Oil Scandal Besets Brazilian Politics… Drip-by-Drip

Matthew Taylor and Luciano Melo – AULA Blog, 1/22/2015

Brazil’s oil scandal – the largest corruption scheme in Brazil’s history – probably won’t bring down the government of President Dilma Rousseff but will keep it in constant peril.  Since March 2014 the Brazilian Federal Police have been investigating the disappearance of tens of billions of dollars allegedly siphoned from the national oil company, Petrobras.  The company is a national symbol, founded by legendary President Getúlio Vargas in 1953, and a powerful economic force, especially in light of the discovery of massive deepwater oil off Brazil’s coast and the massive investments that have been undertaken to develop those fields.  No image captured Brazil’s triumphant resurgence over the past decade than a famous 2006 shot of President Lula holding up his hand covered in oil at a ceremony celebrating Brazil’s oil self-sufficiency.  (The picture itself was a takeoff on an iconic photo of Vargas.)

President Dilma Rousseff – who had close ties to the company as chairwoman of its board (2003-2010) and Minister of Mines and Energy (2003-2005) – is now confronting the dark underside of Brazil’s oil dream.  She is respected for her personal probity; nobody has suggested that she gained personally from the brazen corruption within Petrobras.  But critics point out that she was either cognizant of corruption or woefully incompetent.  As a result, the scandal weakens her considerably, just as she faces a revitalized opposition, a restive group of political allies, an economy grinding to a near halt, and a very real possibility that Brazilian debt will be downgraded to junk status.  Indeed, the scandal increases the chances of each of those four outcomes considerably.

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Defense in Brazil’s Petrobras probe trying to change court

Caroline Stauffer – Reuters, 11/26/2014

Defendants in a bribery investigation involving Brazil’s state-run oil company Petrobras are trying to move the probe to the country’s Supreme Court, which has a reputation for moving slowly and letting cases drag on for years.

Lawyers for former Petrobras officials accused of diverting company funds to political parties, as well as construction executives accused of participating in the scheme, are trying to take the case away from federal judge Sergio Moro, who has a strong record sentencing money laundering cases.

Moro has presided over the case since March, ordering dozens of arrests. The scandal at Petroleo Brasileiro SA, as the company is formally known, has shaken Brazil’s economy and became the biggest crisis yet for President Dilma Rousseff, who was chairwoman of the company’s board from 2003 to 2010.

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Next Four Years Will Be Pressure Cooker For Brazil Pres Dilma

Kenneth Rapoza – Forbes, 11/05/2014

October 26, 2014 will go down as one of those days where Dilma Rousseff should have been more careful about what she wished for. Dilma, re-elected president of Brazil with around 52% of the popular vote, has the Workers’ Party credibility on the line. More important than politics, the business community is now counting on her for revival. If she fails to resuscitate – and no one thinks she’s the Red Cross – Brazil will be mired in slow growth for most of her second term.

Within the greater Latin American economy, Brazil is the elephant in the room, says Guilherme Loureiro, a UBS economist based in São Paulo. The region’s fortunes will largely be determined by whether its biggest economy can turn its fortunes around. Loureiro thinks it is unlikely that a new Dilma administration will introduce the type of structural reforms needed to boost savings and investment in the economy. Out of the big four emerging markets, Brazil is the worst for private investment. It equals just 17% of GDP. For Loureiro’s team at UBS, the base case scenario for Brazilian growth next year is a paltry 0.6%. In 2016, it’s 1.8%.

Dilma is currently dealing with the worst political climate since the bribery scandals known locally as “mensalão” took place in 2005.  Top executives from state owned oil and gas company, Petrobras, are being investigated for fraud. Some whistle blowers are saying Dilma knew about the fraud. This is a political grenade for the Workers’ Party which– as rumor has it — is thinking about putting up Party frontman Luiz Inacio Lula da Silva as its presidential candidate in 2018. He already had 8 years as President prior to Dilma’s election in 2010.  A mis-step by Dilma would likely put an end to those plans, even if they were carried out. If Dilma sinks Brazil, Lula won’t be able to sell himself as the clean-up crew.

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Brazilians Are Shocked, Shocked at Corruption!

Antonio Prata – The New York Times, 10/21/2014

We Brazilians suffer from a curious cognitive dysfunction, which occurs with the same frequency in our population as lactose intolerance does among the Japanese, or the inclination for punning among the English. We have the ability to be outraged by corruption, while engaging in our own petty versions of it.

As the second round of presidential voting approaches on Sunday, this evil is spreading like an epidemic. In bars, on the streets and on social networks, advocates of Dilma Rousseff, the Workers Party candidate for re-election, and Senator Aécio Neves, of the Brazilian Social Democracy Party, never tire of reminding us of the “robberies” that their rivals commit.

Workers Party supporters cite the re-election scandal in which Social Democrats were accused of bribing congressmen to approve a constitutional amendment allowing Fernando Henrique Cardoso to compete again for the presidency in 1998. Social Democrats’ supporters mention the “Mensalão,” a case in which congressmen allied with the Workers Party regularly received money diverted from Luiz Inácio Lula da Silva’s illegal campaign contributions. Those not involved in the party squabbles tend to blame all the politicians, as if the politicians were a separate species, able to corrupt our reputable citizens.

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