Latin America AdvisorTop Brazilian government officials and politicians have been implicated in a widening corruption scandal involving hundreds of millions of dollars in infrastructure projects. How will the scandal impact the government of President Luiz Inacio Lula da Silva? Will the scandal sidetrack Lula's economic policy plans?
Paulo Sotero, Director of the Brazil Institute at the Woodrow Wilson International Center for Scholars:
Right now, Lula's economic policy plans consist of a tax simplification proposal being developed by the finance ministry. Despite the promising statements the president made recently about the need to change labor laws and confront ballooning social security deficits, nothing concrete is expected. At this stage, the conclusion of the tax plan depends more on negotiations with governors than with members of Congress. Assuming that a sensible tax reform will result from ongoing consultations with governors and that it will be sent to Congress in the second half of the year, it is difficult to assess the impact of the current corruption scandal—the eighth in the current administration—on the president's ability to push. Initial calculations were that Operation Razor would weaken the PMDB and make Lula's life easier in Congress. The unraveling of the first attempt by Senator Renan Calheiros, the president of the Senate and central figure in the scandal, has changed the scenario. Suspicions among pemedebistas
(most likely unjustified) that the revelations of corruption made by the Federal Police were politically inspired to produce precisely this outcome fueled the concern that the PMDB will react by blocking Lula's legislative agenda, which is not difficult to do, regardless of its content. New revelations [last] week have strengthened the accusations against Calheiros, putting pressure on Lula to separate himself from his important ally. Here, the president's timing may be as important as the very serious nature of the allegations of corruption of the case.Chris Garman, Head of the Latin America Practice at the Eurasia Group:
While the current corruption scandal certainly has the potential to sidetrack the government's reform agenda, such an outcome still looks unlikely. The government has two factors working in its favor. First, the scandal impacts a wide spectrum of legislators spanning opposition parties like the DEM and PSDB to pro-government parties like the PMDB and PT. That means there is little interest in Congress to push the scandal further. Second, the scandal broke in the beginning of Lula's second mandate, when his approval ratings are near a record high and the opposition is frazzled and disoriented. That is very different from a scandal hitting at the end of a term in the run-up to a presidential election (like the 2005 vote-buying scandal). Congress came close to collecting enough signatures to create a parliamentary investigative committee (CPI) to examine the scandal, but the lower House continues to be 20 signatures shy of installing a CPI ... While Veja
brought forth allegations Senate President Renan Calheiros received payments from a lobbyist to make alimony payments to his mistress, there is little support in the Senate to remove him. Ongoing investigations, however, will be key. If investigations uncover clear proof of corruption among top party leaders like Calheiros, Congress could easily be consumed with the fallout associated with any re-arrangement of the government's congressional leadership. Nevertheless, what seems to be at stake is the risk of delays in the government's reform agenda, not Lula's popularity.Cristiano Noronha, Senior Analyst at Arko Advice in Brasilia:
It would have been much better if Operation Razor had not implicated allies of the president and had not reached his cabinet. But thanks to the market's good mood, the favorable external scenario, and the fundamentals of economic policy, the tendency is for the scandal not to contaminate the market. With no damage to the economy, it seems unlikely that the popularity of President Lula will suffer too much, although there could be some impact among opinion makers. Unlike the monthly payoff scandal, for example, Operation Razor didn't reach the Planalto Palace or family members of the president. Shielded, Lula has more room to operate like a fireman and avoid greater damage to his administration. His moderate criticism of the Federal Police, at the same time that it assures the autonomy of the investigations, reveals that Lula doesn't want to lose control of the situation nor be accused of omission. It's the right attitude at the moment.Riordan Roett, Director of the Latin American Studies Program at the Johns Hopkins University's School of Advanced International Studies:
The most recent scandal again proves that Brazilian politicians cannot separate their private interests from their public responsibilities. Since there is almost no accountability in the political system, impunity is the word of the day. People on the road to indictment in Congress can resign, and then run again. The example of the scandals at the end of the first Lula administration is clear—most of those accused and/or processed were re-elected in October 2004. There is a sad cynicism in the voting public in Brazil. Corruption is condemned, but the voters appeared resigned to the system protecting the corrupt. As in 2003-2004, the teflon president will undoubtedly escape any blame or responsibility. The economic program as announced was not a bold and aggressive attack on the underlying problems that keep growth and competitiveness low, so those elements that are least controversial will probably slowly make their way through the Congress, at a price of course, since most legislation in Brasilia must be 'purchased.'"Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.