More Turmoil in Brazil's Government as Corruption Worries Deepen|
Oct. 30, 2011
Published by Minyanville
A sixth minister has resigned from the government of President Dilma Rousseff this year, the fifth to lose his job thanks to corruption allegations. Sports Minister Orlando Silva is accused of embezzling around $23 million from ministry coffers over eight years.
Silva has denied the allegations, saying that he was the victim of a “public lynching.” However, Rousseff will be keen to be rid of yet another thorn in the side of a government that she wants to promote as scandal-free and politically mature.
The Economist looks deeper into the problem. “The latest de-facto sacking illustrates the structural weaknesses of Brazil’s system of government,” the magazine writes. “Though the president has considerable power, she can get little done without the say-so of a congress that is one of the world’s most splintered and fractious.”
Always being seen in the wake of her successful predecessor Luiz Inácio Lula da Silva is proving difficult for Rousseff. “The corruption sagas also demonstrate the dangers of too much continuity,” adds The Economist, noting that many of the ministers that have been forced to resign were inherited from Lula’s government.
Corruption is a huge issue for Brazilians. “The majority of people play by the rules, they work from sunrise to sunset and pay their taxes as much as they can,” Eurípedes Alcântara, editor of Veja, the magazine which broke the Silva scandal, told the Guardian. “Yet another portion lives dangling off the state apparatus, living off deals with people who have the keys to the safe. We see (uncovering corruption) as our mission."
The Sports Ministry is under particular pressure right now as it looks forward to the World Cup in 2014, the Copa America in 2015 and finally the Olympics in 2016.
Inflation and the Eurozone
Still, Rousseff’s bigger headache will be her country’s inflation as well as the eurozone crisis. Recent interest rate cuts, while inflation is still well above the 4.5% target, have concerned many that soaring prices are not the government’s primary concern.
“Is the government … giving priority to other goals, such as sustaining growth and preventing the overvaluation of the currency, rather than keeping inflation low?” asks The Economist. “And has the Central Bank lost its independence?”
Inflation is beginning to fall, but long-term forecasts are actually rising. Marcelo Carvalho, a BNP Paribas economist, told the magazine that he believes inflation will only fall to 5.5% by 2013 -- assuming the government raises rates again.
The Organization for Economic Cooperation and Development (or OECD) expects inflation to end this year at 6.5%, falling to 6.2% next year and 5.1% in 2013.
It has been said that Brazil’s key challenge for maintaining growth and social progress is inflation. OECD forecasts suggest 3.6% growth this year -- much slower than last year’s whopping 7.5% -- that will fall again to 3.5% next year, though regain in 2013 to 4%.
And the world crisis is also making its impact on Brazil’s economy clear. The world’s biggest iron ore producer Vale (VALE) reported a third-quarter net profit of $4.94 billion, down 18% from last year and $1.5 billion below analysts’ estimates.
“We see a kind of credit crunch in China now,” José Carlos Martins, Vale’s marketing and sales director, said as demand has plummeted from the Asian giant.
But the main culprit, claims the Financial Times, is thought to be a $2.19 billion currency loss as well as a $568 million derivative loss thanks to foreign exchange and interest rate bets. The company has much of its debt in US dollars, so the real’s plummet this last quarter did a lot of damage to results.
Brazil turned down on Tuesday the option to buy European bonds, in order to help east the crisis there. Finance Minister Guido Mantega has remained bullish on Europe. “I believe that European countries do not need funds from Brazil to buy bonds. Brazil is not considering it,” he said. “They have to find solutions to the European problems within Europe.”
However, he did not turn down suggestions that Brazil could help through the International Monetary Fund.