The Panama Papers: Damning Evidence Against Latin American Elites?

By Emma Fawcett* and Fulton Armstrong

Panama Papers

Photo Credit: Pixabay / CC0 Public Domain

The “Panama Papers” have revealed the reputed secret accounts and tax-evasion strategies of a number of Latin American leaders, but preexisting widespread perceptions that political and economic elites are corrupt may reduce the immediate shock value of the revelations.  More than 11 million documents leaked from the Panama-based law firm Mossack Fonseca – given an initial review by the Süddeutsche Zeitung and International Consortium of Investigative Journalists (ICIJ) – provide evidence of 215,000 arrangements by which 14,153 powerful and wealthy clients from around the world hid their money from the prying eyes of the media, tax collectors, and public-accountability experts.  Early reports already indicate Latin Americans – small-time players compared to the Russians and some Europeans – are among those mentioned.

  • The Petrobras scandal that has paralyzed Brazil will find further fuel in these files. Investigators in Operation Car Wash apparently had no knowledge of many accounts held by Petrobras officials.  A secret company linked to House Speaker Eduardo Cunha, who’s leading the charge to impeach President Rousseff, reportedly figures prominently.
  • Argentine President Macri, his father, and brother reportedly had an offshore company for 10 years. They closed it in 2009, two years into Macri’s term as Buenos Aires mayor, but he did not report it.  The government says he was only “circumstantially” the CEO.
  • The president of the Chilean branch of Transparency International, Gonzalo Delaveau, resigned because he was linked to at least five offshore companies.
  • Mexican President Peña Nieto’s association with tycoon-contractor Juan Armando Hinojosa, who reportedly had a massive array of shelters worth US$100 million, is once again a liability. The President was dragged through the mud – and eventually exonerated of personal involvement – over a mansion that Hinojosa allegedly gave to his wife.  The Mexican government is investigating several dozen others named in the documents.
  • Many other cases are in the wings. Pedro Delgado (former governor of Ecuadorian Central Bank and cousin of President Correa); financial backers of Peruvian Presidential candidate Keiko Fujimori; and an array of former central bank and intelligence officials – Peruvians, Venezuelans, Panamanians, and others – are all being looked at.  In El Salvador, the Attorney General, already criticized for his investigative zeal, has raided Mossack Fonseca’s offices, suggesting more revelations to come.

Allegations of tax evasion, hidden income, and other forms of corruption are a mainstay of Latin American political lifeand the Panama revelations will only aggravate the oft-held opinion that rich, powerful people play by their own rules to maintain wealth and power.  Ramón Fonseca, one of the founders of the law firm, claims that the publicity is part of “an international campaign against privacy,” which he called “a sacred human right [and] there are people in the world who do not understand that.”  The backlash against someone like Argentine President Macri may not be too great, especially because his family ended the tax haven years ago.  But what makes the allegations potentially disruptive is the number of people implicated – across public and private sectors – in so many countries, in an investigation that has only just begun.  Further revelations are sure to come and, although themselves a sign of transparency, challenge people’s faith that leaders will come clean.  The revelations will fuel popular cynicism and discontent in the short term, but renewed demands for transparency may eventually help rekindle popular confidence in government.

April 11, 2016

*Emma Fawcett is a PhD candidate in International Relations at American University.   Her doctoral thesis focuses on the political economy of tourism and development in four Caribbean case studies: Haiti, Dominican Republic, Cuba, and the Mexican Caribbean.

Brazil: Daring to Look at Succession Scenarios

By Silvio Levcovitz*

Lava Jato

Photo Credits: Instituto Liberal (Brasil) and Brasil 247 / Google Images / Labeled for noncommercial reuse

Brazil’s snowballing scandals are generating a high level of uncertainty regarding the country’s political future.  “Operation Car Wash”—a two-year investigation by a task force of the Federal Police and the Federal Prosecutors—has already led to the conviction and 20-year imprisonment of several senior officials from Petrobras and prominent construction companies, and others are likely to follow.  In Brazil, congressmen, cabinet ministers, and the President can be criminally charged only by the Supreme Court, through a long, difficult process called “privileged forum.”  On March 17, former President Lula, under investigation for allegedly receiving two properties as a bribe from construction companies, was designated a Minister of State in President Dilma Rousseff’s administration, an appointment that would have afforded him that protection.  The judge pursuing him released a recording of a call from Dilma offering him immunity as well as Lula’s calls on family and other private matters.  Many in the Brazilian legal community have disapproved of the judge’s disclosure of the calls as disrespecting the rule of law and the right to privacy, but the damage to Dilma and Lula was done.

