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Brazil's President Rousseff and Workers Party Mired in Scandal

When Petrobras, Brazil’s premier national oil company, discovered huge deep-water oil fields along Brazil’s southern Atlantic coast in 2007, there was euphoria in the ruling Workers Party (PT). Then President Luiz Inácio Lula da Silva declared that Brazil had won “the lottery” and embarked on an ambitious strategy to implant the PT as Brazil’s dominant political force for years to come. Today, that strategy is in shambles. A huge corruption scandal has involved Petrobras, the emblem of Brazilian nationalism, in payoffs to politicians and kickbacks in contracts with Brazil’s most prominent contractors. This has shaken, to its foundations, the PT and the national government now headed by President Dilma Rousseff, Brazil’s first woman president. She was selected by da Silva to keep the presidential seat warm until he can run again in 2018. Rousseff was reelected to a second four-year term by a narrow margin last year. She now faces the bleak outlook of a declining economy, beset by foreign trade deficits, high inflation, and soaring public debts accumulated by reckless spending during her first term, as well as the Petrobras downfall. The energized opposition, whose presidential candidate Aécio Neves received 50 million votes in 2013, is now mounting a congressional investigation of the Petrobras scandal. This is an issue that has mobilized the media and generated broad discomfort in the better informed circles of public opinion. Some hard-line jurists talk of the possibility of impeachment of Rousseff, although this is not what a majority of opposition leaders want. By nonviolent means, the opposition simply wants to discredit the PT and prevent the election of da Silva or any other PT candidate for president in 2018. With this conflict advancing, Brazil is going to be a political battleground for the coming three years.

The first bloodshed came in Petrobras itself, when Rousseff, bowing to pressure from financial forces, accepted the resignation this week of Maria das Graças Foster, the chief executive of Petrobras and a technician who was a close personal friend and obedient political ally of Rousseff. This set in motion a complete shake-up in the senior management of Petrobras, which saw its credit rating reduced drastically by international risk agencies, endangering access to loans necessary to finance a $33 billion investment plan for 2015. With the severe drop in international oil prices, Petrobras had already abandoned its target of increasing oil and gas production by one-third this year to 3 million barrels a day and canceled investments in two new refineries. Petrobras is also trying to renegotiate its huge $240 billion debt, much of which has been squandered in corruption and mismanaged projects. There is a critical credibility problem facing the new management. The underlying cause of the Petrobras disorder lies in the initial decisions by da Silva to make the company the exclusive chief operator of the new offshore oilfields for which it had neither the necessary capital nor operational competence. As it turns out, this overreach was part of the strategy to use Petrobras as a political cash box for the PT, as alleged in the judicial investigation into corruption now under way.

Da Silva, a onetime poor boy who was a factory mechanic before he became president, has a well-deserved reputation as a benefactor of the poor through social programs that have reduced poverty in urban slums and rural backlands. This is also good politics because 65 percent of Brazil’s 200 million people are in the lower income sectors, living on household incomes of less than $1,000 monthly. Some 15 percent are miserably poor and survive on government family stipends. But this attention to social needs is no excuse for the political corruption that has been recurrent in da Silva’s political circle.

The Petrobras scandal came to light through the work of federal police investigating a minor money laundering operation by a money broker who was discovered to be operating also with senior Petrobras executives. The investigation then escalated to the federal Public Ministry, whose prosecutors presented the initial evidence to Sergio Moro, a young, dynamic federal district judge in the state of Paraná, who has pressed forward with arrests of Petrobras executives and contractors named by the money broker, Alberto Youssef, and a former Petrobras director, Paulo Roberto Costa. Under pressure from prosecutors, these two initial suspects chose to provide evidence in exchange for lenient prosecution. They have named up to 40 politicians, including senators, federal deputies, and governors, who have not yet been publicly identified, but are alleged to be the ultimate recipients of the payoffs. This scheme is said to have financed election campaigns for candidates of the PT and allied parties in the federal Congress. The chief federal prosecutor, Rodrigo Janot, has said he plans to prosecute the politicians, which would lead to a trial by the Supreme Court. In 2009, a majority of the court tried the high command of the PT, led by José Dirceu, da Silva’s former presidential chief of staff, and eventually sentenced them to prison terms for mounting an earlier political scandal involving monthly payments to at least 40 members of Congress who provided their votes for a majority led by the PT. Since then, the Supreme Court has received five new appointees named by Rousseff to fill vacancies created by mandatory retirements, Therefore, the 11-member court no longer has the same makeup that convicted the PT leadership, and its political independence has been questioned. This is one of the many crucial questions now facing Brazil as it tries to recover its dynamism as Latin America’s largest economy and restore some ethical respectability to its politics. 

Update. As the new president of Petrobras, Rousseff has named Aldemir Bendine, the president of the state-owned Bank of Brazil, who has close political connections to the PT. In her choice of Bendine, Rousseff passed over other politically independent candidates with far more experience in managing large corporations like Petrobras. The privately traded shares of the troubled oil company, which has lost 50 percent of its market value in the past two months, fell further after the appointment of Bendine was announced, indicating market disappointment.

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