda as she focuses on saving her presidency rather than averting further sovereign credit downgrades and reviving growth.
"This is a source of short-term noise and uncertainty, and with Congress focused on the impeachment process, it reduces the likelihood (of seeing) tangible progress on the fiscal consolidation agenda," said Goldman Sachs chief Latin America economist Alberto Ramos.
Some investors took Mr Cunha's decision as a positive, betting that it could lead to a resolution of the political stalemate. Brazil's biggest exchange-traded fund reversed losses and jumped late on Wednesday to end the day up 2.5 per cent.
A number of Brazilians cheered the news by banging pots and pans in upscale neighbourhoods of Rio de Janeiro and others honked their horns outside Congress in Brasilia.
The widening probe in the Carwash scandal is also fuelling uncertainty. Investors in emerging markets may think twice about putting money in Brazil because of concern that the probe could ensnare more bankers or other major firms.
"The whole judicial story in Brazil, which goes very independent from politics and economics, is very difficult to hedge and price," said BlackRock strategist Pablo Goldberg.
Ms Rousseff's approval rating is at a low as a combination of rising unemployment, surging prices and accusations that top members of her party accepted bribes erodes her popularity.