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NY Times, Mar. 21 2015
Brazil’s Slumping Economy and Bribery Scandal Eat Away at Dilma
Rousseff’s Popularity
By SIMON ROMERO
RIO DE JANEIRO — President Dilma Rousseff ran for office declaring that
she would harness an oil bonanza in Brazil to supercharge the economy
while avoiding the corruption and mismanagement that have plagued other
oil-rich countries in the developing world.
But less than three months into her second term as president, Ms.
Rousseff is fighting for her political survival as Petrobras, the
national oil company she oversaw and has championed, reels from a
colossal bribery scandal.
Compounding her problems is the prospect that the economy could shrink
in 2015 for the second consecutive year, the first such contraction here
since the onset of the Great Depression in 1929 and 1930.
Public anger over the scandal, and the slumping economy, brought
hundreds of thousands of people to the streets of Brazil last weekend
demanding Ms. Rousseff’s resignation. On Wednesday, a public opinion
survey showed her approval rating at a paltry 13 percent.
Much of Ms. Rousseff’s predicament can be traced to the oil industry,
which she promoted and reshaped under a nationalist vision of asserting
greater government control over lucrative deep-sea oil fields that were
discovered nearly a decade ago. But even before Brazil starts exporting
oil in large amounts, the industry is coming under increasing strain as
the Petrobras scandal and the plunge in global oil prices produce
mounting job losses.
“Dilma Rousseff arrogantly claimed she got it all right when she was
overseeing Petrobras, prioritizing oil over biofuels, encouraging the
population to consume gasoline by keeping fuel prices low,” said Adriano
Pires, a prominent energy consultant. “But now the shock is here: She
got it all wrong, and the entire country is paying for her failed energy
policies.”
Ms. Rousseff’s fall from grace has been fast, as calls for her ouster
have grown louder over the revelations of bribery on an epic scale at
Petrobras on her watch. Her approval rating plunged to 13 percent in
March from 23 percent in February, according to a public opinion survey
released on Wednesday by Datafolha, a Brazilian polling company. The
poll, conducted on March 16 and 17 in interviews with 2,842 people, had
a margin of sampling error of plus or minus 2 percentage points.
While even Ms. Rousseff’s political opponents say that the possibility
of her being impeached or resigning remains distant, she is grappling
with political and economic crises that are feeding off one another and
eroding her authority.
In addition to the street protests this month, prominent figures in her
own Workers Party have begun criticizing her reluctant embrace of
austerity measures sought by her critics in the business establishment.
At the same time, centrist leaders in her coalition in Congress are in
open revolt against Ms. Rousseff, blaming her for not shielding them
from inquiries over their involvement in the Petrobras scandal, raising
doubts about whether she can push through unpopular spending cuts.
As Ms. Rousseff, 67, grows isolated from her own base of support,
Brazil’s currency, the real, has undergone a sharp devaluation, falling
more than 30 percent against the dollar since she won the first round of
presidential elections in October. Meanwhile, concerns are growing over
the problems at Petrobras, which ranks among the world’s most indebted
companies.
The scandal dwarfs previous corruption cases in Brazil, with the Supreme
Court authorizing the investigations of dozens of prominent political
figures, including the heads of both houses of Congress. Former
Petrobras executives who reached plea deals have described a scheme in
which construction companies vying for business with the oil company
paid bribes equivalent to about 3 percent of the value of contracts.
Recipients of the bribes pocketed vast sums; one manager, Pedro Barusco,
has agreed to return nearly $100 million he hid in offshore accounts.
The executives also said they channeled portions of the bribes to the
Workers Party, some of which were used in Ms. Rousseff’s 2010 campaign,
and to other parties and leaders in her coalition.
The scheme was put into motion during a period roughly corresponding to
the time when Ms. Rousseff was chairwoman of Petrobras, from 2003 to
2010. At the time, she also served as energy minister and chief of staff
to President Luiz Inácio Lula da Silva, her predecessor.