Calls for the President’s impeachment are surging—and she repeatedly rejects the pressure to resign.  On Sunday, March 13, a half-million people protested in São Paulo, and the press estimates that another 1-2 million demonstrated elsewhere around the country.  (Demonstrations supporting Dilma have attracted 100,000 citizens in São Paulo.)  The PMDB, party of Vice-President Michel Temer and President of the House Eduardo Cunha, is officially quitting the government this week, and other minor parties appear likely to do the same, definitely cracking the presidential support.  The impeachment process in Brazil has two steps.  In the House, two-thirds of its 513 members (342 votes) are required for “admission” or approval, in which case the Senate can decide by majority vote to take up the charges, resulting in the President being suspended for up to 180 days.  Conviction requires the votes of two thirds of the 81 senators.  Although press reports indicate the mood is for the impeachment, the government is offering positions and funds individually to Congressmen and in hopes of achieving a low turnout to stop the process in the House.

Predicting the outcome of such a volatile situation is inherently risky, but discussion of post-Dilma scenarios is growing increasingly common.  Should she step down or be removed from office, Vice-President Michel Temer would be her constitutional successor.  Like Dilma, however, Temer is being charged by the Superior Electoral Court on suspicion of illegal campaign financing and, if convicted, would not be allowed to take office.  The next two in line to succeed her—President of the House Eduardo Cunha and President of the Senate Renan Calheiros—have been snagged by Operation Car Wash and face charges by the Supreme Court, suggesting that they too could be disqualified.  (The Federal Attorney General has already asked the Supreme Court to issue a preventive order to remove Cunha because of evidence that he has received US$5 million in secret Swiss bank accounts, without any justification.)  That leaves Supreme Court President Ricardo Lewandowski as a possible successor for a maximum period of 90 days, at which point elections would be called.  As Brazil faces crisis after crisis, the press have taken to commenting that the country’s fast-paced, dramatic events make the American series House of Cards look slow and boring. 

March 30, 2016

* Silvio Levcovitz is a CLALS Fellow and political science PhD candidate at the Universidade Estadual de Campinas, São Paulo.  He has been a public lawyer in Brazil and is researching criminal cases of corruption and civil claims of administrative misconduct from 1991 to 2014.

How are the Americas Faring in an Era of Lower Oil Prices?

By Thomas Andrew O’Keefe*

Gas Station Guatemala

Photo Credit: Josué Goge / Flickr / Creative Commons

The sharp drop in global oil prices – caused by a combination of a slowing Chinese economy hurting commodities sales and efforts by Saudi Arabia to retain market share – has both downsides and advantages for Latin America and the Caribbean.  By keeping production levels steady, despite decreased demand, so that a barrel of crude remains below US$40, the Saudis’ hope is to put U.S. shale oil producers and Canadian tar sands producers out of business.  The drop in oil prices has had a varied impact elsewhere in the Americas:

  • The effect in Venezuela, already reeling from over a decade of economic mismanagement, has been catastrophic. The ripple effect is being felt in those Caribbean and Central American countries that grew to depend on PetroCaribe’s generous repayment terms for oil imports that allowed savings to be used for other needs.  In 2015, for example, this alternative funding mechanism in Belize was slashed in half from the previous year.  The threat of interest rate hikes on money that must eventually be repaid for oil imports also pushed the Dominican Republic and Jamaica to use funds raised on international capital markets to reduce their debt overhang with Venezuela.  (For those weening themselves off PetroCaribe dependency, however, the lower prices are a silver lining.)
  • Low oil prices have also knocked the wind out of Mexico’s heady plans to overhaul its petroleum sector by encouraging more domestic and foreign private-sector investment.
  • In South America, the decline has undermined Rafael Correa’s popularity in Ecuador because the government has been forced to implement austerity measures. The Colombian state petroleum company, Ecopetrol, will likely have to declare a loss for 2015, the first time since the public trading of its shares began nine years ago.  In Brazil, heavily indebted Petrobras has seen share prices plummet 90 percent since 2008, although that is as much the result of the company being at the center of a massive corruption scandal that has discredited the country’s political class.
  • On the other hand, lower petroleum prices have benefitted net energy importers such as Chile, Costa Rica, Paraguay, and Uruguay.

