In Brazil, Water Is Power

March 24, 2015

Jack Levine – The Huffington Post, 3/23/2015

Of the many stories I heard about the drought while I was in Brazil earlier this month, one stands out: a colleague was riding the elevator in her building and saw a note from a concerned neighbor. “Dear neighbors,” the note read, “As you know we are in a severe crisis. Everyone must do their part to conserve water. That is why I have decided to only wash my car once per month. I hope everyone else can make a similar sacrifice.”

I had just spent five days in Sao Paulo, visiting electric utility executives to imagine how software technology could better engage their consumers toward addressing the deepening crisis. Twenty million people live in Sao Paulo, which is suffering its worst drought the metropolis has seen in nearly a century. A couple of weeks earlier, during Carnival, some towns in the region had canceled street parades for fear there may not be enough water to clean the streets or cool down the crowds. Officials from Sao Paulo’s water utility, Sabesp, had already begun rationing water.

The last time Brazil faced a water crisis of this magnitude, a small private utility – the Sao Paulo Railway and Light Company – was at work constructing the foundation of a modern infrastructure to supply water and power. Today, Brazil’s system of reservoirs and dams provide not just drinking water; they supply more than three-quarters of its electricity generating capacity. So as the Cantareira’s stores fluctuated like a dollar stock – dipping to just five percent of capacity in early February  – Brazil’s utilities braced for an energy crisis.

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Brazil’s fall from grace of its own making

March 23, 2015

Financial Times, 3/22/2015

Brazil is in crisis. Earlier this month, more than 1m protesters took to the streets to voice their discontent. Much of the country suffers water rationing following a long drought. Petrobras is engulfed in an epic corruption scandal that saw up to $10bn embezzled from the oil company. The economy is likely to shrink this year and perhaps next year as well, which would be its worst performance since 1931. Approval ratings for Dilma Rousseff, the president, have slid to 13 per cent, the lowest on record. It seems only yesterday that the country was feted as the new best thing. So its fall from grace has been spectacular. Sadly, the situation is likely to get worse still. The central question is whether Brazil’s institutions hold as it does.

A large part of the blame lies with Brazil itself. For much of the 2000s, it enjoyed an unprecedented commodity boom. This bolstered its terms of trade, swelled government revenues, boosted domestic wages and propelled a domestic credit boom. When investors clamoured to buy into Petrobras’s 2010 $70bn equity offering — the world’s largest — Brazil really did seem to be o melhor país do mundo, the best country in the world. In reality, it was riding the steroid fix of a credit boom in which Brazil reaped the benefits of globalisation without any of its disciplines. Now the process is going into reverse.

The collapse in the currency, down almost a third against the dollar in just six months, is a dramatic repricing of the economy. But the trade-weighted real exchange rate, which adjusts for inflation, is still higher than its 20-year average. Unit labour costs are also higher, in dollar terms, than in 2010. So the currency is likely to weaken more.

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Democracy, Brazil Style: Why Dilma Rousseff Will Survive the Protests

March 23, 2015

Kathryn Hochstetler – Foreign Affairs, 3/22/2015

Earlier this month, the streets of Brazil’s major cities filled with protestors. Timed to the 30-year anniversary of the end of military rule in 1985, the March 15 protests were probably the largest since Brazil became a democracy and were certainly larger than the widely reported demonstrations of June 2013. Yet real numbers are hard to come by. Protests were clearly biggest in the city of São Paulo, but estimates of the size of the crowd gathered there range from 210,000 (Instituto Datafolha, which is linked to the Folha de São Paulo newspaper) to over a million (the state-controlled military police). If the lower estimate is correct, some hundreds of thousands of people came out onto the streets across the country. If the higher estimate is right, the total would be around 1.7 million people.

The size matters; those who marched had a harsh message for President Dilma Rousseff, now ten weeks into her second term of office. Many called for her impeachment, evoking memories of the million or so who, in 1992, successfully marched for the impeachment of President Fernando Collor de Mello. Many commentators, therefore, take the number of protesters as a measure of how long Rousseff has left in office.

Although demands for Rousseff’s impeachment made headlines around the world, however, the real story is Brazil’s economic troubles and its ever-growing corruption scandal. Economic growth has flatlined, and inflation and government deficits are rising quickly. In her first term, Rousseff was unsuccessful in stimulating the economy, and she has few new options left except economic austerity. Ironically, meanwhile, Collor is now not only a senator but also among the 34 sitting congressional representatives just placed under formal investigation and possible indictment for corruption. With 16 others, including the treasurer of Rousseff’s governing Workers’ Party (PT), these representatives are accused of taking part in a kickback scheme that skimmed money from the state-controlled oil company Petrobras and redirected it to Rousseff’s 2010 campaign and the personal fortunes of many participants.

