Brazil Needs to Look Beyond Scandal

Reform is the only way to clean up government.

Who can work up the energy to protest anymore?

Photographer: Gustavo Gomes/Bloomberg

It's hard to catch a breath in Brazil. Just the other day President Michel Temer dodged a brick, surviving potentially job-ending charges in electoral court that he'd won his mandate with dirty campaign money. Political bulls promptly declared Temer a survivor who would not only salvage vital political and economic reforms but also tough out his beleaguered presidency.

But in a country where two of the last four democratically elected leaders have been ousted in disgrace, and some of the highest-ranking public officials are currently under investigation, shorting political scandals is a fool's trade.

On Monday evening, chief public prosecutor Rodrigo Janot, citing "crystalline" proof, formally accused Temer of corruption, making him the country's first sitting president to face charges of criminal conduct. Janot filed charges against Temer days after police took another round of testimony from beef baron Joesley Batista, who tarred Temer in a sting operation last month and has since said he paid off hundreds of politicians, allegedly including a presidential adviser and Temer himself.

As grave as they sound, the allegations against yet another national leader surprised no one in Brazil. After three straight years of the so-called Carwash case, Latin America's biggest corruption investigation -- with 144 executives, bureaucrats and political operators sentenced to more than 1,464 years in jail -- the sight of politicians in perp walks and police choppers swooping down on mansions has become sadly routine.

And yet Temer, who denies any wrongdoing and has called Janot's charges "fiction," is not on the brink. A consummate dealmaker, he controls a reliable majority in Congress, where at least two-thirds of the lower house must sign off on the charges against him to send him to trial. That firewall, and maybe a bit of prosecutorial overkill, could explain why the streets are not boiling with anti-government protests, despite Temer's dismal approval ratings.

Rather than public indifference, the apparent calm could be a sign that Brazilians are stumped. With elections 16 months away and much of the political class discredited or under scrutiny, it's hard to say who might emerge to squire the country to recovery, much less what they will be selling.

Opinion polls aren't much help. The early front-runners are figures Brazilians already know, led by former president Luiz Inacio Lula da Silva, the graying -- and only -- hopeful of the Workers' Party, who would draw around 30 percent of the vote if the election were held today. But he is pushing 72, some of his closest associates are in prison or under investigation, and Lula himself is fighting corruption charges in five separate cases. The question for the moment is: Who will run faster, Lula or the law?

If Lula and his political peers -- half of whom hail from Brazil's encrusted political oligarchies -- are the shock of the old, the growing crowd of outsiders and parachutists is harder to fathom. Brazilians' current favorites include the hard right's Jair Bolsonaro, who rues the day the military junta retired, and the Sao Paulo publicist-turned-mayor Joao Doria Jr., best known for hosting the local franchise of Donald Trump's "The Apprentice." Then there are the dark horses, like the popular federal judge Sergio Moro, who presides over the vast Carwash case but has repeatedly denied any electoral ambitions, and former Supreme Court chief justice Joaquim Barbosa, who oozes ambition but has never ventured into politics.

Pulling for a ringer is nothing new to Brazilians, who inherited from their colonial masters a soft spot for Sebastianism -- after the fabled Portuguese monarch who perished in battle but whose redemptive return was always awaited. Instead of a savior, what Brazil could use is a radical centrist: someone fiscally literate enough to resist populist quick fixes and politically dexterous enough to avoid the temptations of crony capitalism.

Call me a policy Sebastianist, but Brazil could do worse than to take a cue from the reformist 1990s, a much-maligned decade when slimming the public sector and unfettering the markets were the order of the day. The Carwash corruption case is far from over, but one of its talking points is clear: Beware the tentacular reach of the state and its gatekeepers.

Brazilians pay a third of what they earn to the government, a tax obligation so vast and vexing, it takes businesses 2,600 hours to prepare annual returns, compared with the Latin American average of 356. That haul has allowed officials in Brasilia to play both CEO, squeezing private business (think Petrobras's historical monopoly in oil drilling), and groom corporate darlings on the public nickel. Economists Marcelo Curado and Thiago Curado recently found that selective tax breaks to manufacturers multiplied ninefold from 2004 to 2013, "so deepening the dependence of industrial sector on tax incentives."

"Brazil built a political system that is exceptionally vulnerable to pressure groups, who contribute handsomely to political campaigns and then demand tax incentives and contracts," Fernando Schuler, a professor at Sao Paulo's Insper University, told me. "We bet on a development model that tends to explosion." That's a problem that will linger much longer than Temer.

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

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