Will populism flourish in wake of the Odebrecht scandal?

Will populism flourish in wake of the Odebrecht scandal?
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The corruption probe into Brazilian construction conglomerate Odebrecht could lead to increased waves of populism across Latin America.

Four years ago, the investigation known as Lava Jato, or Operation Car Wash, led to major probes into corruption allegations in the Brazilian state-owned oil company Petrobras. The operation has resulted in over a hundred search and seizure warrants since the investigation began on March 17, 2014. Notably, the case led to the falling from grace of former Brazilian president, Dilma Rousseff, impeached over allegations of her personal involvement in the scandal.

The corruption probe has since spread to other countries and firms, becoming particularly focused around Odebrecht, Latin America’s biggest construction conglomerate. In March 2016, as investigations developed, the firm’s CEO, Marcelo Odebrecht, was sentenced to 19 years in prison. Nine months later, on December 21, 2016, Odebrecht and “co-conspirators” agreed to pay a penalty of at least $3.5 billion to resolve charges with U.S, Swiss, and Brazilian authorities.

The U.S. Department of Justice continues its investigation into the assertion by Odebrecht of its capacity to pay a maximum of $2.6 billion of the total fine. “Further analysis” regarding the company’s claimed inability to pay is scheduled to be completed before March 31st, 2017.

The firm was accused of paying over $788 million in bribes to political officials in over one-hundred projects. The countries involved in the scandal include Angola, Argentina, Brazil, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru, and Venezuela.

Source: Financial Times, February 20, 2017

Source: Financial Times, February 20, 2017

As several Odebrecht projects become suspended across Latin America, investors, businesses, and ordinary citizens search for answers in an uncertain political and economic climate. One recent case involves the contract for the Colombian Ruta del Sol 2 roadway project, 66 percent of which was allocated to Odebrecht.

The company Corficolombiana, which has a 33 percent stake in the venture, has seen its shares plummet by approximately 20 percent, since the Odebrecht revelations in December 2016. Despite Corficolombiana’s condemnation of Odebrecht’s dealings, investors have begun reexamining their valuations of firms operating in Odebrecht’s proximity.

While many businesses suffer, the situation has galvanized increasingly politically charged populations, as economic dissatisfaction proliferates. The region’s economy experienced an average contraction of 0.7 percent in 2016. Argentina, Brazil, and Venezuela experienced particularly severe cases of recession.

An antagonized populace in many Latin American countries have come to associate the economic slowdown of recent years with corrupt officials. Odebrecht and its dealings with government representatives is likely to stand as an epitome of political dishonesty in future anti-establishment rhetoric. As Paulina Recalde from the Ecuadorian pollster, Perfiles de Opinion, suggests, “[many] feel that if there’s no money now, it means it’s because someone in the government stole it.”

Recent protest in Panama City witnessed thousands of demonstrators take to the streets in an impassioned anti-government rally. Crowds marched through the city center with placards demanding an end to the “governments of thieves.” Protestors demanded multiple arrests and a return of government money implicated in the bribery scandal. The campaigner, Saúl Méndez, leader of the powerful Suntracs construction union, declared that the Odebrecht scandal was just the “tip of the iceberg […] of the rot that lies within all state organs.”

As politicians across Latin America continue to become implicated in the scandal, a path is granted for presidential candidates rallying on anti-corruption platforms. In Mexico, the populist Andrés Obrador, promises to sweep out corruption and the “mafia of power,” in the forthcoming 2018 presidential elections.

Colombian President Juan Manuel Santos has been implicated in corruption accusations, paving the way for anti-establishment candidates. As for Brazil, where investigations began under the Operation Car Wash, President Temer might soon find his tenure cut short following a soon-to-be released testimony by 77 Odebrecht executives expected to implicate scores of politicians in Odebrecht bribes.

The admission of corruption by Odebrecht in 2016 marked only the midway point in a saga that will continue to dictate the future of a politically and economically volatile landscape, as accusations and convictions continue to surface and rattle discontented populations. While the storm does not abate, the rallying call of the populist and anti-establishment politician will reverberate with increasing resonance.

Categories: Latin America, Politics

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