[Skip to Content]

Register to receive the OMFIF Daily Update and trial the OMFIF membership dashboard for a month.

* Required Fields

Member Area Login

Forgotten Password?

Forgotten password

Brazil: A scandal seeping upwards

Brazil: A scandal seeping upwards

Protests against president rooted in economic troubles

by David Smith

Fri 20 Mar 2015

Sometimes the numbers do tell the story. Less than six months ago, President Dilma Rousseff of Brazil was re-elected with almost 52% of the vote. Today just 13% of her country supports her leadership, according to the opinion polls.

Then there is Brazil’s currency, the real. Since the election it has lost almost 30% of its value against the dollar, and since the turn of the year the de facto devaluation is more than 20%.

Beyond the powerful images of more than a million people on the streets demanding Roussef’s resignation lies a crisis. It is political, and extremely serious because it may yet bring down a president, but its roots are economic, and no less important.

‘Dilma stands at a terrible intersection on the road,’ says a senior banker in São Paulo. ‘She’s facing the worst economic climate for the country in almost a generation, and she’s on top of the worst political scandal in a generation.’

The scandal is that of Petrobras, the state oil industry that was once Latin America’s largest company. Its executives have admitted to being on the take to the tune of billions, much of it funneled in kickbacks to the President’s Workers’ Party.

The scandal has embroiled the Petrobras leadership, leading multinationals and a raft of senior Brazilian politicians, virtually all of them members of the president’s party, the latest being the Party treasurer. Roussef herself is implicated because, while energy minister in a previous government, she was chairman of the Petrobras board.

As yet talk of impeachment is premature. There is no evidence, as yet, of Roussef acting illegally. But, in terms of her future, that is where you sense the intersection of the politics and economics.

Brazil is facing recession and negative growth after years of being the shining light of emerging market economies. Brazil is the world’s largest producer of sugar, coffee and soybeans. Sugar is down 24% in the past year, coffee down 29% and soybeans down 32%. That is the external factor.

Internally, Roussef led first time around as a populist, micromanaging everything from the currency to popular welfare programmes to heavy regulation of business and investment - the kind of red tape exceptional even by Latin American standards.

In the face of Brazil’s commodity crisis, and re-elected narrowly, she tried to change tack. Her Chicago-trained Economics Minister, Joaquim Levy, promised austerity and belt-tightening. What he and the president are discovering is that the political crisis has damaged their credibility.

Rousseff tried to seize the initiative in the aftermath of the demonstrations telling her to go. She couldn’t bring herself to say simply: ‘I hear you.’ Instead, she talked of ‘necessary adjustments,’ and admitted: 'I overdosed on economic issues during my first term.’

I doubt we are seeing a replay of 1992, when street protests brought down a Brazilian president in a matter of weeks for corruption. But without decisive action, Brazil faces a brutal end to the years of growth, with recession, rising unemployment, inflation, and street-level anger in equal measure.

David Smith, a member of the OMFIF Advisory Board, is a writer, professor and adviser to NGOs based in Latin America.

Tell a friend View this page in PDF format