The one major oil producer in the Americas that has not cut back on production and new investment is Argentina – in part because consumers are subsidizing production and investment by the state petroleum firm YPF, which was renationalized in 2012 and now dominates domestic end sales of petroleum products.  Prices at the pump remain well above real market values.  While successive Argentine governments froze energy prices following the 2001-02 implosion of the Argentine economy, this time policy is keeping some energy prices high.  This encourages conservation and efficiency and spurs greater use of renewable alternatives, but it becomes unsustainable during a prolonged dip because it will, among other things, make the country’s manufacturers uncompetitive.  The Argentine example underscores that predictions of a pendulum shift in Latin America in favor of private-sector investment in the hydrocarbons sector over state oil production are still premature.

The lower prices do not appear likely to harm the region’s continuing substitution of natural gas for coal and oil as a transitional fossil fuel to greener sources of energy.  Natural gas prices remain at their lowest levels in over a decade, and the expansion of liquefied natural gas plants allows for easier transport of natural gas to markets around the world.  They are also unlikely to dent the global shift to greater reliance on renewable energy resources driven by the international consensus that climate change can no longer be ignored and something must be done to address it.  At the UN climate change talks in Paris last December, for example, countries agreed to keep temperature increases “well below” 2 degrees centigrade above pre-industrial levels and made a specific commitment “to pursue efforts” to achieve the much more ambitious target of limiting warming to no more than 1.5 degrees centigrade.  The year 2015 was the second consecutive year in which energy-related carbon emissions remained flat in spite of 3 percent economic growth in both years. 

March 24, 2016

*The author is the President of San Francisco-based Mercosur Consulting Group, Ltd.  He chaired the Western Hemisphere Area Studies program at the U.S. State Department’s Foreign Service Institute between July 2011 and November 2015.

Brazil: Crises Hindering Foreign Policy

Dilma 2016

Photo Credit: Marcelo Camargo / Agência Brasil / Flickr / Creative Commons

by Tullo Vigevani*

The pace of Brazil’s rise in international affairs since 2000 is likely to be slowed by the multiple crises facing President Dilma Rousseff’s government and the private sector, but Brasilia will strive as best it can to maintain its global and regional priorities.  Political tensions are soaring amid corruption indictments and severe economic contraction – the nearly 4 percent decline in GDP in 2015 is expected to be repeated this year, with increasingly negative social consequences.  The government faces growing criticism that extends beyond the principal opposition parties: its own party base and supportive labor unions and social movements criticizing Rousseff’s administration.  The corruption investigations have spread far beyond the national oil company, Petrobras, and into corporate networks across economic sectors, exacerbating a climate of growing anxiety.  Major media are railing against the President and her predecessor, Luiz Inacio Lula da Silva, whose detention for questioning by a judge last week deepens the crisis and further dims the already faint prospects for a restoration of stability in 2016.

These developments have created an element of paralysis in foreign policy.  Foreign minister Mauro Vieira, like his two immediate predecessors – Luis Alberto Figueiredo (2013-2015) and Antonio Patriota (2011-2013) – has been unable to sustain the “active and proud” policy of Lula-era Foreign Minister Celso Amorim (2003-2010).  After basking not long ago in the fruits of its assertive foreign policies – including selection as host of the 2016 Olympics – Brazil’s government now is dealing with matters such as the Zika virus and microcephaly taking front stage.  Rousseff on one hand is barraged by criticism of a lack of macroeconomic rigor and the failure to better integrate Brazil’s economy into global production chains, and on the other she is criticized for slow investments and development policies.  Her ambition to promote South American trade and economic integration is being undermined by the recessionary pressures confronting Brazil and neighboring economies buffeted by the end of the commodities boom.

  • MERCOSUR remains a priority for the administration. Criticism by liberal economists will mount, however, that Mercosur, as a customs union, discourages potential agreements with developed economies, particularly the United States, thus exacerbating Brazil’s de-industrialization.  There is evidence that Mercosur helps companies that produce high value-added goods: whereas in 2014 manufacturing accounted for 77 percent of Brazilian exports within Mercosur, it accounted for only 4 percent of exports to China.  (The figures for the European Union and the U.S. were 37 and 55 percent, respectively).  Progress on trade agreements with the United States and other developed countries appears unlikely, but agreements on trade promotion seem likely.
  • Cooperation with UNASUR will remain a priority as well, but plans that rely on Brazil’s ability to provide resources face new political and economic restraints. The Ministries of Finance and Planning and the Central Bank reportedly are going to rein in contributions of the Brazilian Development Bank (BNDES), and funding for the South American Council of Infrastructure and Planning (COSIPLAN).  Initiatives such as the South American Defense Council will continue.  Clearly, state enterprises such as Petrobras and private-sector conglomerates will face limits on their foreign activities, reducing Brazil’s influence in the region.

