ESSA

ESSA

Rousseff and the Brazilian Problem


David Hurley

By

May 19th, 2015


It is easy to blame iron ore prices for Brazil’s demise. But the real complication lies in a problem which developing countries seem unable to shake.


If you haven’t been paying attention to the BRICS countries’ economies in the past year, you could be forgiven for believing their trajectory hasn’t changed since 2010. Just two years ago, Brazil, Russia, India, China, and South Africa were billed as the next world powers rising to challenge the established heavyweights. But since these optimistic outlooks about the future, things seem to have gone awry. China has had to revise growth targets in recent months, South Africa has experienced political disrepair, India is yet to rectify its infrastructure shortcomings, and the economic situation in Russia is nothing less than disastrous. But perhaps the most curious fall from grace has been Brazil, which just two years ago was said to be “very well placed for the future.” What has gone wrong?

There is little doubt that the economy is suffering. Unemployment is above 6% (and climbing), inflation is persistently high, and gross domestic product is contracting. Many point to the over-reliance on minerals as the answer to Brazil’s recent woes. Brazil is the third largest producer of iron ore in the world (behind Australia and China). They have been hit hard (like Australia) by the recent drop in iron ore prices. But unlike Australia, Brazil’s decline has been rapid—the change in economic indicators seems disproportionate to the change in iron ore prices.

The answer most likely lies in the effects of a corruption scandal which has endangered the path of growth. State-backed oil company Petrobras is being prosecuted for allegedly bribing public officials in exchange for contracts. The company held a monopoly on the oil industry in Brazil until 1997, and continues to receive direct support from the government today. Links between the company and the government run deep—President Dilmma Rousseff herself was on the board of directors in the mid-2000s. Her representation on the board coincides with the time in which the alleged bribes were taking place. Whilst there is no evidence to link her directly to the alleged practice, the implication is severely damaging to the credibility of her government. The link to Rousseff is unfortunately not the only state official accused of involvement in the scandal—it includes “a minister, three state governors, six senators and dozens of congressman.”

The story has not gone unnoticed amongst Brazilians, 275,000 of which turned up to demand impeachment of Rousseff in April. Corruption scandals are, sadly, nothing new to South America. Chile is in the midst of its own corruption scandal involving prominent government figures. President Michelle Bachelet’s son is accused of selling his influence to secure a land deal during the latest election campaign. Argentina is gripped by a more sinister accusation, involving the cover-up of a terrorist attack and the death of a prosecutor.

The story is not uncommon in world politics. The US has been plagued by the ‘revolving door’—a phenomenon where politicians move between the private and public sector with ease. Australia has not been immune to corruption either; the recent scandals involving politicians accepting gifts shows that even our own politicians are not above crooked dealings. The problem is even worse in the third-world. Links between corruption and low living standards are well-documented. Democracy—so often billed as the answer —has proved to be not entirely effective. Particularly in developing countries (such as Brazil) corruption isn’t partisan; it is ingrained in the system, crossing party lines and levels of government.

The solution to corrupt dealings remains unclear. Movements such as the ‘Tea Party’ in the United States are becoming increasingly popular, as voters seek to express their frustration at the lack of options. Corruption, in whatever form, is corrosive to the institutions which underpin a stable society. Hence cases like Brazil’s should not be overlooked. Despite increasing levels of professionalism and bureaucracy, corruption remains a stain on many societies. Whilst it continues, situations like Brazil’s will remain a plague on economic progress.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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