Editorial Board

The Opportunity in Brazil’s ‘Carwash’ Scandal

Beating back corruption is the first step in regaining public trust and support.

The title for Most All-Consuming Public Corruption Scandal is currently held by Brazil, where the so-called “Carwash” investigation has been going on for more than two years and has ensnared top corporate executives and dozens of elected officials, including two past presidents. One question is whether the investigation will derail necessary economic reforms -- or enable them.

Anything’s possible, and the imminent release of sealed transcripts from cooperating witnesses in the case is sure to implicate even more politicians. In other words, this will get worse before it gets better. Yet the fight against corruption is essential to breaking up not only the toxic nexus between business and government, but also the distrust and low esteem in which the public holds Brazil’s elected officials.

One of the greatest challenges facing President Michel Temer and his legislative majority is fixing Brazil’s pension system, which currently has no minimum retirement age, benefits even those who have made no contributions, replaces a higher proportion of pre-retirement income than most developed countries, and is keyed to increases in the minimum wage. Its shortfalls account for more than half the government’s budget deficit.

Ironically, the fight against corruption may make necessary but unpopular changes -- such as a minimum retirement age and requirements to work longer -- easier. Campaign finance reforms have made legislators more dependent on state funding, giving Temer more leverage. Moreover, public disaffection and the pall of scandal have put them under even greater pressure to dig Brazil out from its fiscal hole and alleviate its economic crisis.

Brazil’s Highs and Lows

They could make their task easier if they applied some austerity to their own more liberal pensions and perks. Temer could build on his recent proposals to simplify Brazil’s labyrinthine tax code by also making it more progressive -- something that would lessen austerity’s political sting. Legislators should not only abandon their outrageous effort to engineer an amnesty for past campaign finance crimes; they should also fine-tune changes made in 2015 to rules that banned corporate cash but had the unintended consequence of turbocharging campaign donations by organized crime.

Temer has pledged that he will remove any of his aides or ministers formally charged by prosecutors. As new revelations emerge, that’s a commitment he must keep. Corruption is corrosive both to Brazil’s body politic and to the reforms necessary to revive and strengthen Brazil’s economy.

    --Editors: James Gibney, Michael Newman

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

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