The relationship between domestic and international affairs is inescapable, and Brazil is no exception.  But even as the domestic political and economic conditions deteriorate for a period, the country will not turn inward or abandon its interest in the international arena, particularly with China and the BRICS.  However rough the road ahead, President Rousseff’s government appears likely to remain steadfast in its approach to regional diplomatic and political organizations – including the Community of Latin American and Caribbean States (CELAC) and the OAS – even though resources will be tight.  It will remain active, within its diminished capacity, in an array of multilateral settings ranging from UN peacekeeping operations and the FAO, to the G-20, WTO and IMF.  Moreover, senior officials in Brasilia, including in the Foreign Ministry, appear committed to stronger bilateral ties with core partners, particularly the United States, and continued Brazilian support for democratic stability throughout Latin America, including in resolution of the Venezuelan crisis.  Even though resources and performance may suffer, a robust role in the hemisphere appears likely to remain a pillar of Brazil’s foreign policy.  The idea of Brazil’s autonomy in the international arena has deep roots, and whatever the domestic criticism leveled against the Rousseff administration, these will be matters of interpretation rather than a fundamental questioning of Brazil’s greater insertion into global processes and of political and economic interdependence.

March 7, 2016

*Tullo Vigevani is Professor of Political Science and International Relations at the State University of São Paulo (UNESP) and a researcher at the Center for Studies on Contemporary Culture (Cedec) and the Brazilian National Institute of Science and Technology for Studies on the United States (INCT-INEU), in São Paulo.

Brazil: Not-so-Happy New Year

By Matthew Taylor*

Brazil Basta

Photo Credit: Antonio Thomás Koenigkam Oliveira / Flickr / Creative Commons

A vicious combination of corruption scandal and economic malaise suggests a troubled new year awaits Brazil.  Economists estimate gross domestic product has contracted 3 percent this year and will decline a similar amount in 2016, while inflation and weak government finances hamper efforts to stimulate growth.  Two of three big rating agencies have cut Brazilian debt from investment grade to junk. Unemployment has risen from under 7 percent a year ago to nearly 10 percent, with forecasts of 12 percent on the horizon.  Efforts to reform fiscal policy are getting nowhere, and the champion of fiscal reform, Finance Minister Joaquim Levy, has just resigned.  The bonanza launched by the 2003-2010 presidency of Lula da Silva – seemingly setting Brazil on a unique path of state capitalist development – is long over.

The country’s interconnected scandals cast shadows on many of the leading players on the national stage, including President Dilma Rousseff.

  • Petrobras, the crown jewel of Brazil’s state capitalist model, is at the center of allegedly massive corruption schemes. Rousseff, who was chair of the Petrobras board at the time of the alleged wrongdoing, has claimed absolute ignorance.  But the charges implicate Brazil’s leading political and business elites, many of whom have been jailed in recent months.
  • A feud between Dilma and the president of the Chamber of Deputies, Eduardo Cunha, reached a new low this month after Cunha’s approval of impeachment proceedings against her. (His own ethics problems continue to fester.)  The charge against Dilma is not of personal corruption but rather that Rousseff flouted budget laws by using public banks to cover up unauthorized debt issuance and off-books spending.  Rousseff supporters have argued that the impeachment charges represent the worst of golpismo, or coup-mongering, and a constitutional overreach that threatens to undermine democracy.

For Brazil, 2016 will be dramatic and unpredictable – as the country weathers the most dangerous political crisis since the impeachment and resignation of President Fernando Collor in 1992.  Dilma’s opponents will have difficulty convincing two-thirds of the Chamber and Senate to oust her, but the crisis is already creating significant fissures in the democratic system.  The parties have been turned upside down.  Even if Dilma survives in office, she faces nearly impossible odds in restoring the credibility of her administration and party, the Partido dos Trabalhadores, or PT.  There are early indications that the PT will face a bloodletting in the 2016 municipal elections, and former President Lula, the party’s once-ironclad standard-bearer, has the highest rejection rate (55 percent) of any potential candidate in the 2018 presidential contest.  The PMDB, Dilma’s coalition partner, is threatening to break with the government, but is internally divided. The opposition PSDB is facing scandals, protests, and troubles of its own in the states it governs.  The newfound proactivity of prosecutors and judges is making democratic checks and balances work as never before – and is largely welcomed by Brazilians – but Brazil’s old party system may not be able to keep pace.  Rumblings for a rethinking of the political system will grow louder in the new year, as the crisis deepens.

