Brazil's Rousseff Pours Gas on Petrobras Fire

Fighting the good fight.

Photographer: Vanderlei Almeida/AFP/Getty Images

By making administration loyalist Aldemir Bendine the new head of Brazil's state-run oil giant Petrobras, President Dilma Rousseff has demonstrated that she's more interested in protecting her party's interests than restoring the crown jewel of Brazil's economy.

At the news, investors have dumped Petrobras shares, and you can't blame them: The company is engulfed in a monumental corruption scandal involving billions in inflated construction contracts, which has implicated scores of executives and politicians. And Bendine, who has been running Banco de Brasil, is closely tied to Rousseff's Workers’ Party, which has turned Petrobras into a piggy bank for pet programs. Bendine's reputation is further clouded by an investigation into irregular loans and a large unexplained fine he paid to Brazil's tax agency in 2012.

Of course, even if Rousseff had named more market-friendly executives to Petrobras's top management team (after the company's previous leaders defenestrated last week), they would still be reporting to her, which is enough to make the market nervous. As the chairman of Petrobras from 2003 to 2010, Rousseff either a) did not see, b) chose to ignore or c) took part in the dodgy deals that have caused the company to rack up more than a billion dollars in alleged graft losses and incinerate tens of billions in its market value.

Since taking power in 2002, the Workers' Party has steadily eroded Petrobras’s managerial autonomy, a process that accelerated with the 2007 discovery of enormous oil deposits off the coast of Brazil. At this point, the only thing that can reassure Brazilian investors and restore Petrobras's luster is a reversal of the most damaging policies the administration has put in place.

The recent plunge in oil prices may provide the opportunity. It has already staunched the more than $44 billion in operating losses that Petrobras incurred after the government, desperate to curb inflation, forced it to sell gasoline to consumers at a loss. Low oil prices also give Rousseff political cover to revisit the 2010 law that restricts foreign participation in new production in offshore fields -- by limiting how much foreigners can invest, setting onerous requirements for using more expensive made-in-Brazil drilling equipment, and giving the government oversight of joint-production agreements. The fact is, Petrobras doesn't have the resources to exploit these huge fields on its own; it needs foreign partners.

Meanwhile, even as the investigation into alleged kickbacks from a construction cartel to Petrobras executives and politicians grinds forward, Rousseff needs to push ahead with her pledges to carry out new anti-corruption laws, especially reforming campaign finance. Extending the five-year statute of limitations on investigations by Brazil’s securities regulator would also help. So would enacting real protections for whistle-blowers.

The good news is that the continuing Petrobras investigation depends not on Rousseff or Petrobras’s new chief executive, but on a team of aggressive young prosecutors. With their willingness to go after construction company executives and haul some away in handcuffs, they are breaking new ground in the country’s fight against corruption.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.