BY: KATHERINE GAN, SENIOR CONTRIBUTOR
In mid-2013, news broke out of the Petrobras scandal, uncovering widespread corruption throughout the Brazilian government. However, nearly three years later, in 2016, the Petrobras scandal has hit the newsstands again, as former and current presidents are now connected to the scheme. After three years of angry civilian protests and empty political promises, the scandal has engulfed the country.
Corruption has been a pervasive problem in Brazil throughout its history. The country is known for replacing police officers with local gangs and riddling democratic processes with embezzlement and fraud. Although Brazil has a long history of misconduct, the Petrobras scandal is so far-reaching that it seems to surpass all other cases. Petrobras originated in the 1950s as a publicly traded but government controlled multinational oil company. This unique setup allows politicians to choose the governing board and make final decisions regarding oil contracts. This led to extortion between top construction executives, select Petrobras employees, and politicians willing to look the other way. A few large construction firms created contracts that purposefully overcharged the company. In order for these deals to take place, certain Petrobras workers complied and were given kickbacks and bribes for their loyalty. After revenue from the profitable contracts rolled in, the construction firms would pay off Brazilian politicians. They would give three percent of their earnings from highly priced contracts to political parties, totaling 3.7 billion as of January 2015. Making matters even worse, Pedro Barusco, a former Petrobras employee, revealed that top leaders of the ruling Workers Party used these funds for their political campaigns. More recently, the scandal has reached even the top politicians. In fact, the current Brazilian president, Dilma Rousseff, is being examined for using Petrobras funds for reelection and hiding instances of bribery in her cabinet. In an attempt to protect herself from prosecution, President Dilma Rousseff, named her predecessor, Luiz Lula da Silva, as her chief of staff. Moreover, Luiz Lula da Silva, the Brazilian president from 2003-2011, has been detained for questioning by the police, as the Petrobras scandal is thought to have started under his rule. This widely entrenched scandal has resulted in huge losses for the country.
Petrobras, as a corporation, has been forced to face a cruel reality. When the scandal erupted, the business saw an immense fall in profit, as revenue was used to pay $2 billion dollars in bribes between 2004 and 2012. As a result, investors slapped on timely and costly lawsuits. Petrobras is expected to spend $150 million on U.S. cases brought solely by the Securities and Exchange Commission and the Department of Justice. The scandal has contributed to a loss in earnings of $21.6 billion dollars in 2014 alone. In addition, the timing of the Petrobras scandal could not be worse, as the international oil glut has reduced profits for every oil producer. These economic woes, coupled with the harms of the Zika virus on tourism industry, have resulted in lower wages and a poorer quality of life for the average Brazilian. Absent economic growth, scandals can no longer be ignored by Brazilian citizens. As a result, record breaking protests of three million civilians, calling for an end to the corruption, occurred in Sao Paulo and Brasilia. Anger at the political elite is further corroborated by the Datafolha’s findings, just yesterday, that 68 percent of those surveyed want to impeach President Rousseff, who currently has an approval rating of just 10 percent. In the three years that the corruption has been unveiled, time has been wasted. Instead of searching for solutions and making efforts for reform, politicians are choosing to hide from prosecutors, hoping that they won’t be convicted.
The issue with corruption in Brazil isn’t just that it occurs, taking money from hardworking Brazilians, but that it proliferates. The Petrobras corruption has spread to Swiss bank accounts as well as construction contracts for the 2016 Olympic Games to be held in Rio de Janeiro. In addition, the Brazilian health ministry and state-owned bank, Caixa Econômica Federal, is now under investigation for graft.
The reason for this ballooning problem is explained by Joseph Stiglitz, a Noble-prize winning economist. He finds that “the rewards…become more outsized that more and more energy is directed toward it, at the expense of everything else.” As the Petrobras scandal unfolds, Brazil’s actions need to as well. No longer should President Rousseff continue to hide behind the guise of a democracy. The Brazilian people deserve better and need to be heard.
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