Brazilian politics/Gone to pot

Brazilian politics

Gone to pot

A sprawling corruption case poses a threat to badly needed economic reforms

Mar 9th 2015 | SÃO PAULO

  • The Economist
  • dilma

ON MARCH 8th Dilma Rousseff, Brazil’s president, used a televised women’s day address to justify the need for belt-tightening. This is required to close a budget deficit of 6.75%, stave off a painful ratings downgrade and revive a flagging economy. In an echo of last year’s election campaign, she blamed the country’s economic woes squarely on the global financial crisis (and a record drought in 2014). The government did as much as it could to weather these adverse events, the president explained. “Now we must divide part of this effort between all sections of society.”

As in the election, Ms Rousseff neglected to mention that most other big emerging markets, and many Latin American neighbours, have done better than Brazil. But lots of Brazilians were in any case not listening. As soon as the president appeared on air, several large cities reverberated with the noise of clanging pots. In an unprecedented, and unprecedentedly loud, display of disaffection with their government, thousands took to their windows and balconies with kitchen utensils. In his São Paulo flat, your correspondent could barely make out what the president was saying above the din, which went on for all 15 minutes of the pre-recorded speech.

More worrying for Ms Rousseff than the pot-bangers, however, was a ticking time-bomb set off at the start of the weekend. On March 6th Teori Zavascki, a Supreme Court justice, released the list of politicians who Brazil’s chief prosecutor, Rodrigo Janot, would like to see investigated in connection with a multi-billion-dollar bribery scheme uncovered a year ago at Petrobras, the state-controlled oil giant. Mr Zavascki approved most of Mr Janot’s requests. Since the Supreme Court must agree to any investigation into anyone who enjoys parliamentary privilege, the decision frees prosecutors and police to chase leads which point to sitting congressmen.

It will be the biggest such probe in Brazilian history. Mr Zavascki opened 23 inquiries into 49 individuals, among them 22 federal deputies and 12 senators. By comparison, the mensalão (“big monthly”)—a scheme that operated from 2003 until it came to light in 2005 and in which Ms Rousseff’s Workers’ Party (or PT) arranged regular backhanders for congressional allies in exchange for their votes—began with a single investigation. That scandal hurt the government of Luiz Inácio Lula da Silva, Ms Rousseff’s predecessor, and landed some of the PT’s leading lights behind bars.

The petrolão (“big oily”) is likely to be even more damaging. Although Ms Rousseff herself is not being investigated, all but two of the 49 suspects have ties with the ruling coalition, led by the PT. Mr Janot’s court filings describe a “complex criminal organisation” in which construction companies that won contracts with some Petrobras divisions diverted around 3% of their value into slush funds for politicians. Some got one-off bribes; others apparently received monthly payments of 30,000-500,000 reais ($10,000-160,000), depending on their clout.

The “Janot list” includes big names: Humberto Costa, the PT’s Senate boss; Gleisi Hoffman, another PT senator who was Ms Rousseff’s chief of staff in 2011-14; the party’s treasurer, João Vaccari. Antonio Palocci, who briefly preceded Ms Hoffman as chief of staff until he resigned over an unrelated scandal in 2011 (and had earlier served as Lula’s finance minister), will be investigated by a lower court. He is suspected of accepting dodgy campaign donations during the election of 2010, when he co-ordinated Ms Rousseff’s campaign. The centre-right opposition did not emerge unscathed, either. Antonio Anastasia, an influential senator and right-hand man of Aécio Neves, the defeated presidential candidate of the Party of Brazilian Social Democracy (PSDB), is also in Mr Janot’s sights. All are suspected of accepting bribes and money-laundering. All deny wrongdoing.

As expected, Mr Janot has also targeted Eduardo Cunha and Renan Calheiros, powerful speakers of the Chamber of Deputies and Senate, respectively. Both are members of the Party of the Brazilian Democratic Movement (PMDB), the PT’s main coalition partner. Besides immediately dismissing the prosecutor’s suspicions as untrue, the duo went on the offensive. Mr Cunha tweeted that the court filings were “a joke” and accused Mr Janot of tarring everyone with the same brush. That, the speaker seemed to imply, was designed to dilute the PT’s role in the scandal in an effort to gain favour with Ms Rousseff, presumably so she will nominate him for a second term when his first expires in September. Mr Calheiros even suggested that Congress should set up its own inquiry into the public prosecutor’s office.

This is fanciful. The public prosecutor is constitutionally independent of the executive, and Mr Janot has exercised that independence fiercely. He has fingered politicians from Ms Rousseff’s inner circle. And besides Ms Rousseff’s nomination, he needs congressional approval to remain in his post. If that were his main concern, he might have been expected to go easy on Congress’s leadership.

Messrs Cunha and Calheiros know this. Their tantrum probably had more to do with rising animosity towards Ms Rousseff, both by her disaffected base and Brazilians at large. Even before the panelaço, as pot-banging is known in Portuguese, the president’s approval rating had halved since the start of her second term in January; the PMDB does not want to sink with her. It has also nursed grievances over ministerial nominations (its leaders thought they would get more). The PMDB now feels sidelined in presidential decision-making. It was not, for instance, consulted on most of the spending cuts and tax rises being pushed through by Ms Rousseff’s hawkish new finance minister to put the fiscal house in order. Under fire from Mr Janot, the PMDB will demand more say. There is talk of a new nomination to the ministry responsible for liasing with Congress. Ms Rousseff may also bring Michel Temer, the party’s national boss and Ms Rousseff’s vice-president, into the small clique, composed entirely of close PT confidants, which determines policy.

If successful, this tactic may cool congressional nerves in the short run. Yet given the complexity of the corruption scheme and the number of people under investigation, it may be years before anyone is formally charged, let alone convicted. As police dig deeper into the affair, more politicians’ names are likely to surface. Mr Janot’s probe is eyeing Petrobras divisions where the PT and PMDB are suspected of holding even greater sway. None of this bodes well for the economic reforms. Congressmen trying to clear their names will be wary of angering more voters by backing unpopular economic measures (they are already the focus of the pot-bangers’ ire over alleged graft).

The reforms, however, are becoming more urgent by the day. The real tumbled by 5% against the dollar last week amid the political uncertainty surrounding the “Janot list”. Inflation reached 7.7% in February, the highest in a decade (pushed up in part by long overdue hikes in regulated prices for fuel and electricity). The central bank raised interest rates last week; at 12.75% they are now back to where they were just after Ms Rousseff first took office in 2011, and up from 7.25% in 2012-13. Unemployment is on the rise, albeit from a record low of below 5%. Ms Rousseff had better get used to the sound of clinking cutlery.

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