Bribe Scandal Is Hurting Business in Brazil

One of Brazil’s largest and most influential companies said it was postponing investments until the political situation is more stable given the expanding reverberations of the corruption scandal, which has virtually paralyzed the administration of President Luiz Inácio Lula da Silva.

Until the Gerdau group announcement Monday, June 27, (a leading Brazilian steel company at world level), the local and international financial communities seemed to be weathering the situation in spite of the month long of claims, allegations that pointed directly to the heart of the Lula da Silva administration and the ruling Workers Party.


“We are in a very delicate political period and businessmen don’t invest when the picture is uncertain in the short and medium term,” stated Gerdau’s executive financial vice president Osvaldo Schirmer. The nervousness of the private sector wasn’t limited to Gerdau.


“It’s worrying that a giant like Gerdau is reacting negatively to the crisis,” said the director of the National Confederation of Industry, José Augusto Fernandes, who admitted that “investment is risky and businessmen want security”.


In this year’s first quarter Gerdau invested some US$ 140 million in Brazil and has plans in excess of a billion US dollars extending to 2007.


“What causes insecurity in the economic area is incompetent public management,” stated Senator ílvaro Dias from the mild opposition center-right PMDB.


“Lula’s indecision in facing the crisis is making things worse,” added Yeda Crusius a PMDB member of the Lower House.


Brazilian Central Bank President, Henrique Meirelles, currently in Switzerland in a meeting of the Bank of International Settlements confirmed that concerns over the political consequences of the bribes ring had reached the international community.


Representatives from United States, Germany, Argentina and Chile central banks had held “informal consultations” about the scope of the Brazilian scandal and its possible impact on the country’s and regional economies.


“They’re worried that the political events could lead to changes in economic policy and whether those changes could lead to deterioration of the economy,” said Meirelles who nevertheless had an optimistic message, “economic policy is solid and trustworthy”.


But Mr. Meirelles who has done the utmost to distance the Central Bank from the Workers Party and the accusations of bribed legislators to guarantee congressional support, could be a victim of the current cabinet reshuffle, according to Brazilian political sources.


The former Bank of Boston CEO, Mr. Meirelles is currently under indictment for alleged tax evasion.


President Lula da Silva’s lack of assertiveness is also loosing ground to the more radical groups inside the Workers Party who want a return to the roots and reject any coalition with center right parties such as the PMDB, suggested the Brazilian press.


“The Workers Party must return to its Socialist program, turn the rudder on economic policy and forget about alliances that have already created so many problems”, said Plí­nio de Arruda Sampaio one of the party’s historic founders and references.


Besides, Lula’s re-election chances in October 2006 are rapidly suffering erosion. Since taking office in January 2003 the Lula da Silva administration surprised with its orthodox monetary and fiscal policies winning respect and support from investors and multilateral institutions that feared the advent of a leftist president in Brazil.


The current corruption scandal forced the resignation of presidential chief of staff José Dirceu, political architect of the administration and supposedly strengthened the hand of Finance Minister Antonio Palocci, the wonder boy of market oriented orthodox policies. But with a wavering president and a divided party, the situation remains “delicate and worrisome”.


If Mr. Lula da Silva finally manages to cobble a coalition with the PMDB, Congress numbers would theoretically be increased by 22 Senators (out of 81) to 35, plus 84 Deputies (out of 513) totalling 172.


But party swapping is a Brazilian Congress sport (therefore the “incentives”) and a strong coalition is not a guarantee. Last February the ruling party lost control of the Lower House presidency to a small party which exchanged loyalty for a ministry.


Actually the Progressive Party as well as the Liberal Party, junior partners of the ruling coalition have been identified as those which most “benefited” from the Lula da Silva’s administration paymaster.


And the PMDB also has its presidential hopefuls who could be tempted to help free the administration from the quagmire, but not to promote President Lula da Silva’s re-election ambition.


This article appeared originally in Mercopress – www.mercopress.com.

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