Brazil's Economy Is in a Race Between Reform and Justice
When Claudio Melo Filho needed someone’s attention in Brasilia, the Odebrecht Group’s head of institutional relations knew just whom to call. The man known as “Las Vegas” controlled visits with former President Dilma Rousseff. “Justice” set the agenda in the Senate, while “Cashew” was the liaison between Congress and the presidential palace.
Thus did moguls at Brazil’s giant construction firm nickname the political big shots they’d recruited to rig government contracts in exchange for campaign kickbacks – a pact of thieves that diverted billions of dollars and is now unraveling in Latin America’s biggest corruption probe. The details have come to light thanks to penitent culprits, including 77 Odebrecht executives who have agreed to tell all in elaborate plea bargains. Melo Filho’s testimony, leaked over the weekend, is the latest entry in the genre, an 82-page confessional naming higher-ups from Brazil’s major political parties, including President Michel Temer himself.
As a result of such disclosures, Temer’s mandate appears to have come down to a race to rescue Brazil’s failing economy before his inner circle collapses in criminal indictments and public acrimony. On Dec. 13, government allies cheered the landmark Senate vote for a constitutional amendment to cap public spending for up to 20 years. And this was just one in a raft of reforms -- slashing super salaries in public service, opening up oil drilling to private companies, overhauling the money-losing pension system -- that his government promised to revive the failing economy.
But no one fired confetti cannons, as one lawmaker did during impeachment proceedings against Rousseff. After six months in office -- three since impeachment -- Temer has seen his country go from exhilaration and anxious expectation to funk. Instead of economic revival, the recession has deepened: Retail sales are at a six-year low, Goldman Sachs reported in a client note. Twelve million are jobless. Temer’s ratings also have tailspun: 51 percent of Brazilians disapprove of the way he’s running the country, a 20 percent jump from July. Hence Brazil’s bipolar moment, in which a government on the verge of delivering some of the most transformative reforms in a generation is also scrambling for survival.
Six ministers in the Temer government have fallen in as many months due to scandals. One was Romero Juca, who was overheard in a wiretap plotting to smother the so-called Carwash investigation into graft and contract fraud at the state oil company Petrobras. Known to Odebrecht as “Caju,” which is Portuguese for cashew and an anagram for his surname, Juca was esteemed for his contractor-friendly initiatives in the legislature, a service he allegedly rendered in exchange for fat party donations. Another government point-man was Justice, the nom de guerre the ironists at Odebrecht gave to powerful Senate President (and former justice minister) Renan Calheiros, who clings to his legislative seat despite multiple corruption charges.
Even so, much of the agony now assailing Brazil might have been avoided, had Temer not been so ethically tone-deaf. Despite warnings to keep his distance from legally-challenged politicians, he held them close. When a top minister was called out last month for bullying a fellow cabinet member to override a zoning ban on a building in which the minister had invested, Temer waited a week before letting him go -- an eternity in a digital age when protests flare at the stroke of a touchpad.
Temer was never going to be loved, but he did present himself as “a political professional,” able to get things done and restore confidence through “conciliation and consensus,” political analyst Octavio Amorim Neto of the Getulio Vargas Foundation in Rio de Janeiro told me. “Instead we’ve seen a display of political incompetence and an arrogance that borders on dementia, which has only generated more uncertainty,” Amorim added.
Temer’s government is not lost. The scandal-tainted Congress is no more loved than he is, and with their mandates on the line in 2018, legislators have little choice but to toe the government line for reform, said Christopher Garman, an emerging market analyst at Eurasia Group. Garman reckons Temer’s chances of finishing his mandate at 80 percent. Whether the lawmakers will get behind pension reform, essential to the spending cap but threatening to many powerful special interests, is a tougher call.
The rest depends on managing public expectations beyond Brasilia. Since 2013, Brazilians have taken to the streets by the hundreds of thousands against shabby public services, bureaucratic fat cats and, increasingly, officials on the take. That wave of discontent has already toppled one bumbling government. Another is on the block.
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