December 21, 2015

*Matthew M. Taylor is associate professor at the School of International Service at American University.

Dilma – and Brazil – in Crisis

By Eric Hershberg

Photo Credit: Ministério da Ciência, Tecnologia e Inovação / Flickr / Creative Commons

Photo Credit: Ministério da Ciência, Tecnologia e Inovação / Flickr / Creative Commons

Brazil’s corruption scandals and deepening recession have raised doubts about not only the viability of President Dilma Rouseff’s government, but also about the national renaissance and global role that Brazilians have long strived for and seemed only recently to have achieved.  The commodity boom of the past decade propelled Brazil to become the world’s sixth largest economy and make major inroads against its historically obscene levels of poverty and inequality.  Often working in tandem, Brazil’s leading public and private enterprises, assisted by the generous state development bank, prospered immensely and fueled growth in Brazil itself and elsewhere in Latin America, building infrastructure from Ecuador to Cuba.  Four Partido dos Trabalhadores (PT) presidential victories in a row (two each for President Lula da Silva and for Dilma) appeared to validate a development strategy built upon government alliances with ambitious large firms and generous cash-transfer programs for needy segments of the population, which became reliable sources of electoral support.  Brazil, the country that skeptics considered unlikely to ever fulfill its aspiration of becoming more than “the country of the future,” seemed to have turned a historic corner – until it all came crashing down.

With the commodity boom now over, the economy is contracting at an annual rate of more than 2 percent, and a Central Bank survey released last week forecast that the recession will continue into 2016.  The past decade’s extraordinary gains in formal sector employment and wage rates are being rapidly eroded.  The dire macro-economic situation forced Dilma to shift course earlier this year, when to the dismay of her PT base, she appointed pro-austerity economist Joaquim Levy as Finance Minister.  His mandate – to tackle fiscal deficits – required dealing with the end of the commodity-driven cycle of growth and problems with the state capitalist model pursued by the PT since 2004.  Levy’s strategy will take time to bear fruit, probably through most of Dilma’s term, and will be painful.

But the President’s biggest challenges stem from the vast corruption scandals that have devastated her credibility and the reputation of the enormous companies that were the protagonists of Brazil’s latest miracle.  Although Dilma has not been charged with any wrongdoing, the scandalous actions at state oil firm Petrobras, which at its height accounted for as much as 10 percent of Brazil’s GDP, were in full flourish when she was Lula’s Energy Minister and nominally in charge.  Prosecutors have filed evidence of bribery and kickback schemes that bilked billions of dollars from the company’s coffers, and officials in both the PT and allied parties have been charged with serious crimes.  Dilma’s popularity ratings are now in single digits, with little prospect of improvement.  Street protests calling for her impeachment are more focused than those that tormented her in 2013 and 2014, when popular discontent focused less on corruption than on the poor quality of transportation, education, health care, and other public services at a time when the government was making huge investments to prepare for the 2014 World Cup and the 2016 Olympic games.

Further damaging revelations are likely as investigations continue, and they will affect an ever-wider array of political actors and major economic enterprises.  Many of the president’s political foes support either impeachment or resignation, while others are inclined to let her government wither in place.  The key alternative parties – the PSDB of former President Cardoso and the PMDB (the latter rumored to be closer than ever to breaking its tenuous alliance with the President) – are not aligned in a way that establishes a clear path to push Dilma out.  The most optimistic scenario for the President entails remaining, terribly wounded, in office, but this could change if, as many observers believe, the Auditing Court (TCU) determines that Dilma has misused public funds, or if the TSE should press forward with investigations of illegal financing of Dilma’s campaign.  

If two or three years ago it seemed plausible that history would credit the PT for having transformed Brazil into a high-quality democracy with improved social inclusion, today that appears to have been a pipe dream.  Beyond the immediate factor of Dilma’s ineffectual leadership, there are broader, systemic reasons for this tragedy.  Brazil’s fractured party system and the coalition-building it requires engenders corruption-fueled legislative bargaining, as evidenced by the Mensalão scandal.  Brazilian state capitalism has blurred lines between state economic policies and corporate beneficiaries, further fueling a culture of corruption evident by the fact that roughly 40 percent of members of Congress are under investigation, according to the New York Times.  Regardless of whether Dilma survives in office, the current moment has drawn Brazilians’ attention to the deep political and economic roots of their current situation, and dashed their hopes of soon becoming “O País do Futuro.” 

