Odebrecht Mess Leaves Devastation Trail From Andes to Caribbean

  • In Peru, Colombia, Dominican Republic politicians in trouble
  • Spreading scandal so big that Peru’s GDP has been affected

Trucks ascended to Braulio Pucllo’s pasture high in the Andes mountains five months ago and piled dozens of 5-ton steel pipes along a dirt track. Workers from a consortium led by builder Odebrecht told him they would lay them down and weld them together. He hasn’t seen the laborers since.

“We want them to come back and finish the job,’’ said Pucllo, 30, as the falling rain turned to hail and his herd of alpacas wandered among the pipes. “They’d still be here working if it weren’t for Odebrecht’s corruption. Anyone who took money from them belongs in jail.”

Steel pipes left in the Andes.

Photographer: John Quigley/Bloomberg

This was not the intended fate for Peru’s grandest infrastructure project. The 1,025-kilometer (637-mile) Gasoducto Sur Peruano was meant to climb from Cuzco’s jungle gas fields to nearly 5,000 meters (16,405 feet) above sea level and then back down. Only 33 kilometers of pipe were in the ground before bribery allegations ended Odebrecht’s access to funds, prompting the government to terminate the contract last month.

Worse, the $7.3-billion pipeline is only one among numerous victims of the region-wide scandal emanating from Latin America’s biggest builder. Prosecutors from 11 countries have signed an agreement to deepen investigation into Odebrecht’s web of bribes paid to politicians, some in the form of campaign donations, first revealed in Brazil. The full scope of the fallout is far from clear, but it’s rattling governments -- and even economies -- from the Andes to the Caribbean.

‘Affected Every Country’

“It’s affected every country and gone to the highest level,” said Walter Molano, the chief economist at BCP Securities LLC in Greenwich, Connecticut.

Braulio Pucllo

Photographer: John Quigley/Bloomberg

For more than a decade, Odebrecht led Brazil’s builders on a seemingly unimpeded sprawl across the region. Officials offered up billions of dollars for roads, trains, airports and power plants, and Odebrecht obliged. Its empire has been crumbling for more than two years with its chief executive, Marcelo Odebrecht, serving a 19-year term in a Brazilian prison. The decline has accelerated since December, when the company pleaded guilty in the U.S. and agreed to the biggest-ever bribery settlement: a $4.5 billion penalty for crimes in 12 countries, mostly Latin America and the Caribbean. (The company could end up paying only $2.6 billion.)

Asked for comment, Odebrecht said it is “cooperating with Brazilian and foreign authorities to support the ongoing investigations.” It said it believes that “it must change the posture of its relations with public and private organizations” and is “adopting measures to strengthen its commitment to ethical business practices and to foster transparency in all of its actions with a view to turning the page and supporting its continuous development.”

Nowhere is the scandal more damaging than in Peru where President Pedro Pablo Kuczynski is struggling to make good on his promise to boost growth by investing in infrastructure. Cancellation of Odebrecht’s pipeline contract set back a $70-billion infrastructure plan. Other projects have slowed under added scrutiny. Finance Minister Alfredo Thorne was forced to shave a percentage point off his growth forecast for 2017.

Peru’s Government Worried

Kuczynski is also scrambling to prevent his eight-month-old government from succumbing to swirling scandal. A local court ordered former President Alejandro Toledo detained as part of a wide-ranging probe into Odebrecht’s admission it bribed officials during the three prior governments. Toledo, a former Stanford University professor, is accused of getting $20 million in exchange for a highway contract, and has since gone missing. He took to Twitter to deny wrongdoing and claim he’s the victim of a politically-motivated witch hunt.

Prosecutors are looking into Kuczynski’s role in the highway contract when he served as Toledo’s finance minister, and have called for a separate probe into reports a private equity fund he once ran received payments from Odebrecht. He denies receiving any bribes, but Peruvians are increasingly suspicious. His approval rating was 29 percent last month, just less than half the level it was when he took office, according to GfK Peru, a research company.

The mistrust is evident in even in the Andes, far from Peru’s capital. The pipeline buoyed the town of Calca’s economy over the last two years, creating jobs and filling hotels and restaurants. With the pipeline lying abandoned and hopes of a cheap gas supply fading, local residents are frustrated. Sonia Quispe, a shop assistant, said: “If it’s true that presidents were involved in corruption, they should pay for what they did. I don’t trust any of them.”

Likewise the Dominican Republic’s President Danilo Medina, re-elected last year with the highest approval ratings in the region, has seen an Odebrecht-driven reversal of fortune. His pet project, a $2 billion coal-fired power plant Odebrecht was building, stalled after financing dried up due to the revelations. That’s forced the government to turn to the market to raise hundreds of millions of dollars it’s lacking at a time that when its budget is already being squeezed.

Fighting against falling approval ratings, Medina has appointed a commission to investigate and has made a show of coming out against Odebrecht, which admitted in its U.S. settlement to bribing local officials from 2001-2014.

‘Endemic Evil’

“It’s time to call this by its name: corruption is an endemic evil in our society,” Medina said to Congress late last month. “We’re facing a regional and international epidemic.”

Again and again across Latin America the pattern replicates, like a virus. In Panama, it has been alleged that Odebrecht contributed to the 2014 campaign of President Juan Carlos Varela. Opposition lawmakers have called for Varela’s removal. He made public a list of his campaign’s contributors, on which Odebrecht’s name doesn’t appear, and said donations weren’t bribes.

In Colombia, the government is terminating two of Odebrecht’s endeavors: a highway and dredging of the Magdalena River. Local authorities are investigating both. The attorney general also said Odebrecht paid $1 million for an opinion poll to curry favor with President Juan Manuel Santos during his re-election campaign. Odebrecht declined to comment other than to reaffirm its commitment to cooperate with officials investigations. Santos said in a March 7 speech his administration “built a wall” so Odebrecht couldn’t get to his officials, and that all infrastructure projects have been contracted with total transparency.

Carwash

The trouble is far from over. More than 75 Odebrecht executives signed plea bargains in Brazil as part of the so-called Carwash probe dating back to 2014, and the possible publication of their testimonies could wreak havoc at home and abroad. Likewise, the agreement Latin American authorities signed on Feb. 16 for cooperation on investigations related to companies involved in Carwash signals that resolution is a ways off.

The scandal is galvanizing politicians to take action against corruption. Ecuador and Panama have barred the company from bidding for government contracts while Peru and Colombia have told Odebrecht to sell its businesses and leave. Peruvian lawmakers last month rushed through a much-delayed constitutional reform that means acts of corruption won’t be subject to the statute of limitations.

“Corruption conspires against growth,” said Alberto Ramos, chief Latin America economist at Goldman Sachs. “What do you prefer? To build a bridge that costs three times what it should or not build a bridge? Not build a bridge.”

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