South America has been a special part of my life for four decades. I have lived many years in Brasil and Peru. I am married to an incredible lady from Argentina. I want to share South America with you.
THE latest revelations of wrongdoing in high places struck Brazil with the force of a Netflix release: they are riveting, but so far have left the real world undisturbed. On April 12th Edson Fachin, the supreme-court justice who is overseeing a vast probe into corruption centred on Petrobras, the state-controlled oil company, authorised prosecutors to investigate eight government ministers, 24 senators, 39 deputies in the lower house of congress and three state governors. He sent dozens of cases to lower courts; they will now consider whether to launch new criminal inquiries into nine more state governors and three former presidents. All the big political parties and most front-runners in next year’s presidential election have been tarnished (see chart).
This fresh scourging of the political class comes at an awkward time. Brazil’s worst recession on record has not ended. Michel Temer, who became president last year after the impeachment of his predecessor, Dilma Rousseff, hopes to stabilise the economy by enacting reforms. His approval rating is a dismal 20%; that of his government is ten points lower. Yet the storm of scandal has yet to capsize reforms or sink hopes of an economic recovery. The value of Brazil’s currency, bonds and the index of the main stock exchange weakened after Mr Fachin’s revelations, but only briefly. The extensive new inquiries “had largely been priced in”, says Cláudio Couto, a political scientist at Fundação Getulio Vargas, a university in São Paulo.
One reason for that is that Mr Fachin’s targets are only being investigated, not indicted. He based his decision on statements by 78 former executives of Odebrecht, a big construction firm, who testified as part of plea bargains with prosecutors. One testified that Odebrecht funnelled $3.3bn to politicians between 2006 and 2014, the equivalent of 80% of its net profits over the period. Most of this money came from padded contracts awarded to the company by state-controlled entities, including Petrobras. (Odebrecht has admitted to bribing officials in 11 other Latin American and African countries.)
The testimony disclosed by Mr Fachin, and analysed by Brazilian journalists, reveals how much money the politicians allegedly received, to enrich themselves, their parties or both. Guido Mantega, a former finance minister from Ms Rousseff’s Workers’ Party (PT), reportedly got 93m reais ($30m). Aécio Neves, a senator (and potential presidential candidate) from the Party of Brazilian Social Democracy (PSDB), part of Mr Temer’s coalition, allegedly received 65.5m reais. Everyone on Mr Fachin’s list denies wrongdoing. Odebrecht witnesses claim that Mr Temer himself was present at meetings where illegal campaign donations were discussed, which he denies. He is immune from prosecution for any crime he might have committed before he became president.
Mr Temer is striving to project an air of normality. The disclosures, he says, are “staggering”, but “we have to move ahead”. He has said he will only dismiss cabinet ministers who are formally charged. Although the supreme court has given Mr Fachin extra manpower to deal with the massive caseload, that may take months. The compromised cabinet has some breathing room.
Congress, too, is trying to conduct politics as usual. Most members of Mr Temer’s centrist coalition, including his Party of the Brazilian Democratic Movement (PMDB), see economy-strengthening reforms as the only way to regain credibility with voters. The reforms themselves are not popular. Plans to liberalise labour laws, for example by deregulating working hours, are not a vote-winner. Still less is a proposal to fix the ruinously expensive pension system, Mr Temer’s most important policy. Trade unions linked to the PT, which is as mired in scandal as government parties, have called a general strike against pension reform on April 28th.
Nervous congressmen have forced Mr Temer to compromise. He has agreed to set a lower minimum pension age for women than he had planned (62, rather than 65) and to ease transition rules for men and women. This reduces the prospective savings from pension reform by 170bn reais over ten years. Even so, it should still save the government a substantial 630bn reais over that period. If it goes through, women will retire ten years later than they do now on average. That is probably enough to reassure the central bank, which has been cutting interest rates, mainly in response to lower inflation. Without the prospect of savings on pensions, the central bank might reduce rates more slowly, which would hurt the economy.
Mr Temer is fortunate that voters are feeling cynical rather than fired up. There are no plans to repeat the big anti-corruption protests that helped topple Ms Rousseff last year. Disclosure of Mr Fachin’s list has reassured Brazilians that the dragnet is going ahead without interference.
Any attempt by congress to change that would revive the outrage, warns João Castro Neves of Eurasia Group, a political consultancy. Earlier this year the legislature tried to give its members amnesty for taking undeclared campaign donations, but backed down in the face of popular opposition. The uneasy political calm could also end if congressmen start testifying against one another, or if investigations turn into indictments. Mr Temer has so far kept reforms moving forward and the scandal-plagued government afloat. His job is getting harder all the time.
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