A sweeping corruption probe is making Brazil ever less governable. Good news or bad?
“The kitchen project for the boss is ready. We can fix a date with the Madame [to see the work] whenever you want.” That’s the message Aldemário Pinheiro Filho, the president of Brazilian construction group OAS, received on his phone about two years ago. And that’s one proof prosecutors are now using to accuse Luiz Inácio Lula da Silva, commonly known as Lula, of being linked to the colossal corruption scandal currently gripping the country.
According to them, Brazil’s former president – the “boss” in this quote – has had several kitchens in various properties paid for by the construction firm. They reckon the favour was just one of many kickbacks Lula and his family received in exchange for help in securing multi-billion contracts from Petrobras, the state-owned oil group. Prosecutors estimate that these “undue” benefits totalled $8 million between 2011 and 2014.
Enough for the police to raid his home and take him in for questioning – which they did on Friday morning. Lula was released later that day, and calls the whole affair a “media show”. But the accusations won’t go off easily. Scores of senior figures from his Workers’ Party (PT) are already in jail or on trial over corruption at Petrobras. Given that the scheme appears to have started while he was in office, many believe he can’t have ignored it – if not benefitted directly from it.
That’s bad news for his political future: just a few weeks ago, he was touting his ambitions to run for president again in 2018. But last Friday’s events are also hurting Dilma Rousseff, Lula’s protégée and Brazil’s current leader. Not only has her popularity fallen to all time-lows, she’s also facing impeachment only 15 months in her second term. The process, launched by the opposition, is unconnected to the Petrobras scandal (she’s being accused of using state banks to hide the size of the fiscal hole). But without Lula’s support in rallying the PT behind her, she could become much more vulnerable.
It doesn’t help that she’s under pressure on other fronts. The electoral authority is investing whether she misused funds to boost her last presidential bid. The mastermind of her (and Lula’s) campaigns was recently arrested after receiving undeclared offshore payments from Odebrecht, another Brazilian construction firm. And last week a leaked testimony by a PT senator accused her of appointing a lenient judge so as to have important suspects released from pre-trial detention (Lula was also said to be trying to buy witnesses’ silence).
Rousseff and Lula are fighting off these accusations, describing them as unfounded speculation. They’re not the only ones. For a decade Lula had been a uniting force in Brazil, shoring up the poor’s fortunes via social transfers while pleasing elites through relatively sturdy macroeconomic policies. But now the former president’s allies are resorting to the rhetoric of “class warfare” to fire up hardliners. Outraged party supporters, who staged demonstrations over the weekend, describe the graft probe as “persecution” against the left-wing PT.
They're probably wrong: the investigation is also causing damage within the ranks of the opposition. Eduardo Cunha, the conservative speaker of the Congress’ Lower House, has been charged with corruption and money laundering by the Supreme Court. Fernando Henrique Cardoso, another former president and a senior centrist figure, is being probed over dubious payments emanating from duty-free shops. That an investigation into corruption can go that far and wide is good news for Brazil’s judicial independence.
The same can’t be said about the economy. Brazil posted its worst ever recession since the 1930s last year (when GDP contracted by 3.8 percent). Yet a weaker Rousseff is in no position to reverse this. Bringing down the deficit – which widened to 10.8 percent of GDP in January – is needed to bring back confidence, tame inflation and lower interest rates. But austerity measures could endanger her support within the PT. Longer-term reforms targeting infrastructure, education and the tax system are also crucial to boost Brazil's growth potential. But they won’t happen while the president is in survival mode.
Survive she will probably do: a majority of two-thirds in both houses of Congress is required to remove her from power; her re-election won’t be cancelled without clear evidence of her wrongdoing. She’ll likely remain in power until 2018. But she will find herself increasingly paralysed – as will the Brazilian economy. Such is the price of corruption: when you cook the books to pay for your kitchens, others often have to foot the bill long after you’re gone.