A lot can change in four years. At the dawn of her first term in 2011, Brazilian President Dilma Rousseff was leading the country with a strong mandate and lofty approval ratings. But by the start of her second term in 2015, the days of calm were over. Hundreds of thousands of Brazilians took to the streets to wave flags, sing Hino Nacional Brasileiro, and protest their president’s involvement in an embezzlement scheme that had led the country into its greatest economic downturn in twenty-five years. Why is the country facing yet another corruption scandal, and how can it recover?
OIL AND OLIGARCHY
The answer to both questions involves oil. In the wake of World War II, the Brazilian economy was driven by a desire for expansion and economic independence, along with an increasing need for petroleum. In 1938, a decree-law nationalized Brazilian oil refineries and created the Conselho Nacional do Petróleo (CNP), a council appointed by the president but, in reality, dominated by the military. The army thus seized the nation’s oil industry in 1938 and continued to control it for several years—first under the pretext of national security, then that of economic development. In 1951, President and former dictator Getúlio Vargas proposed the creation of a 51% state-owned oil company, which eventually became Petrobras. The motto: “o petróleo é nosso” (“the petroleum is ours”). Petrobras formally began operation in 1954.
However, state control of Brazil’s oil failed to bring political stability. The same year that Petrobras began operation, Vargas committed suicide after an assassination attempt on a political enemy was blamed on his cabinet. Later, in 1964, left-leaning President João Goulart was ousted in a U.S.-supported coup, beginning a nineteen-year power struggle between the new military regime and the political left. The young Dilma Rousseff first became involved in politics during the regime, cutting her teeth in clandestine guerilla movements and planning bank robberies in hopes of financing a revolution. However, Rousseff’s radicalism caught up with her in 1970, when she was arrested in a São Paulo bar. According to a 2010 interview, the future president was tortured for days on end by OBAN (Operação Bandeirante), a branch of the regime’s counter-insurgency force, before her release in 1972.
ROUSSEFF ON THE RISE
After a stint as municipal secretary of the treasury for the city of Porto Alegre in the late 1980s, Rousseff was appointed as the state secretary of energy, mines, and communication for Rio Grande do Sul by Governor Alceu Collares in 1993. At the time, Petrobras was reeling from a national crisis that had taken place two years prior, when top officials were investigated for corruption. After resigning due to the company’s financial losses, former Petrobras president Luis Octávio de Motta Veiga alleged that President Fernando Collor’s campaign manager, P. C. Farias, had suppressed oil costs in order to “get kickbacks from suppliers,” which led to massive protests and disdain for the presidential office. Collor was impeached in 1992.
Despite the bleak national mood, Rousseff’s success and left-wing affiliations brought her to the attention of Luis “Lula” Da Silva, presidential candidate for the liberal Workers’ Party, in 2002. After his inauguration in 2003, Da Silva appointed Rousseff as national minister of mines and energy. Around the same time, Rousseff joined Petrobras’ board of directors, a position she held from 2003 to 2010.
In 2005, President Da Silva’s chief of staff, José Dirceu—another former revolutionary and another government representative on Petrobras’ board—was forced to resign after a whistleblower reported on his involvement in a congressional bribery scheme (dubbed mensalão, in reference to the monthly payments used to buy votes from congressional deputies). In 2007, Brazil’s Supreme Court voted unanimously to bring him to trial, and in October 2012, Dirceu was found guilty of corruption. Rousseff and her cabinet department were not implicated in the investigation, but as Dirceu withdrew from the political arena in 2005, Dilma’s career took off—Da Silva appointed Rousseff to replace Dirceu as his new chief of staff. As Brazil’s economy expanded, the country flourished, and before long, Da Silva was beloved by everyone from the Brazilian people to Barack Obama. So, when Rousseff announced her intent to run for the presidency in 2010, she did so not only with extensive administrative experience, but with the support of the vastly popular Da Silva.
After a greatly successful campaign, Rousseff won the presidential election in October 2010 with 55% of the vote, making her Brazil’s first female president. Within her first year in office alone, Rousseff received a Woodrow Wilson Award for Public Service and ranked as one of Forbes’ Most Powerful Women. The sky was the limit.
WHAT COMES UP…
Nowadays, however, money’s the limit. In recent years, the economy has stagnated due to the falling value of oil and other key Brazilian exports, a change which has put a great deal of pressure on Rousseff’s administration. When the country’s record levels of consumer debt and inadequate public infrastructure are also taken into account—an issue increasingly timely as Rio de Janeiro prepares to host the 2016 Olympics—it becomes clear why hundreds of thousands of Brazilians are protesting. While it’s hard to argue that the economic stumble is completely the president’s fault, throughout her first term Rousseff championed a set of price controls that proved disastrous, damaging investment and slowing growth while artificially distorting inflation rates. But even in light of these other factors, the primary reason Rousseff’s approval rate has gone over like a lead balloon is Petrobras.
Petrobras’ ongoing scandal is the result of a 2014 federal investigation dubbed “Operação Lava Jato” (Operation Carwash), which found that the suspiciously high rates Petrobras had paid for construction and development were funneled into payoffs for top executives. While in office as chief of staff under Da Silva, Rousseff continued to sit on Petrobras’ board of directors, and in 2006, she approved Petrobras’ purchase of the Pasadena Refining System, a petroleum refinery located in Texas. Petrobras ultimately spent over $1 billion USD on the refinery, almost 30 times what the Transcor Astra group had paid for it a few years prior. The eyebrow-raising price discrepancy prompted an investigation from Brazil’s Federal Court of Accounts (TCU), which led former Petrobras president Paulo Roberto Costa to testify that he had received a $1.5 million kickback in connection with the purchase of the plant.
