How to explain current Corruption in Brazil

Corruption in depth in Brazil – An expat`s attempt to explain it

Since I am currently in Brazil I thought I would try and provide a personal review of the current status of the ongoing corruption scandal(s) here for my circle of readers. The problem is that things are developing very quickly and as soon as I think I have stuff worked out to be able to explain it straightforwardly I have to take a new dimension on board, so I keep having to rewrite my blog!

The headline factors were making the newspapers and TV programmes in UK and internationally before I came back to Brazil but I had been confused by the apparent superficiality of the coverage there in relation to the daily reports I have been hearing on TV here in Brazil since arriving back. The trouble is my Portuguese is not good enough to follow all the details in each news bulletin as it occurs, so I decided I needed to research more deeply looking at translated back copies of news reports to try and make sense of it all. This post is the outcome of that research.

Now, however, the English language reports are becoming clearer, but you probably need to read quite a few to see how things have developed, are developing, and where they might go onto from here! So I hope my contribution will be clear, reasonably complete and yet still concise! One recent Guardian report may help – http://www.theguardian.com/world/2016/mar/24/brazil-president-dilma-rousseff-defiant-resignation-interview

The motivation for me seeking a deeper view is that it is actually having a significant impact on us, Fatima and myself, personally. Frankly there is nothing I can DO about that but I thought the least I could attempt would be to try and understand WHY it is happening in this way. Briefly, there are two specific effects for us. One is the impact of the scandal on the economy and the international exchange rates in particular which affects how and when and in which direction (and, indeed, whether) it would be sensible for us to move money from one country to another. The second is that Fatima`s employment as a teacher in Rio State means that her (and, therefore, our) income is under threat and we are having to dip into savings just to pay normal household bills. This is not to mention the teachers` strike which is also impacting our lives – and may continue to do so for some time – but more of that later.

We are fortunate in that the problems we face are chiefly a nuisance for us, since we have funds in both UK and Brazil and we will, no doubt, weather the crises without going bankrupt or falling into penury, but it is clearly affecting some people here in Brazil much more fundamentally. There are, and will continue to be, bankruptcies in marginal businesses. People are losing jobs as larger businesses suffer and the social safety net here is not very strong at the best of times. For some of the direct and indirect effects of the scandal see the Guardian article mentioned below. This article refers, for example, to job losses of 80,000 in Rio State alone in January 2015 as the scandal began to bite. http://www.theguardian.com/world/2015/mar/20/brazil-petrobras-scandal-layoffs-dilma-rousseff

The continuing financial crisis also means, for example, that the health service here, which needs its own intensive care, is not getting the support it needs. People will undoubtedly die unnecessarily as the situation gets worse. For example research into Zika virus and mosquitos is not being funded as it should here, given its likely importance internationally. People working in the public sector, too, are suffering from frozen incomes as inflation soars and Brazil tries to deal with a full blown recession. So, there are many, many people much worse off than us, but let me give you a slightly more detailed view of our particular position before I get into the ins and outs of the corruption scandal itself, just so you can understand the personal concerns that have prompted my research for this blog.

I met Fatima in 2009 and in the months before we married in July 2011 I moved some money from UK to Brazil for us to do some building works here. The exchange rate at that time was around R$2.5 to the £ pound sterling, so even though the building works initially increased the value of our property here, the current exchange rate of R$5.3 to the £ pound, effectively leaves me worse off in UK terms, should we decide to sell now. Also the economic state of the country, sometimes referred to as “stagflation”, means the valuation of the property market is now declining as people tighten their purses. Effectively it is similar to `negative equity` which was a problem for many in UK recessions in recent years – except that it was my own money being invested!

Mind you, there has been some `improvement` in exchange rates in recent months – the rate was as high as R$6.3 to the £ pound just before Xmas. That rate did have some offsetting compensations, of course, in that we could buy more stuff in Brazil with my English money for a while – so there are always swings and roundabouts!! But buying Xmas presents with English money was not quite the same as investing in home improvements five years ago – and that high rate also made Fatima feel a lot worse off when she was in the UK over Christmas and the New Year!

The second factor mentioned at the outset above, Fatima`s job as a teacher, affected as it is by the national economy is also affected by the situation in Rio state in particular. This is because the main business activities of Petrobras, the part-nationalised company at the centre of the scandals, are based here in Rio state, so income and profits from Petrobras have always been loaded towards Rio. This situation had previously caused quite a bit of jealousy from other states in Brazil which wanted a “fairer” share of the profits but such jealousy has quietened since the scandal has bitten.

To give you a sense of scale, one newspaper article pointed out that Petrobras, though only half the size of Apple, for example, is nonetheless a huge company globally and represents about 10% of the GNP of Brazil compared to the 0.5% that Apple represents of the US economy.

