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Photographer: Igo Estrela/Getty Images

Brazil's Crooked Politicians Bite Back

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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Brazilian lawmakers never sleep. So it was no surprise when the lower house spent the pre-dawn hours last Wednesday poking holes in a rigorous anti-corruption bill that was drafted to restore probity to government. Cowing judges and prosecutors, discouraging whistleblowers and decriminalizing illicit earnings -- these are just a few pearls from Congress’s latest all-nighter.

Whatever else the legislators achieved, the public backlash they triggered was swift and shrill, almost drowning out news of a tragic airline crash in Colombia on Monday that killed 71 passengers, nearly an entire Brazilian soccer team among them.  Prosecutors in the so-called Carwash task force investigating contract fraud and kickbacks at the state oil company Petrobras threatened collectively to resign if the bill became law.

That’s not a foregone conclusion. The disfigured anti-corruption legislation must still clear the Senate, which is mindful of the public blowback. President Michel Temer could still veto the bill. Even if he doesn't, the Supreme Court will have its say, and its mood is hardly indulgent. Chief Supreme Court Justice Carmen Lucia called the congressional decision a move "aimed to curb the independence of the judiciary and prosecutors office." And all bets for impunity are off with the latest slew of plea agreements by executives from Odebrecht SA, the huge construction conglomerate whose CEO Marcelo Odebrecht was convicted of corruption and has agreed to tell prosecutors what he knows about politicians on the take.

Yet the hyperactive legislators were a useful reminder that the formidable battle against corruption, which has toppled political kingpins, sent business moguls to jail, and revived flagging faith in the rule of law in Latin America's biggest democracy, is a work in progress. Any resemblance to the political pushback that sabotaged Italy's storied Clean Hands operation against graft and payola in the 1990s is no coincidence: Of 28 legislators under investigation by Carwash prosecutors, 17 joined the pile-on against the anti-corruption bill.

This is awkward news for the little-liked Temer administration, which is counting on bold reforms and a team of technocrats to reset policy and yank the economy out of its two-year tailspin. Foreign investors, new jobs and, yes, maybe even the grail of public approval would follow.

It was a plausible plan. Capping federal outlays is an artful way to keep Brazil's professional spendthrifts from legislating expenses and then stretching the budget to fit them, a habit which has stoked inflation, spooked investors, and run the federal deficit to a record $50 billion. Facing scarce resources, Brazil's interest groups would be obliged to argue their case for line items openly. A spending cap, government boosters argued, would also force the political class to reform the loss-making social security system, where unsustainable pension increases are locked in by constitutional mandate.

And yet the technocrats’ designs have collided with political hubris, as repeated sleights of hand by some of Temer's closest advisers have roiled Congress, affronted cops and the courts, and widened the moat between the palaces in Brasilia and everyone else. Lost on no one was the role of Temer's Democratic Movement Party cohorts in staging the afterhours assault on the anti-corruption bill.

Temer deserves credit for shaking the country from the political torpor that had all but paralyzed decision-making under the Rousseff administration. He also challenged the conceit of her policy dirigistes who proposed to spend their way to prosperity.

What he's failed to do so far is sell Brazilians on the eminently reasonable argument that there is no recovery without reform -- much less that an ethically-challenged government can set the country straight. "What they don't get is that appearing to indulge corruption and clamping down on investigators pits you squarely against the people," said Monica de Bolle, of the Peterson Institute for International Economics. "Optics is also politics."

All eyes will be on the Brazilian street, where nationwide demonstrations once again are scheduled for this Sunday.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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

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