August 24, 2015 

The Papal Encyclical: Driving Debate in Latin America

By Evan Berry*

Pope Francis

Photo Credit: Raffaele Esposito / Flickr / Creative Commons

Pope Francis’s encyclical on human ecology, due to be published this week, seems likely to contribute to a range of ongoing debates.  Entitled Laudato Sii, the document has already become a touchstone for debates about the moral dimension of climate politics and triggered heated debate within the global Catholic community about the pontiff’s authority on climate change.  It links care for the poor with environmental stewardship and makes a theological case against the “culture of consumerism.”  A vocal Catholic environmental movement has embraced it, while detractors are raising concerns about the fusion of theology and science, and some Church conservatives fear it will feed into arguments for “population control.”  Non-Catholics, including secular environmental organizations, the progressive media, and leaders from other religious traditions, are also studying it.

Champions of the document claim that it could have broad implications.  They expect it to legitimize civil society organizations committed to the climate and justice; affect the behavior of millions of individual Catholics; influence Catholic political leaders who are skeptical or obstructionist about climate change; and become a factor in ongoing international negotiations.  Perhaps zealously, these claims imply that tectonic changes are underway in the international political landscape, especially in the United States, where Hispanic Catholics are the demographic group most concerned about climate change, and in Latin America, a region both shaped heavily by Catholic tradition and uniquely imperiled by the threat of global warming.

For Latin America, which has been front and center in climate politics in recent years, the implications of the encyclical are potentially deep.  Peru and Brazil have hosted recent international conferences on climate change, and the Amazon, a key global carbon sink, ensures governments’ high interest in the international environmental dialogue.  The region’s vulnerability to glacial melt, storm intensification, drought, and rising sea levels also give the issue salience.  The challenges posed by climate change come at a time that many lower-income countries believe that Latin America can be a source of development models that address income gaps, raise literacy rates, and expand access to health care while protecting the environment.  Francis’s teachings on ecology and consumerism will resonate with and reinforce existing ecological movements – Buen Vivir and other groups link the issues – and his imprimatur could even facilitate rapprochement between leftists and centrists within the Church.  On a political level, the region’s reliance on energy exports, such as in the Pope’s native Argentina, may make it harder for public officials to advocate oil and gas development without seriously addressing the climatic impact.  The situation is similar in Brazil, where Pope Francis’ popularity and ecological orientation are starkly contrasted with the President Rousseff’s abysmal ratings and poor oversight of Petrobras.  But religion, environment, and politics are nowhere more likely to come into confluence than in Peru, where an upcoming election touches on several intensive socio-environmental conflicts, and where public awareness about climate change is well established.  Whether or not the Latin American leader of the region’s historically dominant religion has all the solutions, his encyclical seems likely to play into the moral and political debates the region needs and welcomes.

June 16, 2015

*Evan Berry is Associate Professor in the Department of Philosophy and Religion at American University.

Corruption in Chile and Brazil

By Luciano Melo

Brazilian Pres. Rousseff (l) and Chilean Pres. Bachelet. Photo Credit: UN Women / Flickr / Creative Commons

Brazilian Pres. Rousseff (l) and Chilean Pres. Bachelet. Photo Credit: UN Women / Flickr / Creative Commons

A growing perception of corruption in Latin America, most recently in Brazil and Chile, is eroding confidence in two of the region’s most dynamic presidents – Dilma Rousseff and Michelle Bachelet.  The Chilean and Brazilian corruption cases are both serious, but differing perceptions and expectations in the two countries suggest the scandals will have different impacts.