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Rousseff’s Perfect Storm Signals New Era of Politics for Brazil

March 19, 2015

João Agosto de Castro Neves – World Politics Review, 3/18/2015

2015 has already been a very difficult year for Brazilian President Dilma Rousseff. After a hard-fought re-election last October, the most competitive in the past two decades, Rousseff is now confronted with the need to implement meaningful fiscal adjustments amid declining approval ratings and popular unrest, after hundreds of thousands took to the streets in protest Sunday. The series of negative developments since her re-election has been dramatic but is likely to get even worse, with Rousseff in the eye of a political perfect storm.

The scandal and ongoing investigations surrounding state-controlled oil giant Petrobras are the biggest concern, having implicated major Brazilian construction companies and dozens of politicians in an extensive kickback scheme. The costs of the scandal will be felt far beyond Petrobras and the oil sector, as the exhaustive investigations will prolong the disruption of investments in infrastructure and energy. Many construction companies, now locked out of credit markets, are struggling to stay afloat, while Petrobras has slashed its investment plans and crippled its network of suppliers. The risk of contagion from this sector to the broader economy looms large, further dampening growth forecasts for this year.

Politically, Rousseff is likely to become more isolated as members of the ruling coalition face prosecution. The Supreme Court has already authorized investigations of 34 sitting politicians for alleged involvement in the kickback scheme, leading to more tension between Rousseff and her allies. On Tuesday, the main opposition said it would call on the court to investigate Rousseff, too. In addition, Congress has launched new probes and will seek to score political points by uncovering more wrongdoing. All this will drag into 2016 and seriously impact Rousseff’s capacity to govern.

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The Guardian view on the Petrobras scandal: a big test for Brazil

March 19, 2015

The Guardian, 3/17/2015

The Petrobras scandal in Brazil brought half a million protesters on to the streets at the weekend – and it could yet trigger more such protests. Latin America’s giant is experiencing political turmoil that is testing its establishment, its democracy and its image as an aspiring leader of the global south. The revelation that more than 50 officials and politicians had benefited from kickbacks linked to the state-run oil company – using it as something akin to their own wallet – was bound to outrage public opinion. The discovery that for years billions of dollars had been squandered to the benefit of a well-connected few could only produce a grassroots backlash and legitimate demands for accountability.

And this may not be the end of it. On Monday the ruling party’s treasurer was charged with corruption. Brazil’s president Dilma Rousseff has good reason to worry. After all, in the past she occupied a leading position within Petrobras. No evidence has been produced that she was personally involved in the bribery, but some are wondering whether the Petrobras scandal might turn into a Watergate for her.

The recent protests can be seen as a continuation of the street uprisings that shook Brazil in 2013. At the time, complaints were focused on the huge amounts of money spent preparing for the 2014 World Cup while there were still gaping holes in basic needs like public transport. Eventually, it all quietened down, and in October 2014 Rousseff was narrowly re-elected. But the deeper grievances expressed in 2013 hadn’t disappeared by any means. This is because there is in Brazil a growing feeling that the country’s political class has become disconnected from the expectations of a more educated, more social-media savvy and demanding population. In a way, Brazil’s governing elites find themselves having to reckon with the results of the successful policies that, since the Lula years, allowed tens of millions of Brazilians to pull out of poverty and join the middle classes.

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The big picture behind Brazil’s protests

March 19, 2015

Patrick Gillespie – CNN Money, 3/17/2015

Over a million Brazilians protested in the streets Sunday, calling for the impeachment of President Dilma Rousseff.

A massive corruption case involving the president helped spark the protests, but Brazilians also marched out of frustration that Brazil’s economic boom is over.

South America’s largest economy was last decade’s emerging market darling. Now it’s edging toward recession and its currency is losing value quickly. The corruption scandal and economic collapse are creating a perfect storm for public unrest.

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Why is Brazil so angry?

March 19, 2015

Diogo Costa – The Telegraph, 3/18/2015

Popular dissatisfaction is growing in intensity and scope in Brazil. On Sunday, over one million protesters took to the streets in cities of every Brazilian state in the largest political demonstration since democracy was restored in the country in 1985.

As in the previous wave of protests in 2013, there was no unity in the actual demands. Some signs asked for the punishment of corrupt politicians, others for presidential impeachment.

The more nostalgic even asked for military action. This time, however, the target of discontent seemed clearer than ever before: president Dilma Rousseff and her party, the PT. Dilma Rousseff is experiencing the culmination of two crises that have been building up since she took office in 2011.

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