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Cleaning House in Brazil

Jaime Daremblum

Are we living in “the decade of Latin America”? Inter-American Development Bank president Luis Alberto Moreno used that phrase in a July 2010 Financial Times op-ed. A year later, Mauricio Cárdenas, then a Brookings Institution scholar and now the Colombian mining and energy minister, raised the same possibility, noting that Latin America appears to be “entering a decade of considerable opportunity.“ The Economisthas marveled at “Latin America’s renaissance,” praising the “remarkable” economic and social developments that have occurred in countries long associated with poverty and backwardness.

Those developments, coupled with the weak U.S. economy, have affected Latino migration patterns. As journalist Soni Sangha recently reported, “An increasing number of Latin Americans — documented and undocumented — are choosing to return to their native countries, where political climates are stabilizing and their economies are growing.” In the past decade, observes Wall Street Journal correspondent Matt Moffett, per capita income in Latin America has jumped from $7,600 to $11,900. According to a Latin Business Chronicle analysis, the region will average 4 percent GDP growth over the next five years, while the United States will average 2.8 percent growth and the European Union will average 1.9 percent growth.

The single biggest factor driving all the optimism about Latin America’s economic potential is the explosive rise of Brazil, whose economy grew by 7.5 percent last year. According to government figures, the Brazilian middle class added 24 million new members between 2003 and 2009, by which point the middle class represented more than half (52 percent) of the country’s total population. China has been eagerly gobbling up Brazilian commodity exports, and the South American giant has discovered massive new oil deposits in its coastal waters. On November 17, Standard & Poor’s boosted its sovereign debt rating.

Yet despite enjoying a lengthy period of responsible economic management under Presidents Fernando Henrique Cardoso (19952003) and Lula da Silva (20032011), Brazil is still plagued by many familiar problems that have long stifled socioeconomic development throughout Latin America: an inefficient tax code, cumbersome regulations, poor infrastructure, a chronically weak education system, high crime rates, and corruption.

The last item on that list has proved especially frustrating to the current Brazilian president, Dilma Rousseff: Since taking office in January, she has lost five government ministers to corruption charges. The most recent to exit under a cloud of scandal was Orlando Silva, the erstwhile sports minister, who has been accused of embezzling up to $23 million. Now it appears that yet another senior government official, Labor Minister Carlos Lupi, may be forced to resign over alleged ethics violations.

Such corruption scandals represent an unfortunate continuation of the Lula legacy. (Rousseff served as Lula’s presidential chief of staff from 2005 to 2010, and she was his handpicked successor.) Though Lula can claim credit for historic poverty reduction and economic gains, his administration was riddled with scandal. For that matter, “Most of the ministers involved in the corruption scandals [under President Rousseff] were Lula appointees or allies,” as Reuters points out.

Amid all the enthusiastic talk about Brazil’s enormous potential, its persistent corruption woes offer a sobering reminder of just how far the nation still must travel. In the 2011 Wall Street Journal/Heritage FoundationIndex of Economic Freedom, Brazil places 113th out of 179 countries and territories. In the “freedom from corruption” category, it scores lower than Bulgaria, Greece, Macedonia, Romania, Ghana, and Montenegro. Corruption has taken substantial toll on the Brazilian economy: A 2010 study by the São Paulo Federation of Industries found that it reduces Brazilian GDP by 1.38 percent to 2.3 percent each year. More recently, the daily newspaper Folha de S. Paulo reported on a new study that says the “diversion of public funds” cost the Brazilian federal government some $25 billion between 2002 and 2008, money that would have been sufficient to bring basic sanitation to half of all Brazilian households that currently lack it.

By signaling her intolerance for government corruption, Rousseff is seeking to change Brazil’s entrenched political culture. “The government is taking a more vigorous approach in relation to its allies in ministries,” Claudio Weber Abramo, the head of Transparency Brazil (an anti-graft organization), recently told Reuters. “It is saying to them: ‘We are watching you more closely.’” As the Los Angeles Times reported last month, Brazilian journalists have concluded that President Rousseff is “committed to ‘cleaning house’ in the capital.” There is evidence that her strong anti-corruption stance has bolstered her popularity: A poll conducted in mid-September gave Rousseff an impressive 71 percent approval rating.

Her campaign to root out graft and prevent future scandals will surely be a difficult struggle, but it is not hopeless. As The Economist has noted, “Brazil is blessed with competitive and aggressive media and tenacious institutions that investigate such scandals, revolving around the public-prosecutor’s office, a semi-autonomous part of the federal government and its local equivalents.” If Rousseff succeeds in making Brazilian politics significantly more transparent, she will also be making a valuable contribution to her country’s economic competitiveness. Indeed, with much less corruption, Brazil would have a much better chance of fulfilling the sky-high expectations of political and business leaders around the globe.

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