Rousseff, for her part, has denied wrongdoing, stating in an April 2015 interview with Bloomberg Business that “none of [her board] even saw a sign of corruption.” But since the story of Petrobras’ high-level corruption began to break in early 2014, she has struggled to distance herself from a scandal that has implicated figures in the highest level of Brazil’s government—even those from prior scandals, such as José Dirceu.
Despite the powerful criticism it has received, Petrobras maintains that it has solid prospects for recovery—at least in economic terms. According to Fernanda Bianchini, an investor relations consultant from Petrobras’ New York branch, Petrobras forecasts growth in the coming years: “the target of the company is to increase oil production in Brazil from 2.1 million barrels per day (bpd) to 2.8 million bpd by 2020.” Bianchini noted that this growth is based upon the “pre-salt province,” a geological layer containing what she refers to as “excellent quality, high commercial value light oil.”
According to Mrs. Bianchini, “Petrobras is the largest company in Brazil, most Brazilians are influenced by our activities. I think every Brazilian if you ask will know what Petrobras is and have an opinion about it.” But, of course, their opinions aren’t always positive. While Petrobras may recover, serious doubts continue to be cast upon its administration and its ties to Rousseff. João Zamana, an undergraduate student at the University of São Paulo’s Ribeirão Preto campus (FEA-RP), stated that he and his peers felt “disappointed, but not surprised,” by recent events. Zamana continued: “This whole issue just adds to the bitterness and distrust Brazilians harbor toward politicians. Thankfully for those involved, we’ve already had [other] major political incidents, which have already diverted our gaze from the whole Petrobras issue. Coincidentally, this is how most of these things end; we simply forget about them due to [new scandals].”
But whether or not there are new scandals on the horizon, Rousseff continues to be weighed down by the events of the last few months. By the time of her re-election in April 2015, Rousseff’s popularity had eroded so far that the centrist Brazilian Democratic Movement Party (PMDB) was able to hijack the legislative agenda by electing Eduardo Cunha to the Chamber of Deputies and Renan Calheiros as president of the senate. With her hand forced, Rousseff relinquished control of her agenda to her vice-president (and PMDB leader), Michel Temer, essentially making her powerless in Brazil’s Parliament.
As of late, Rousseff has been the subject of almost constant criticism, but the pressure on her to resign managed to intensify in early October when a federal audit court ruled that her board had illegally misappropriated state funds. Only shortly afterwards, the president was faced with a more direct affront to her office: a group of high-profile lawyers filed a formal impeachment request on October 20, adding to countless others already filed with the federal government.
There is little dispute that this is a crucial moment in Brazilian politics. According to the Brazilian Central Bank, projections for GDP growth have fallen drastically—the 1% growth expected in 2016 is a far cry from the 7%-and-up rates seen in prior years and well below the runaway inflation rates currently threatening Brazilian consumers. But while there is no silver bullet to address the falling commodity prices and reduced overseas demand plaguing Brazil’s economy, Rousseff’s appointment of Joaquim Levy as finance minister was a step in the right direction. Although Levy’s austerity measures have, unsurprisingly, proved unpopular with the Brazilian people, they have demonstrated the nation’s willingness to find balance and search for answers.
Brazil’s economy is well within the range of repair, and there are many steps Rousseff can take to revitalize her country. One opportunity is reducing the number of regulatory hoops businesses must jump through in order to turn a profit; Brazil is currently ranked as 120th out of 189 countries for “ease of doing business.” Another opportunity to bring jobs to Brazil (and thereby boost the economy) would be increasing foreign direct investment, but the “Brazil cost”—the increased cost of goods and services in Brazil which results from onerous regulations, poor infrastructure, and other challenges currently serve as powerful deterrents. While the infrastructure is unlikely to be repaired in any significant way any time soon, fixing needlessly complex tax laws could also lower the “Brazil cost” and encourage multinational firms to consider the country. With Venezuela’s inflation crisis right next door as a warning, it is clear that Rousseff must bring in business if she wants to stave off a deepened recession.
Yet while there is a wide range of economic challenges that must be faced in due time, corruption must be at the top of Rousseff’s agenda. She must prove to the Brazilian people that she is in support of the ongoing investigation and that she knew nothing of the corruption beforehand—no small task, since corruption has been flourishing for years. But again, Rousseff is not without options. While it would be possible for Rousseff to take a page from a certain American politician’s playbook and release personal documents and emails, the best course of action is to enact legitimate change. Rousseff could champion further investigation of her cabinet, work to raise Petrobras’ transparency, or even take a cue from Nigeria’s Muhammadu Buhari—a man and government with plenty of skeletons in the closet who has nonetheless made unprecedented gains toward reforming Nigeria’s petroleum industry.
Legislation will present a serious challenge to the president: it will be necessary for Rousseff to cooperate with parties like the PSDB (Social Democratic Party), which holds more centrist views than her far-left Worker’s Party, and the PMDB, which is currently the largest party in Rousseff's governing coalition. Whatever it is that Ms. Rousseff aims to accomplish, unilateral legislation is no longer an option; she must work closely with other parties or risk spending the rest of her term as a lame duck.
But no matter what happens, Madam President does not have the luxury of sitting back and waiting it out. The halcyon days of Rousseff’s first term are in the past, but if she doesn’t want the country to slide further, she must take action and work toward damage control. If Rousseff doesn’t want to go down in history as a failure, she must not only fight the corruption taking place right now, but fight the underlying causes that have made corruption such a persistent problem for Brazilian politicians. If sunlight is the best of disinfectants, it’s time for Rousseff to open the blinds—or it’ll be curtains for her presidency.
The image featured in this article is licensed under Creative Commons and is the property of Dilma Rousseff. The original image can be found here.