Esta’ Dificil mas Vai…

The title in Portuguese means things are tough but they have to move. My German-born father, John Henry, used to say “it must go” when asked how something was going. I probably inherited a bit of this attitude, especially when it comes to Brazil. My blog  last week “Pior ja Passou” generated some dissent with people reminding me that things can indeed get worse. They can but there are some positives since millions of Brazilians demonstrated on the streets March 15.

  • The lava jato (car wash) investigations continue pretty much uninhibited. The scandal will eventually lead to  improvements in the morose justice system, the penal system and the political structure.
  • The investigations are broadening and aside from Petrobras, there are investigations into Swiss bank accounts and about the level of honesty within Brazil’s IRS or tax collection divisions.
  • Brazil has so far escaped a credit downgrade and the market, in spite of Dilma’s weakness, is still giving Brazilian Finance Minister Joaquim Levy a vote of semi-confidence.
  • Petrobras stock has apparently hit bottom (in New York). It had traded at below 5 dollars a share but closed on Friday, Mar. 27, at 5.78 a share and the company is actually extracting decent levels of oil including wells in the pre-salt.
  • One of the most heartening piece of news was Dilma’s choice of Renato Janine Ribeiro as the man to replace “cabra macho” Cid Gomes. Although Janine is close to the PT, he is not an ideologue. He headed CAPES and he knows the Education Ministry bureaucracy. He is a better choice to deliver Dilma’s promised “Patria Educadora” her chosen theme for the second term.
  • Further, it now looks like most of the political cards are now on the table. Dilma is isolated but it is up to her to work with the hand she has. She needs to make decisions and inaction as in the case of Supreme Court Justice nomination is less and less an option.
  • Capital continues to flow into Brazil in the form of foreign direct investments (FDI). Estimates are that Brazil again will top 60 billion in 2015 for something like 6 years in a row. The weakening real makes Brazilian valuations more realistic and those thinking of the long term can find more reasonably priced options. I copied here: https://allabroadconsulting.wordpress.com/2015/03/28/ an article from the PT-supporting Carta Capital to this effect.

One of the issues that still needs to be worked out is the role of Congress and how much appetite there actually is for institutional crisis. Will Congress move to promote a parliamentarian change? Currently, Dilma has lost executive power but it is not clear that Eduardo Cunha, President of the lower chamber and Renan Calheiros, president of the Brazilian Senate, want to make a change in that direction or if they prefer to await and perhaps have Cunha as a presidential candidate in 2018. Dilma lost power mainly because of the PT manipulations, which started with the Mensalao in 2005 and continue today. Lula and Dilma, it now seems clear, negotiated Congressional votes not so much to approve social and redistributive projects but mainly to avoid anyone in Congress upsetting the apple cart with undue investigations of the executive and PT in power. The nearly perfect storm at the end of the commodity cycle, the weakened Real, the PT’s very questionable electoral manipulations, the increasing independence and effectiveness of the judiciary (thanks to Joaquim Barbosa), plus the never ending revelations of the investigations, have all snowballed and gained a life of their own outside of anyone’s control making it impossible to go on with a protection scheme. This is depressing but also positive. A lot of people, even in the PT, no longer accept that the end justifies any means.

While the corruption inquests are important, malfeasance on the Brazilian scale results from institutional degradation. Corruption is a sign and not a cause. It can be and is being attacked by greater accountability and transparency. Seeing executives of construction companies in jail may give some a pleasurable schadenfreude. However, the country needs to and will eventually advance beyond enjoying “pimenta no &*^# dos outros e’ refresco” to having enough political engagement, participation and civic education not to need such a cheap and ultimately unsatisfying remedy. The system already has formal strictures in place but society needs to see that these actually work and hold accountable both elected officials, business people and bureaucrats so that while a jeitinho may continue, the “jeitoes” can no longer be acceptable.

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