Here's Dilma, probably not thinking about the economy.

Photographer: Wenderson Araujo/AFP/Getty Images

Rousseff Is Brazil's Crisis

Mac Margolis writes about Latin America for Bloomberg View. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”
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Columbus, Ohio, is a long way from Brasilia, but thanks to a bunch of angry seniors and a lot of muck, these distant compass points in the Americas are now on a collision course.

This week, Ohio Attorney General Mike DeWine filed a motion on behalf of state pensioners over losses on investments in the corruption-riddled Brazilian oil major, Petrobras.

“The allegations against Petrobras are so egregious we have no choice but to take action on behalf of Ohio’s public employees and retirees," DeWine told reporters in Columbus on Feb. 9.

Ohio is the latest plaintiff to pile on in a widening class action case against Latin America's premier state-owned oil major, where evidence of pillage grows by the day. Yet it's a measure of Brazil's woes that litigious Yankees are hardly President Dilma Rousseff's biggest worry.

Barely re-elected to a second term in October, Rousseff is holed up behind palace walls with the economy running on empty, trying to convince investors and austerity-bludgeoned consumers that she's serious about tackling corruption and getting Brazil's budget back in order.

Apparently, no one is buying it. Moody's Investor Service recently downgraded Petrobras's debt to a cut above junk as the company saw $4 billion erased from its market value. At home, Rousseff's once stellar approval ratings have plummeted, from 42 percent in December to a record low of 23 percent last week, according to Datafolha. The share of those who said she is doing a lousy job nearly doubled since December to 44 percent.

Traditionally, corruption is not a game-changer for Brazilian public opinion: Jobs, inflation and safety trump ethics any day. But Brazil's fortunes have turned dramatically. The raw materials boom that lifted all boats through the government of her predecessor Luiz Inacio Lula da Silva is well over.

New jobs are disappearing and inflation is running at a three and a half year high. Business confidence hasn't been this low since the global financial collapse after 2008, and maxed-out consumers are no longer mobbing the malls.

A Biblical drought on top of water profligacy has sapped reservoirs and hydroelectric dams and left the country with a prisoner's dilemma: how to revive the economy without provoking a national power failure?

Fold in corruption and the mix becomes toxic. The same Datafolha survey showed that 77 percent of Brazilians believed Rousseff knew the country's biggest firm was riddled with corruption, and 60 percent said she lied about it.

Another national leader might take the cue and reach out to Brazil's bickering classes with a vision of national unity. But Rousseff, who suffers criticism poorly and has little use for the impedimenta of coalition politics, escalated. In an effort to thwart coalition rivals, she fielded her own candidate to preside over Congress and was trounced by Eduardo Cunha, the leader of a rebellious faction of a senior coalition partner, the Brazilian Democratic Movement Party. The rebels won again Feb. 10 when they handed the political reform subcommittee to opposition leader Rodrigo Maia, of the Democratas Party. 

Opposition leaders, predictably, have fueled a drive to impeach Rousseff over the Petrobras scandal. More remarkably, a sizeable bloc of the ruling Workers' Party has joined the sedition. That bodes ill for Rousseff's headline austerity package to curb spending and unemployment insurance, designed to restore investor confidence. Critics have bombarded the bill with 435 amendments -- 66 of them launched by Workers' Party lawmakers, O Globo reported Tuesday.

For all the talk of global economic headwinds, Rousseff could still do plenty to kick start the economy without waiting for Congress. In a recent National Confederation of Industry study, economist Armando Castelar found that delays due to sloppy planning, administrative errors and waste on six major infrastructure projects cost public coffers 28 billion reais ($10.1 billion) through 2013.

"Brazil's problem is not the external crisis," said Carlos Pereira, a political scientist at the Getulio Vargas Foundation in Rio de Janeiro. "Dilma is the crisis." 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net