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Unrest in Brazil, Rousseff in Hot Water

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Unrest in Brazil, Rousseff in Hot Water


president dilma rousseff waves Brazilian President Dilma Rousseff

With their reserve of political capital being drained, Brazilian President Dilma Rousseff’s administration may be without a leg to stand on.

Corruption at the state-run oil company, Petrobras, continues to plague Brazil’s economy. The company has been accused of issuing contracts to favored construction companies in exchange for bribes.

The scandal has set the country ablaze. Many detractors note that Rousseff was chairwoman of the company during the years the corruption was said to have taken place. Rousseff has vehemently denied any knowledge of the corruption. Although she has not been indicted, her critics are not so easily swayed.

Petrobras has already cost the country billions of dollars with $2 billion being a direct result of the corruption. Around 250,000 jobs have been lost as a result.

Breakdown of Alleged Corrupt Practices (2007-2009)

(The timeline below is according to the testimony of former Petrobras executive, Pedro Barusco; estimates derived from court testimony and criminal complaints; and Petrobras internal documents.)

  • Alleged corruption takes place under the rule of Brazilian President Lula de Silva. Rousseff is among the board of directors for Petrobras during this time. Prosecutors say that much of the ill-gotten funds were awarded to parties that supported Lula de Silva and Rousseff. Rousseff is later specifically chosen by Lula de Silva to be his successor.
  • Cartel holds meetings in offices of UTC engineering firm. The cartel comes up with ways to distribute the contracts (at inflated prices) among the members.
  • In secret correspondence, Odebrecht (Brazilian conglomerate that specializes in construction among other things), urges Petrobras to bar non-members from bidding. Petrobras complies.
  • Petrobras helps cartel members bid close to the maximum limit. Petrobras receives payment for their help.
  • Budget for refinery was to be 2.3 billion but due to bids, Petrobras increases budget to 13.4 billion.
  • Cartel pays bribes worth 3 percent of each inflated contract (approximately $550 million) to ruler’s Workers’ Party (2 percent), Petrobras executives (0.7 percent), and Popular Socialist Party (0.3 percent).
  • All parties have denied involvement.

Public Outcry

Protestos_de_15_de_março_de_2015_em_São_Paulo-3Protesters argue that even if Rousseff was not directly involved in the illegal practices, she must have been incompetent to be completely unaware of the illicit acts. Recent MDA polls show that over 60% of Brazil’s citizens insist on ousting the President. (Little more than 30% wish for her to remain in office; the rest are unsure). A survey conducted by the Datafolha polling institute revealed that the amount of Brazilians who would gauge her administration as “good or excellent” has fallen to 10%. (It should be noted that her approval rating was around 42% at the end of 2014.)

Beyond empirical data, the fervor will manifest itself on August 16th, when 100,000 people have signed up to march against the President.

Rousseff’s administration would be wise to take heed.

Danilo Forte, deputy leader of the Democratic Movement Party (a party aligned with the current administration), expressed his concerns about the mounting pressures.

“Everything is going to very much depend on the outrage channeled by the demonstrations.” said Forte.

Economic Blowback

As expected, the outrage over the scandal is a product of the economy’s nose dive. At the same time, the volatility of the political climate has placed further strain on the country’s economy, creating a snowball effect.

We have already seen the real, the Brazilian currency, lose 24% of its monetary value this year. None of the other world currencies have experienced a loss of this magnitude. Inflation has already risen by 9.25 percent in July, more than double the target of the central bank. Further, Standard and Poor’s have revealed that they are considering downgrading the country’s current BBB credit rating to junk. It is speculated that the Brazilian economy will contract another 1.5% as the year goes on signaling their worst economic downturn in 25 years. According to economists, Brazil’s ability to meet fiscal targets in the coming years remains a dubious promise.

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