  • Chile has long been the darling of economists and political scientists (and U.S. policymakers) in terms of democratic maturity, economic development, and transparency. The use of political influence to secure millions of dollars in sweetheart loans there has pulled the country down from its high perch, and since the issue directly touched President Michelle Bachelet’s own family members, it has become a huge deal in and outside Chile.
  • Although among the six main economies in the world and alone among the BRIC countries in boasting a stable democratic system, Brazil, by contrast, has repeatedly been tainted by corruption scandals that would lead to the fall of most Scandinavian governments in a matter of days. Former President Lula’s son became a millionaire while his father was in power, yet this fact hardly stained the ex-President’s popularity.  The scandals weighing down President Dilma Rousseff are different.  Brazilian citizens customarily have thought of Petrobras, one of the few remaining state enterprises after the wave of privatizations under President Cardoso during the 1990s, as a great source of national pride, and this sentiment was encouraged by the PT government, never a fan of the neoliberal predilections of its predecessor.  So when the scandal touched almost all of the party’s leaders, in addition to the prized national oil company, even Brazilians inured to corruption felt pain. Moreover, Lula and Dilma’s party, the PT, had promised to do politics in a different way.  As a union leader and a woman who fought against the dictatorship, respectively, they represented the rise to power of leaders based entirely outside the traditional parties and their murky ways of doing business.  Now, some of Dilma’s disillusioned supporters are demanding her impeachment, and many famous artists who once endorsed the PT are feeling betrayed.

Latin American voters have long manifested contrasting expectations of their presidents – cynicism about their venal nature coincided, as Latin America specialist Guillermo O’Donnell once said, with hope that they be “acclaimed saviors.”  Within the codependent relationship between citizens and politicians, trust is impaired once betrayal surfaces, but the marriage normally continues.  In some cases of rupture, as happened with impeached President Fernando Collor in 1992, it hasn’t meant the end of the political affair.  In the October 2014 elections Collor was reelected as Senator for the state of Alagoas.  Dilma and Bachelet have already said they will not resign, and that they intend to implement a comprehensive cleanup.  The road will be easier for Bachelet.  The Chilean scandal is still small and remains manageable, and although the decline in commodity prices has already  affected the country’s economy, further taxing Bachelet’s popularity, Chile has a sovereign reserve fund to cushion any blows.  For Dilma the conjuncture is considerably bleaker.  She was on the board of Petrobras while its executives were engaged in costly shenanigans, and it is now known that the fraudulent scheming also involved the Health Ministry and the state-owned bank Caixa Economica Federal.  And in Brazil, in contrast to Chile, the fiscal situation is sufficiently tight as to constrain the president’s room to maneuver as the commodity-driven economy stagnates.  At this point both women appear likely to survive their challenges, but the road ahead looks a lot tougher for Dilma than for Bachelet.

April 16, 2015

Oil Scandal Besets Brazilian Politics … Drip-by-Drip

By Matthew Taylor and Luciano Melo*

Nestor Galina  / Flickr / CC BY-NC 2.0

Nestor Galina / Flickr / CC BY-NC 2.0

Brazil’s oil scandal – the largest corruption scheme in Brazil’s history – probably won’t bring down the government of President Dilma Rousseff but will keep it in constant peril.  Since March 2014 the Brazilian Federal Police have been investigating the disappearance of tens of billions of dollars allegedly siphoned from the national oil company, Petrobras.  The company is a national symbol, founded by legendary President Getúlio Vargas in 1953, and a powerful economic force, especially in light of the discovery of massive deepwater oil off Brazil’s coast and the massive investments that have been undertaken to develop those fields.  No image captured Brazil’s triumphant resurgence over the past decade than a famous 2006 shot of President Lula holding up his hand covered in oil at a ceremony celebrating Brazil’s oil self-sufficiency.  (The picture itself was a takeoff on an iconic photo of Vargas.)

President Dilma Rousseff – who had close ties to the company as chairwoman of its board (2003-2010) and Minister of Mines and Energy (2003-2005) – is now confronting the dark underside of Brazil’s oil dream.  She is respected for her personal probity; nobody has suggested that she gained personally from the brazen corruption within Petrobras.  But critics point out that she was either cognizant of corruption or woefully incompetent.  As a result, the scandal weakens her considerably, just as she faces a revitalized opposition, a restive group of political allies, an economy grinding to a near halt, and a very real possibility that Brazilian debt will be downgraded to junk status.  Indeed, the scandal increases the chances of each of those four outcomes considerably.

The good and bad news from Dilma’s perspective is that the courts are very slow in Brazil.  If this case moves as quickly as the vote-buying mensalão scandal of 2005 – which was actually relatively efficient and effective by the standards of the Brazilian court system – final legal resolution of the case is unlikely before 2021.  Furthermore, for now there seems to be little appetite among the opposition for impeachment, possibly in part because some opposition members are rumored to be implicated as well.  So Dilma seems likely to survive politically, even as the scandal threatens to remain part of the political geography for the remainder of her second term.  This will be excruciating, as each week brings further revelations.  Indictments against a host of politicians are expected as soon as next month.  Perhaps most damaging in the long-term, though, will be the realization that nearly a decade after the mensalão scandal, legislative coalitions continue to be held together by the glue of pervasive corruption, and campaign finance appears deeply rooted in the misappropriation of public resources.

