Corruption probe slows down Brazilian economy

Demonstrators protest against corruption along Paulista Avenue in Sao Paulo, Brazil. (AFP)

BRASILIA: The ongoing Car Wash corruption investigation in Brazil is negatively affecting the growth of the economy, which is already facing its worst recession ever. Official figures released earlier this week show the economy has shrunk 3.6 percent in terms of GDP in 2016. In 2015, the Brazilian economy shrank 3.8 percent, for a total fall of 7.2 percent for the past two years.
The Folha de Sao Paulo newspaper reported that the Brazilian Institute for Geography and Statistics, or IBGE as it is known in Portuguese, said that the recession was felt in three sectors of the Brazilian economy, something that had not happened since 1996. Agriculture fell 6.6 percent, industry fell 3.8 percent, and services fell 2.7 percent in 2016.
Last month O Globo newspaper reported that half a million families had returned to the Bolsa Familia program last year due to the economic recession causing record unemployment. The Bolsa Familia program helps the poorest with monthly payments from the federal government, and there are 13.5 million families currently enrolled in the program. Families that had managed to escape the jaws of extreme poverty just a few years ago, have seen themselves become unemployed and forced to return to the welfare program.
Brazil’s unemployment rate is currently at around 12 million, a record number for this country. The ongoing corruption probe that has targeted Petrobras, the country’s largest oil company, and various large construction firms, including Oderbrecht, the country’s largest, has put a damper on new investments in the Brazilian economy, which has exacerbated the unemployment.
“I do think that the Car Wash investigation has had a little negative effect on economic growth,” said Paulo Feldmann, a professor of economics at the University of Sao Paulo, in an interview with Arab News. “Petrobras was forced to greatly diminish its activities, and the big construction companies also. And many politicians are now afraid to undertake new public works.”
But Professor Feldmann was quick to point out that the Car Wash investigation is not responsible for the current recession, although it may have aggravated it. He believes that the economic team of President Michel Temer is not doing enough to restart the economy and create new jobs. Temer has been in power since May 2015 when he took over the government as the Brazilian Congress was impeaching President Dilma Rousseff.
“The Temer government has not come up with an employment program until now. They could have launched a massive construction program to improve Brazil’s infrastructure, as we still need new roads and hydroelectric plants. The minister of finance, Henrique Meirelles, thought he was going to be able to attract foreign capital from China, Japan and the US, to invest in these costly infrastructure projects, but he failed. The problem are the requirements that construction companies use a minimum of 60 percent Brazilian labor, which is easy for Brazilian construction companies to meet but very difficult for foreign ones,” explained Feldmann.
Feldmann blames this requirement on the labor unions of engineers. “I am very disappointed with the Sao Paulo labor union of engineers that insists that only Brazilian firms can operate in construction. They do so as they are afraid of losing jobs to foreigners,” he said.
Some commentators believe that some sort of agreement needs to be made between Congress and society to help pull Brazil out of the economic hole that it finds itself in.
“Businessmen are not rooting for the corrupt, they just want a return to normality as quickly as possible, and that is not what the Car Wash probe is promising for the next few months,” wrote Celso Rocha de Barros, a political commentator, in the Folha de Sao Paulo last month.
“Millions of workers, afraid of losing their jobs, have the same preoccupation. But if the Left and Right agree on a minimum program that preserves the fiscal adjustment, but removes health and education from the spending freeze; which includes a reasonable reform of the Social Security program; that establishes levels of taxation of the rich typical of decent countries; in this case we can guarantee the social stability that we need to get out of this crisis,” he added.
One of the main prosecutors in the Car Wash investigation, Carlos Fernando dos Santos Lima, believes that country needs to go through this painful process in order for the economy to return to a healthy form of growth, not one that depends on corruption. “It is the dysfunctional political system that is an obstacle to the economy and not the Car Wash probe,” Lima told the Correio Braziliense newspaper on Monday.
Lima believes that the dysfunctional political system in Brazil uses corruption as form of political and electoral financing, in which companies provide campaign funds to politicians, who in turn return the favor by awarding these companies government contracts. “If this situation remains the same, we will have more economic crises,” warned Lima.