Supreme Court Corruption Decision, Investment Seminar, and Rules of the Road

Brazil continues its fitful and jerky movement to institutional stability and economic development.  On Wednesday, Sept. 18, Supreme Court Justice Celso de Mello is scheduled to cast a deciding vote in the Mensalao scandal.  De Mello will either vote for confirming the condemnation of those that have been convicted, including Jose Dirceu (Lula’s original choice as his successor) or for a review of the whole case on a technicality.  If he chooses the review option, there will be plenty of demonstrations and more cynicism as everyone will conclude that “pizza” has been served.  Justice will have been denied and it will be back to institutionalized corruption as usual.

The Mensalão scandal involved vote buying in 2005 during the administration of former Brazilian President Luiz Inacio da Silva, or Lula as he is known in Brazil. Mensalão means ‘big monthly payment and comes from salário mensal (monthly salary) or mensalidade.

On June 6, 2005, Roberto Jefferson, announced to the Brazilian press that Lula’s ruling party, Partido dos Trabalhadores,  had paid numerous members of Congress 30,000 reais (about $12,000 dollars then) in monthly payments to vote for legislation favored by the PT, or Workers’ Party. The money was said to have come out of state-owned companies’ advertising budgets. It was funneled through an advertising agency.

Many of Lula’s advisers resigned in the wake of the scandal. Several deputies were told they could either resign or be kicked out of Congress. Lula, meanwhile, went on to be re-elected President of Brazil in 2006.

I cannot predict de Mello’s desicion. But I would hope the conviction will be upheld. This should strengthen Brazil’s institutions in general and the Supreme Court in particular.  But it will be a close call.

One of the things that the protesters and analysts agree on is the need for rules of the road and a level playing field for all participants in Brazil.  Brazil is just too big and too complex to be ruled by elitist distribution of favors and concessions.  The system needs clarity and procedures so that business can be done without a lot of mystery and hullabaloo.

Too many current or potential investors are walking away from Brazil now as the nation consistently ranks in the bottom half of all countries in terms of corruption and transparency. This has consequences and costs Brazil a lot in lost economic growth.  Just last week, the Economist showed a calculation that Brazil’s economy could be at risk if international investors start walking away.

The whole thing is interesting as the Sept. 13th Bay Brazil seminar in the San Francisco Bay Area shows.  A couple of hundred investors in high tech and bio tech met and listened to experts, both Brazilian and from the US.  Many came away scratching their heads.  On the one hand, the government and a very competent technocratic group are pitching consistently the attractiveness of Brazil, the size of its market and the new emerging consuming classes.  However, people are still confused by reasoning and less than transparent ways that business takes place in Brazil.  An example is the recent bidding process for highway construction.  Bidders shied away from major projects because they could not understand how the concessions, if won, might be profitable because the rules of the road have not been well defined.  A similar situation holds in the government bidding process for offshore oil fields and gas reserves.

Protests and the rules of the road for business intertwine in Brazil.  The hard part is to wrest power from established interests who see no advantage in overturning the apple cart.  Although almost everyone publicly advocates for clarity, those on the inside know that the old ways work to their advantage.  The PT, in its 10 years in power, has learned this and while ideals are in tact at a certain level, the political pressure to accommodate  and coopt are part of the tradition that impedes institutional advance. The party has had to loosen up on its idealism and conform to the old realities of patrimonial politics and ad-hoc manipulation.  The result is a mix of protest and cynicism on the streets and suspicion, as well as confusion or amusement on the part of international investors.

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