This seemed all very fine and dandy when things were apparently going well and the taxes were streaming in, but the Rio Governor, Luiz Fernando Pezão (https://en.wikipedia.org/wiki/Luiz_Fernando_Pez%C3%A3o) and the Rio state governing party (the PMDB, Partido do Movimento Democratico Brasilera – the Brazilian Democratic Movement Party) became too reliant on the income, so, even ignoring corruption issues here in Rio state, the significant decline of Petrobras as a company since the scandal began has reduced available public funds from that source. Consequently public sector employees and public sector expenditure in Rio state in particular have been greatly disadvantaged by the Petrobras collapse.

In personal terms, for example, Fatima, along with other teachers and health workers and local authority employees etc., should have been paid the usual “thirteenth month`s salary” – typical in this country – just before Christmas. Rio State Governor Pezão said, however, that the state did not have enough money and eventually chose to spread the lump sum payment out over about ten months. In the sense that we will eventually receive this money you might think it is not a big problem but many annual payments – for local taxes, car tax, and so on – fall due in the first couple of months of each year, so we have had to dig into savings to pay regular bills. Pezão has also recently changed, without discussion, the date of salary payments each month. This creates havoc when looking at regular bills which come in on the same day each month – so high interest rates bite again if payments are missed or late!

As I indicated above we are relatively fortunate in having such funds available either in the form of savings or the ability to transfer money from England. For many public sector employees, however, the situation is much more critical, since, just to be able to pay bills, they have to borrow at criminally high interest rates even from all the “respectable banks” – i.e. from around 11.6% per MONTH if you organise a loan, or up to 17.6% per month if you simply have an unplanned overdraft! If you have to borrow from loan sharks to pay your bills the interest rates get much worse of course and may involve broke limbs or worse for non-payment.

The PETROBRAS scandal

For a good recent explanation of the nature and extent of the Petrobras scandal in general you might want to look here – http://www.vox.com/2016/3/18/11260924/petrobras-brazil – an article which relates the nature of Brazilian corruption back to the late abolition of slavery in 1888 and the systemic corruption which has been perpetrated by elites in the country since then, without penalising consequences – until now. Looking on the bright side, many of the wrongdoers are actually now getting sent to prison – now around 100 senior people already imprisoned (or, at least indicted). Several of those caught have made plea-bargains which have embroiled more and more of the perpetrators, several of whom are, unsurprisingly, politicians! ‘

In summary, the Petrobras scandal involved a number of executive board members and other senior managers who decided to get together with a number of construction companies creating an overcharging cartel which shared the huge Petrobras construction contracts out between them, in the process siphoning off round 3% of the inflated costs for paying bribes and inducements to ensure uninterrupted flow of contracts and funds. They even had a set of “game rules” to ensure cartel members did not complain when they failed to get X or Y contract.

The current President, Dilma Rousseff of the Worker`s Party (PT – Partido Trabalhista) has not (not yet, anyway) been directly implicated in receiving any bribes herself but she has suffered humiliation because the worst of the scandal was happening under her watch as chair of Petrobras’s non-executive board between 2003 and 2010, under her great friend, former President Lula (also PT). So, whichever way you view it, her judgement is now in grave doubt – either she knew what was going on and did nothing about it or she did NOT know anything about it and, of course, she SHOULD have known and should have been able to stop it! Damned if she did and damned if she didn`t. She is currently wallowing with approval ratings, as President, in single figures and there is a strong movement to impeach her (I will look more closely at that in my next blog)

SWISS BANK accounts

The scale of the corruption scandal is remarkable. The second article referred to above puts a figure of $5.3 billion on the direct Petrobras scandal. Already $120 million of secreted Brazilian funds has been returned to Brazil by Swiss banking authorities and they promised to repatriate another $70 million just recently, but I have seen suggestions that the overall figure held by Swiss banks of corrupt Brazilian money may be as high as $49 BILLION. So far I have not been able to document this figure and it may be an apocryphal urban myth. It is likely, however, that the $190 million officially sanctioned so far is probably just the tip of a much larger iceberg. It certainly makes the FIFA scandal look rather small beer by comparison.

The sad thing about this is that Brazil is a huge country with huge natural assets and could already have been brilliant positive force for economic good in the world. And Brazilians could have been much better off with a great economy, years and years ago if it were not for the endemic, systemic corruption throughout the political and economic greedy elites who have for so long thought themselves untouchable. Just think what $5.3 billion could have done for the public health service for example.

Another Blog post will be here shortly

For further reading –

Swiss Officials Confirm Accounts for Brazil’s House Speaker

http://www.forbes.com/sites/kenrapoza/2015/10/02/dear-petrobras-shareholders-this-is-where-your-money-went/#1c08d93d27ac

About Keith Melton - Green Lib Dem

Retired English liberal environmentalist living in Nottinghamshire; spent six years in Brazil. Author of Historical Novel - Captain Cobbler: the Lincolnshire Uprising 1536. Active member of the Green Liberal Democrats - (pressure group in Liberal Democrats) - was Founding Chair of GLD in 1988
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