Recession and graft: the growing rot in Brazil

Financial Times, 7/22/2015

Incompetence, arrogance and corruption have shattered Brazil’s magic spell. Combined with the end of the commodity boom, they have driven the world’s eighth biggest economy into a deepening recession. The unfolding corruption scandal at Petrobras, the state-controlled oil company, only compounds the rot. More than 50 politicians and dozens of businessmen are under investigation for taking $2.1bn in kickbacks. Luiz Inácio Lula da Silva, the former president, has been indicted on charges of influence-peddling. There is increasing talk that President Dilma Rousseff, seven months into her second term, may be impeached. That still looks unlikely, but the odds are shortening every day.

Two main forces are escalating the crisis. The first is Ms Rousseff’s handling of the economy. To her credit, she has backtracked from the failed, state-led “new economic matrix” of her first term. Interest rates have risen to beat inflation. Her hawkish finance minister has sought to cut spending. These necessary but painful correctives have cut real wages, hurt jobs and slashed business confidence. They have also demolished Ms Rousseff’s approval ratings to the lowest levels on record. This has further weakened her grip on coalition partners, whose support she needs to push the austerity measures through the legislature.

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