*Matthew Taylor is an associate professor at American University’s School of International Service and currently a fellow at the Woodrow Wilson Center for International Scholars.  Luciano Melo is a Ph.D. student in the School of Public Affairs.

January 22, 2014

Elections in Brazil: The Force of the Latin American Left

By Eric Hershberg and Luciano Melo

Aécio Neves – Senador & World Economic Forum / Foter / CC BY-NC-SA

Aécio Neves – Senador & World Economic Forum / Foter / CC BY-NC-SA

The first round of Brazil’s presidential election has set the stage for a runoff playing primarily to class differences.  By the eve of the election, polls hinted at the real possibility that the center-right candidate Aécio Neves of the Brazilian Social Democratic Party (PSDB) would edge out the other principal opposition contender, former Minister of the Environment Marina Silva.  Silva enjoyed a spike in the polls after she replaced the late Eduardo Campos, who perished in a plane accident in August, as the Brazilian Social Party (PSB) candidate.  Sunday’s results confirmed Silva’s decline, as she captured only 21.3 percent of the votes compared to 33.5 percent for the PSDB and 41.6% for incumbent President Dilma Roussef of the Worker’s Party (PT).  The PT used its potent propaganda machine to portray Silva as a potentially dangerous candidate – an indecisive leader who could not be trusted to sustain popular social programs such as the Bolsa Familia conditional cash transfer program, which has helped lift millions of Brazilians out of poverty.  Also, Aécio and Rousseff built their images upon two iconic ex-Presidents – the former on Fernando Henrique Cardoso (FHC) – seen by the middle and upper classes as the leader who managed to defeat hyperinflation and putting Brazil on track for economic growth – and the latter on Lula, Rousseff’s mentor, who is idolized among the most disadvantaged parts of Brazilian society as the President who helped the poor become less poor.

To win the runoff on October 26, Aécio needs at least 70 percent of Silva’s votes – she has only hinted at supporting him – while Rousseff would succeed with only half of that.  It is clear that Dilma and the PT will double down on their negative advertisements, now aiming at Aécio rather than Marina.  The PT’s barrage over the airwaves will highlight the risks of abandoning the course set out by Lula and followed by Rousseff.  Voters will be told that the opposition may underfund cash transfers, privatize the state oil company Petrobrás or treat it as a profit-making enterprise rather than as a development bank, thus increasing unemployment as occurred during the Cardoso years.  And the PT will no doubt remind voters of its consistent efforts to boost minimum wages and chip away at the vast inequalities that had long characterized Brazil.  Surely they will portray Neves as an elitist out of touch with the majority that has benefited from the PT’s redistributionist agenda.  Aécio and the PSDB, by contrast, will highlight the worrisome slowdown in growth under Rousseff, the failure to significantly improve public services – it was frustration over health, education and, particularly, urban transportation that drove the social protests that began in mid-2013 – and the over-regulated and over-taxed economy.  Most of all, Neves’ campaign will harp on the persistent scandals that have bedeviled the PT over the past decade and that have helped to fuel popular disdain for politicians.

The election results in Brazil are likely to become increasingly polarized in terms of class.  Dilma appears poised to prevail in the poorest states of North and Northeast, where Bolsa Familia and other cash transfer programs, subsidies, wage increases and Lula’s image are compelling.  In turn, Aécio should come out ahead in the richer states such as São Paulo, which offer the largest pool of voters and where highly educated and middle- and upper-income Brazilians are concentrated.  We make divergent predictions: Hershberg anticipates a PT victory, since for all the speculation about the travails of the Latin American left, it has built very substantial foundations of support in societies that credit the left with finally making some advances to tackle Latin America’s yawning inequalities.  Warnings that Aécio represents a return to elite rule will resonate among the PT’s electoral base, and the PT’s success will be nourished by its powerful organizational capabilities.  Melo, by contrast, anticipates a PSDB triumph.  In this scenario, the corruption, disappointing growth rates over the past two years as the commodity boom has slowed, and widespread frustration about the quality of public services will generate an anti-incumbent dynamic that will bring to an end a dozen years of PT rule.

October 10, 2014