Petrobras scandal threatens to topple Rousseff

Petrobras scandal threatens to topple Rousseff

Dilma Rousseff’s mandate as President of Brazil is under serious risk of a premature ending. Her legitimacy and legality could be soon challenged, first by an Impeachment called by the Congress, and second by a probe of the Electoral Court; all as consequence of the Petrobras corruption scandal. 

Petrobras: a Pandora’s Box for Brazil

Operation codename ‘Lava Jato’ (portuguese for Car Wash) has become the most complex anti-corruption probe in the history of Brazil, uncovering the largest corruption scheme ever found. The scope of the scandal is unprecedented; Petrobras, the world’s largest, state owned oil company, was found forging tenders and its revenues diverted into political campaigns.

Brazil’s Supreme Court has announced to investigate 34 sitting politicians, a dozen of senators and over 22 congressmen from 5 congressional parties, most of them belonging to Rousseff’s coalition. There is at least 3 bn USD missing from Petrobras, much of which is believed to be used for kickbacks to senior government officials and political campaigns.

In the wake of the scandal, Democratic Movement Party (PMDB), first hour ally of the government’s Workers Party (PT) since 2003, rebelled and threatened to call for an impeachment through the congress.

An impeachment on the president will trigger a series of constitutional mechanisms, which would allow the executive power to be handed over to the highest ranking elected officers. This means that a provisional government would be conducted by the president of the Senate, or consecutively transferred to the president of the Lower House.

However, due to the scale of the corruption, even the impeaching mechanism is severely jeopardized. An impeachment process, conducted by the legislature, would be lead by president of the Lower House, Eduardo Cunha, leader of the PMDB, who is involved in money laundering, by the president of the Senate, Renan Calheiros, and by TCU (the budget watchdog) president, Aroldo Cedraz, who happens to be brought up on corruption charges as well.

What lies ahead of this situation is constitutionally uncharted territory for Brazil, but fears arise over this possible legal void with the vivid memory of Argentina’s 2001-2002 crisis, when five elected officials taking vows as president in just two weeks.

Prosecutors of the ‘Lava Jato’ Probe are said to have compelling evidence to incriminate the President for, at the very least, lying on behalf of corrupted officers. Particularly officers of companies contracted by Petrobras, which bribed public officers for winning tenders, or overcharged the oil company laundry money that would be redirected by these private companies into bribes or campaigns of politicians.

Leading construction firms such as OAS, Camargo Corrêa, Odebrecht, and Andrade Gutierrez have been deeply implicated in these petro-dollar laundering schemes, the latter having their CEOs Marcelo Odebrecht and Otavio Marques Azevedo arrested by the Federal Police under charges of bribery for a value in excess of 2.1 bn USD.

In his testimony Ricardo Pessoa, former CEO from UTC, another huge engineering firm, confessed to having bribed and donated over 7.5 m USD to the PT campaign for Rousseff’s second term.

UTC is one of many companies contracted by Petrobras, which have been found guilty of price-fixing their contracts, laundering and later funneling state money from Petrobras back into the political world through clean, uninteresting ‘donations’. Evidence like this deeply complicates the legal situation of the president, pushing her a step closer to a trial before the Electoral Court.

In the final case, general prosecutors (acting ex-officio) considered to have enough compelling evidence, could press charges against Rousseff before the Federal Electoral Court, which directly depends on the Supreme Court of Justice.

If the court finds valid evidence that the PT presidential campaign of 2014 was directly or indirectly financed with funds connected to the Lava Jato Probe, the justices could retroactively declare Rousseff’s victory a fraud, and the elections invalid, meaning that Rousseff had never actually won the Presidency. This would result in her immediate removal from power, and a call for elections in 90 days time.

A catch-22 situation

The Rousseff administration’s popularity is rapidly tumbling to unprecedented levels. Over 70% of Brazilians rate Rousseff’s presidency negatively, and nearly 85% believe that she is unable to handle the economic downturn.

Rousseff is taking heat by two flanks, the Lava Jato Probe and an economic crisis; but popular perception tends to merge both into one single case of ‘general government mishandling’ and the President is ultimately responsible for it.

Falling iron ore prices, from 140 USD/MT to 40 USD/MT over the past year, added to the drop in oil prices from 110 to 50 USD per barrel, is deeply hurting Brazil’s trade balance. The Petrobras corruption scandal, accompanied by low profit prospects due to the plunging commodity prices, is rapidly deterring investors and affecting market confidence in the country’s prospects.

Despite the provocative language fenced by parties in the Congress and impeachment threats, there is a real fear of provoking further collateral damage by an accelerated removal of the presidency. Unless incriminating evidence against Dilma Rousseff becomes indisputable, parties in Congress would prefer to politically hang her rather than removing her, since this could trigger too much instability and leave them vulnerable as the only people left accountable to any social outrage.

The PT leader and former president Lula Da Silva has asked his predecessor Fernando Henrique Cardoso for a closed meeting to discuss a multi-party agreement to avoid the looming impeachment scenario.

In the most critical case, in which Rousseff resigns and early elections are on the table, Aecio das Neves, who lost the last election by a thin margin, would be the leading figure to win. However, the next president would be given a herculean task of regaining the confidence of both the markets and the society built upon Brazil’s political system.

Categories: Latin America, Politics

About Author

Martin De Angelis

Martin F. De Angelis is a political and security risks analyst with a focus on Latin America. He has lived and worked in the US, UK and Cuba. He is a former US DoS Fulbright Scholar and UK FCO Chevening Fellow. Martin has been broadcast by BBC, AlJazeera, SkyNewsHD, Euronews and other media. He holds a Licentiate degree in Political Science from the University of Buenos Aires, an MA in Strategy and Geopolitics from the Army War College of Argentina and an MSc in International Relations Theory by the London School of Economics [LSE] with Merits.