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The Political Cost Of Corruption In Brazil

By Stratfor Global Intelligence

Brazil ProtestsIn the wake of Brazil’s oil corruption scandal, the country’s ruling political coalition has all but fallen apart. The ongoing investigation of corruption charges against state-owned energy giant Petroleo Brasileiro has the Brazilian Democratic Movement Party (PMDB), a long-time ally of the ruling Workers’ Party, distancing itself from Brazilian President Dilma Rousseff. Even more troubling to the ruling party is the possibility that Congress could vote to impeach the president. Rousseff, after all, headed the Ministry of Mines and Energy throughout the period Petrobras suppliers and subcontractors were allegedly bribing executives in return for inflated contracts. And even if Rousseff does retain her office for the next three years, her party will still be weak going into the 2018 elections.

Rousseff’s popularity has fallen drastically over the past few months, prompting former political allies to withdraw their support. According to recent polls, about 62 percent of the population actively favors her impeachment. Moreover, the PMDB — the largest party in the Senate and the second-largest party in the Chamber of Deputies, or lower house of Congress — has openly started pulling away from its alliance with the unpopular president. The party was critical of Rousseff’s re-election in 2014, but it is now openly out of step with the Workers’ Party on energy policy and clearly intends to run its own candidate in 2018.

Some PMDB members are distancing themselves to avoid appearing complicit in the scandal. On July 17, PMDB member Eduardo Cunha, the president of the Chamber of Deputies, openly declared his opposition to Rousseff after a former Petrobras contractor accused him of taking $5 million in bribes himself. Other parts of the party, such as Vice President Michel Temer’s faction, remain loyal to Rousseff. But they will likely take the same route as Cunha eventually; the cost of allegiance has risen too high.

The poor state of the national economy, particularly the collapse of export revenues, is exacerbating the ruling party’s falling approval ratings. Brazilian exports of oil, soybeans and iron ore — the country’s three principal commodities — have declined in value by 16.5 percent in the past four years, falling from $92.3 billion to $77.1 billion. After nearly nonexistent economic growth in 2014, the country seems set to enter a recession in 2015. Inflation, a long-time economic problem the government has sought to contain through cautious economic planning, is also set to reach about 9 percent year-on-year — well above the 6.5 percent limit set by Brazil’s Central Bank. The economic malaise has eroded voter support for an administration that the public increasingly views as corrupt.

The disintegration of the Workers’ Party’s political support will hamper its effectiveness for the next three years and possibly bring its rule to an end altogether. In the 2018 elections, the PMDB and the Brazilian Social Democracy Party (PSDB) will each run a candidate against the weakened ruling party. With the vote split three ways, the Workers’ Party would need considerably more support to reduce the risk of losing power. The party still has a chance: It could run former President Luiz Inacio Lula da Silva, who is popular despite the fact that he is also under federal investigation for corruption charges. But even da Silva would potentially face an uphill battle against his challengers.

A More Immediate Concern

The 2018 elections aside, the Workers’ Party may have to deal with a more urgent threat to its power: a presidential impeachment. Despite her tenure as Petrobras’ head during the period under scrutiny, Rousseff has not yet been directly implicated in any corruption at the energy firm. If evidence does implicate her, however, a congressional vote could bring her presidential term to a swift end.

And even if Rousseff’s presidency survives the next three years, the threat of impeachment alone will likely curb her ability to act decisively against her political opponents. Already there is growing rapport between the PMDB and the PSDB, and now an openly hostile Cunha heads the house of the legislature that is key to opening impeachment proceedings.

Despite inflammatory political rhetoric over the past few months, it is unlikely that the PMDB or PSDB are actively seeking Rousseff’s impeachment. The opposition likely wants to avoid the extensive legal proceedings and possible social unrest that may come with a trial, in part because they could hurt investor confidence, stagnating economic growth. With only modest growth in Chinese demand for Brazilian commodities and Brazil’s difficulties in finding markets outside of the Southern Common Market, or Mercosur, Brazil cannot afford any more blows to its economy.

Rather than actually call for Rousseff’s removal from office, the opposition will likely allow her popularity to decline over the next several years while raising occasional threats of impeachment. And now that Cunha publicly opposes Rousseff’s government, those threats may carry more weight.

But even if the opposition does not intend to impeach Rousseff in the near future, the unfolding Petrobras scandal could quickly change their options. Federal investigators may uncover explicit evidence the president was involved in acts of corruption, or individuals may accuse her in testimonies at Sao Paulo’s federal electoral court. Already Ricardo Pessoa, the former chief executive of construction firm UTC, has admitted to donating funds from the scandal to individuals in Rousseff’s government to fund the president’s 2014 re-election campaign.

The main threat to the president is that this electoral court could annul the 2014 election results, effectively impeaching Rousseff without congressional approval. The decision would require a final ruling by the national federal electoral court. At that point, should the national court rule in favor of removing the president from power, it could call for new elections within 90 days of its ruling.

Then again, depending on the nature of the allegations, the electoral court might not be a threat. Some types of corruption allegations would actually fall outside the electoral court’s jurisdiction, to be handled instead by the regular criminal court system, which does not have the power to annul election results. Still, the Brazilian legislature could vote to impeach Rousseff if the alleged crimes meet certain requirements. The Workers’ Party would likely do everything in its power to keep the case from reaching Congress, such as stoking street protests, negotiating with political allies and looking for legal loopholes.

The Petrobras scandal is far from over, and the investigation is gradually sapping the Workers’ Party’s political support. Even if Rousseff eludes any grounds for impeachment, at a minimum the lengthy legal process will keep the scandal in the public eye and, combined with Brazil’s deteriorated economy, will cast doubt on Rousseff’s ability to govern effectively. Such an environment will open up opportunities for the more business-friendly PMDB and PSDB, giving both parties a chance for victory in the next presidential election.

Courtesy of Stratfor Global Intelligence, © 2015 Stratfor
Stratfor is a geopolitical intelligence firm that provides strategic analysis and forecasting to individuals and organizations around the world.  For more information, please visit Stratfor Global Intelligence

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