No testimony has surfaced indicating that Ms. Rousseff personally
profited from the bribery scheme, and she has insisted that she knew
nothing about it until investigators revealed it last year.
Ms. Rousseff was a forceful presence at Petrobras, a sprawling
enterprise founded in 1953, using her influence to expand the role of
state-controlled companies and banks in Brazil’s economy.
With new legislation, she put Petrobras firmly in control of new
deep-sea fields and gave it a nationalist mandate to buy ships, oil
platforms and other equipment from struggling Brazilian companies,
causing project delays and cost overruns.
These strategies were a shift from the 1990s, when Brazil’s government
ended Petrobras’s monopoly, exposing the company to market forces while
keeping it under state control.
The push to build entire domestic industries supplying Petrobras, as
well as huge refineries in states controlled by allies of the Workers
Party, created thousands of jobs — until now. The scandal and the
worldwide slump in oil prices have caused Petrobras to suspend work on
projects like a huge refinery complex in Itaboraí, a city near Rio de
Janeiro.
The work force at the refinery has dwindled to less than 5,000 from a
peak of 35,500 in 2013, according to union officials. Many laborers have
returned to their home states in Brazil’s relatively poor northeast, but
as many as 200 unemployed workers now live on the streets of Itaboraí,
according to Fábio Krespane, coordinator of the city’s agency for the
homeless.
Others are squatting in apartment complexes built during the boom years.
One of the squatters, Leirson Fabiano Santos, 34, an unemployed heavy
machinery supervisor, estimated that 90 percent of the workers had voted
for Ms. Rousseff, but added, “I no longer have any good things to say
about her.”
“Now she wants to raise taxes and energy prices so that we, the masses,
pay the price for the corruption at Petrobras,” Mr. Santos said.
Ms. Rousseff had kept electricity prices low in recent years to keep
inflation from accelerating, before allowing them to rise after she
narrowly won re-election in October. Subsidized gasoline prices also
wreaked havoc on Brazil’s once-envied ethanol industry by making
biofuels costlier, with more than 60,000 jobs lost from 2013 to 2014
from sugar mill closings, according to Unica, a sugar and ethanol trade
group.
“There was this sense that oil would allow Brazil to solve all sorts of
problems,” said Paulo Sotero, director of the Brazil Institute at the
Woodrow Wilson International Center for Scholars in Washington.
“Instead, the biofuels industry was gutted, undermining a source of
pride for Brazil around the world.”
Eyeing the achievements of Norway and Canada, oil-rich countries with
enviable living standards, Brazil took steps to prepare for lean times,
like putting a portion of oil revenues in a sovereign wealth fund
created in 2008. But the idea was short-lived: Ms. Rousseff’s government
raided the fund in 2012 to meet budget targets, leaving it with just a
fraction of its holdings.
Still, energy experts point out that Brazil has strengths lacking in
many other oil-rich countries such as Venezuela, including trusted
institutions such as the Federal Police, which revealed the scandal to
the nation, and the Supreme Court, which authorized investigations of an
array of influential legislators. And a diverse economy, including a
cutting-edge agricultural sector and a broad industrial base, reduces
the reliance on oil. Petrobras also has technical expertise when it
comes to finding and producing oil in complex offshore fields.
“Despite all the government meddling and the culture of corruption at
the top of the company, Petrobras is still doing quite well on an
operating level,” said Cleveland Jones, a geologist at the State
University of Rio de Janeiro.
Even so, the oil scandal contributing to Brazil’s economic quagmire is
fueling a broader re-evaluation of the policies that strengthened the
role of state-controlled enterprises under Ms. Rousseff. Even her
finance minister, Joaquim Levy, is questioning the wisdom of giving so
much power to corruption-plagued companies like Petrobras.
“State capitalism doesn’t work very well in a democracy,” Mr. Levy said
in a speech to business leaders in São Paulo this week.
Taylor Barnes and Vinod Sreeharsha contributed reporting.
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