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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Small expectations between two big countries during Brazil’s official trip

Michael D. Mosettig – PBS, 6/26/2015

As official visits go, it has been an inauspicious scene-setting for next week’s trip of Brazilian President Dilma Rousseff to the United States and a Tuesday meeting with President Barack Obama.

First off, the trip is a re-do. Rousseff was supposed to be in Washington two years ago for a full-fledged, bells and whistles state visit. She abruptly cancelled after revelations that the National Security Agency had been tapping her phone. (The scandal was even more painful for the Boeing Company, which had been on the verge of winning a $4 billion contract to re-equip the Brazilian air force. The contract went to a Swedish company.)

In her country of 202 million people, Rousseff’s problems keep mounting. The national joke in Brazil is that her poll ratings (barely 10 percent) are one point ahead of the country’s inflation rate (8.4 percent). Brazil’s signature, state-dominated company, Petrobras, is engulfed in allegations that billions disappeared in kick backs to Rousseff’s Workers Party. Just last week, two of the country’s major industrialists were arrested. Neither Rousseff nor her highly popular predecessor and mentor Luiz Inacio Lula da Silva have been implicated so far, but the country is on edge against the possibility of the scandal spreading.

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Brazil treads fine line between inflation and contraction

Joe Leahy – Financial Times, 06/08/2015

South America’s largest economy faces a difficult balancing act to avoid a potentially disastrous spiral of economic contraction as it seeks to control inflation.

Brazil’s planning minister Nelson Barbosa warned that he expected only a very gradual recovery from this year’s recession, in contrast with previous downturns during the past decade when the country immediately bounced back with rapid growth.

However, Mr Barbosa added that growth should still be enough for Brazil to avoid slipping into a situation in which interest rate increases to control inflation combined with an austerity programme to reduce the budget deficit only deepened the recession.

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Brazil Witness Alleges Politicians Knew About Alleged Petrobras Scheme

Luciana Magalhaes and Will Connors – The Wall Street Journal, 5/11/2015

CURITIBA, Brazil—A convicted money launderer at the heart of an investigation into an alleged corruption scheme at Brazil’s state-run oil company Petroleo Brasileiro SA alleged President Dilma Rousseff and former President Luiz Inácio Lula da Silva knew about the alleged scheme.

Alberto Youssef, a currency dealer who was convicted of money laundering and sentenced last month to three years in prison, made the allegations to a congressional commission investigating the alleged corruption at Petrobras. Mr. Youssef had previously made the allegations to investigators as part of a plea deal for a lesser sentence.

When asked by lawmakers Monday if Ms. Rousseff and Mr. Lula da Silva, along with other top government officials, knew of the alleged scheme, Mr. Youssef said, “It is my understanding that [they] knew everything.”

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Prosecutors in Brazil investigate Lula for alleged influence peddling

Samantha Pearson and Joe Leahy – Financial Times, 5/4/2015

Brazil’s federal prosecutors have opened a preliminary investigation into the country’s wildly popular former leader Luiz Inácio Lula da Silva, putting further pressure on his embattled protégée President Dilma Rousseff.

The probe into illicit influence peddling in Cuba, among other countries, comes as federal police also revealed they are also investigating suspected money laundering in transactions by two companies owned by João Santana, the political mastermind behind the election victories of Mr Lula da Silva and Ms Rousseff, both of the centre-left Workers` Party, or PT.

The prosecutors’ office in Brazil’s capital Brasília confirmed reports by a local magazine that Mr Lula da Silva is being questioned by their anti-corruption unit over claims he helped construction conglomerate Odebrecht win contracts overseas between 2011 and 2014.

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Prosecutors in Brazil investigate Lula for alleged influence peddling

Samantha Pearson – The Financial Times, 5/4/2015

Brazil’s federal prosecutors have opened a preliminary investigation into the country’s wildly popular former leader Luiz Inácio Lula da Silva for illicit influence peddling in Cuba, among other countries, putting further pressure on his embattled protégée President Dilma Rousseff.

The prosecutors’ office in Brazil’s capital Brasília confirmed late on Sunday reports by a local magazine that Mr Lula da Silva is being questioned by their anti-corruption unit over claims he helped construction conglomerate Odebrecht win contracts overseas between 2011 and 2014.

Weekly magazine Época alleged on Friday that Mr Lula da Silva improperly used his influence to obtain loans from Brazil’s state development bank BNDES for Odebrecht’s dealings in Cuba and the Dominican Republic, often travelling to meet the countries’ leaders at the company’s expense. The magazine also accused Mr Lula da Silva, one of the founders of the ruling Workers’ Party (PT), of similar influence peddling in Ghana and Angola.

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Ex-president’s relationship with Odebrecht scrutinized in Brazil

Blake Schmidt – Bloomberg, 5/2/2015

Brazil’s federal prosecutors have initiated a preliminary inquiry as to whether former president Luiz Inacio Lula da Silva used his influence to persuade the state development bank to help finance projects of one of Brazil’s biggest industrial conglomerates, according to media reports.

The weekly Epoca magazine was the first to report an inquiry into alleged influence-peddling involving the politician’s speaking engagements abroad. The magazine reported on Friday that Brazil’s development bank, BNDES, had financed Odebrecht SA construction projects in countries whose leaders Lula had met with.

Lula, Odebrecht and BNDES have each denied any wrongdoing.

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