In 2013, one of the largest corruption scandals in history began to emerge in Brazil. Around the same time, Brazil’s economy began to face structural challenges and enter a depression.
Either development would cause outrage on its own, but together they set the stage for massive societal upheaval.
The past few weeks have brought millions of Brazilians to the streets to protest against the government and demand the resignation of the president, Dilma Rousseff, who has been connected at least tangentially to the scandal.
On one Sunday in March, an estimated 3.5 million people protested.
In the years ahead, the events of the next few months could be seen as a turning point in Brazil’s democracy, the point after which corruption was no longer regarded as “business as usual.”
What is the corruption scandal about?
The corruption scandal revolves around a state-owned oil company called Petrobras, which also happens to be one of the biggest companies in the world.
Petrobras is frequently starting new projects, and it needs to hire construction companies and other organizations to execute its expansion plans.
If Petrobras were acting normally, it would call for companies to submit bids and then it would award contracts based on pricing and expertise.
But the complicated nature of Petrobras made it a target for those looking to skim public funds.
The oil company is a public, private partnership. Public officials appoint executives who are then independent from the government.
So what happened is:
Construction companies banded together to create a cartel through which they controlled the bidding process for contracts and charged much higher prices.
To prevent suspicion of the astronomical prices, they paid off Petrobras executives. Then those involved in the scheme paid off politicians who were connected to Petrobras.
This process continued undetected for more than a decade and drained more than $5.3 billion USD according to investigators.
Then a frequent money launderer was arrested. He happened to know about the entire Petrobras arrangement and bartered for a reduced punishment. He described to law enforcement the most absurdly flagrant corruption scandal imaginable and from there the elites started to topple.
In March 2015, the Supreme Court announced that 34 politicians were under investigation for Petrobras-related corruption. Overall, 86 people have been convicted of crimes across the political system and in the private sector.
In a bit of irony, the convictions are a sign that things may be improving in Brazil. In the past, the judicial system would have been incapable of carrying out so many charges.
What does Brazil’s economy look like?
Brazil has the 6th largest economy in the world and a poverty rate of around 21.4%. After the downturn of the past few years, the country has a 16.5% unemployment rate and 10% inflation. Its national debt has risen to 200% of its GDP and tax revenues are falling.
Some of those figures might seem like unhelpful abstractions, but they basically all mean that Brazil’s economy is struggling and the government is having a hard time propping it up.
The high inflation combined with unemployment means that even though much of the population has less money, basic items are more expensive. Brazil already had notoriously high prices on a range of goods because of steep tariffs. For a more personal view, 54 million Brazilians are behind on their credit card payments.
Inequality is being more keenly felt as the government cuts back on spending designed to help the poor and middle class, such as transportation subsidies.
Meanwhile, the economy is being further squeezed by China’s falling demand for commodities like iron ore, which had been voracious for most of the past decade, and falling oil prices, a key source of revenue for Brazil.
Why is the president the target of outrage?
President Dilma Rousseff of the Worker’s Party came to power in 2011 promising to curb the country’s pervasive corruption and make the economy more equitable.
On the economic front, Rousseff faced difficulties as soon as she took office because of inherited structural problems.
When the Petrobras scandal broke and it was clear that she was associated with several culprits, the population was ready to explode with anger.
Since the initial revelations, the scandal has deepened, Brazil’s economy has worsened and Rousseff’s position has grown more precarious.
Nearly two-thirds of Brazilians want to see Rousseff leave office. Her government has an 8% approval rating.
While the Petrobras scandal has fanned criticism of Rousseff, it doesn’t form the basis of the threats of impeachment. Political opponents accuse her of disguising the country’s economic problems with loans during her re-election campaign.
Past attempts at impeachment have failed, but a new chapter of the Petrobras scandal has begun that includes Rousseff’s political mentor and the former president Luiz Inácio Lula da Silva. As Lula was being investigated, Rousseff offered him a cabinet position. Critics say this was only to shield Lula from a potential criminal conviction for taking bribes, because cabinet positions come with immunity.
This further wounded her credibility among the public because it suggested she didn’t care about fully tackling corruption.
The early stages of impeachment have been accompanied by enormous public protests that could spur the president’s removal.
Either way, the country’s political system is reeling. Politicians across parties are implicated in the Petrobras and people throughout the country have lost trust in the government.
What does this mean for Brazil’s future?
Brazil’s colonial history and the social stratification that followed made corruption a “normal” part of politics, because it allowed the elite to maintain their power through bribes.
It grew so common that in recent years Brazil has lost roughly 3% to 5% of its GDP to corruption annually. The harms of corruption go far beyond the siphoning of public funds--corruption erodes the ability of a government to function on even the most basic level and sharply skews policy priorities.
When the arrests and convictions began, it caught everyone by surprise. The likelihood of such punishment had been minimal in the past and now justice was finally here, instilling fear in executives and politicians everywhere.
The CEO of the country’s largest construction company, Marcelo Odebrech, is now in jail for 19 years for his role in the scandal.
While political chaos may be on the horizon and social unrest is rollicking the country, the Petrobras scandal may have shredded the sense of impunity that shrouded corruption.
The country’s judicial system has been empowered with the ability to legitimately confront and dismantle corruption--and they appear emboldened to hold all guilty actors responsible. For all the instability this will cause in the short term, it could pave the way for a more stable future.
It could also open the path to new political parties that are not polluted by entrenched values and systems of corruption.
If that happens, then Brazil will continue its position as a emerging global power, while also reducing inequality.