Politics of Corruption: Holding Brazil Back on Infrastructure
Team Leader: Matthew Tai
Author: Micaela Hanley
Political corruption in Brazil continues to be a prominent challenge for its economy. The most recent case involves the current President, Michel Temer. He has been accused of obstruction of justice and organized crime after being caught on tape endorsing the bribe of a former lawmaker. Opposition politicians as well as Brazilian citizens took to social media and news broadcasts to call for Temer’s immediate impeachment. On October 25, 2017, Temer’s charges were dismissed after he survived a second vote in the the Chamber of Deputies, Brazil’s federal legislative body and the lower house of the National Congress of Brazil. This vote in Temer’s favour almost assures he will serve out the remainder of his term, which ends in December 2018. However, because of the corruption scandal, Temer has already confirmed he will not stand for office again after his presidency ends.
Brazilian infrastructure has been kept out of the private sector by the government who maintains control over it. The Brazilian government dominates the country’s economy, drastically limiting the private sector, and having a negative impact on the infrastructure industry. Coming out of a deep recession, reforms are needed to increase privatization in the economy and decrease the government’s control. Temer announced a plan to “extraordinarily open” the infrastructure industry in Brazil to the private sector. He has launched an infrastructure concessions program that will invest in building and operating roads, port terminals, railways and power transmission lines. The program would raise R$45 billion Brazilian Reals ($14.3 billion USD) in investment for the infrastructure industry.
Temer’s reform program addressing the privatization of the infrastructure industry is fundamental in ensuring Brazil’s rise out of recession as many businesses rely on the growth of the infrastructure for revenue. It is essential to “spur growth in non-commodity sectors by further privatization” such as the infrastructure industry. Temer stated, “We are leaving behind a deep recession and entering a phase of prosperity where private investment will be decisive.” However, the corruption scandal surrounding Temer has limited his political capabilities, including implementing his reform policies. His government now lacks the legitimacy needed to reform the economic structure of Brazil. Although Temer will retain support from the majority of the private sector, his job approval rating is at an historic low. Only 7% of Brazilians stated that they believe his administration is good or very good. Alternatively, 69% found his administration to be bad or very bad, thus, his reasoning for stating he will not stand for office again after his term concludes in December 2018. For investors in Brazil, the largest impact of the corruption scandal surrounding Temer will not be the loss of him a political leader, but the reform programme his administration has authored. Previous Brazilian president’s have not shown interest in expanding the private sector and it is likely that one would not continue Temer’s reform process. A tweet from former Brazilian President Luiz Inacio da Silva read “Se não fosse o setor privado, não existiria corrupção,” which translates to “If it were not for the private sector, there would be no corruption.”
The loss of the political capabilities of Temer and his improbable chances of retaining another term as President causes concern for the infrastructure sector in Brazil because Temer’s reforms could have energized industry reform through privatization and, in turn, ensured the continued growth of businesses that rely on infrastructure in Brazil. In the 2016-2017 Global Competitiveness Report, which looks at factors impacting long-term growth and prosperity of 138 countries, Brazil ranked 81st. The country has repeatedly fallen in rank since 2012-2013 when it ranked 48th. The report stated, “Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy.” The infrastructure in Brazil was ranked 72nd while the breakdown of the rank displayed the score for the country’s quality of overall infrastructure was 116th. Thus, the need for an effective infrastructure industry relies on the improvement of the current industry, which is reliant on the privatization of the industry.
While Temer’s reform policies regarding the privatization of the infrastructure industry were likely to magnify the industry’s success, it is now unlikely that the reform program will be implemented before the end of Temer’s presidency next year. It is thus important to increase knowledge of the importance of the infrastructure industry to the overall Brazilian economy to ensure Temer’s successor continues his goal of increasing the private sector of the Brazil economy. The importance of privatization to an economy also must be exemplified as to ensure the growth of the Brazil economy. The government must relinquish control over parts of the economy which would strive in the private sector and are currently failing under government control such as the infrastructure industry.
It is also essential to address the issue of corruption in Brazil to avoid another political scandal during the next presidency. In a survey in 2009 conducted by the World Bank, close to 70% of businesses stated that they consider corruption as the greatest impediment for conducting business in Brazil. Thus, the entire economy is negatively impacted by the continuous corruption within the government. The corruption stems from the environment of political finances; government expenses consume over 40% of the country’s GDP. Political campaign costs are so high that companies often donate funds to candidates in return for advantages given to them during the presidency of the candidate. Weak supervision mechanisms, such as the ineffective judiciary, and the politicization of key government positions are also attributed to the cause of continuous corruption in Brazil.
