The Potential Benefit of Brazil’s Corruption Crisis

Brazil’s ongoing political corruption crisis has snared business moguls, politicians across many parties, and it could lead to President Rousseff’s removal from office. Rousseff was impeached by the lower Chamber of Deputies on April 17, and the Senate will vote on impeachment in the coming weeks. Though Rousseff has not been charged with corruption for personal gain, she is accused of violating a fiscal responsibility law to make government deficits seem smaller than they actually were. Polling of senators’ vote intentions indicates a majority in favor of impeachment. If the Senate votes yes, Vice President Michel Temer will become acting president for 180 days until the final verdict is reached. Temer has his own baggage and may have difficulty cobbling together a governing coalition if he takes power. And all of this is occurring against a backdrop of economic crisis.

Things seem bleak, but it is too soon to jump to conclusions.

There is a tendency in Washington and financial markets to think primarily in the short-term. This is partly human nature, but it is also conditioned by the structural pressures to demonstrate quarterly earnings for shareholders and concrete results for constituents in 2-year timeframes. It makes it harder to think 5, 10, and 20 years down the road. Of course, longer time horizons mean greater uncertainty, but the tendency to analyze time in discrete, short chunks, rather than an ongoing continuum stretching in either direction, can blind us to history making us feel like the current moment will continue on the same trajectory. Short-term analysis is important, but focusing only on the short-term can make us anxious, reactive, and myopic.

Brazil  is certainly politically volatile, in an economic crisis, and remains on a negative trajectory. Unemployment has risen sharply in recent years and the economy contracted nearly 4 percent in 2015, with similar predictions for 2016. Given that the Operation Car Wash corruption investigations and political fights are ongoing, it seems fair to assume a certain degree of volatility until presidential elections in late 2018. To conclude that Brazil is trapped in a downward spiral, though, is premature at this point.

After the 2018 elections, however, the picture is much less clear, and there is room for optimism. Brazilian institutions have remained solid and professional throughout the crisis thus far. Brazilians have frequently been taking to the streets in recent months, and have been doing so since a wave of protests in June 2013 against corruption and public mismanagement. Corruption has long been the norm in Brazil. The quality of management has ebbed and flowed, but very few political figures have been free from the temptations of corruption. The Brazilian people have made it abundantly clear that they are fed up with the status quo.

By sending powerful politicians and business leaders to jail for long sentences, which has been exceedingly rare since Brazil returned to democracy in 1985, Operation Car Wash is delivering a shock to the system. No longer can politicians assume that they can skim some off the top for themselves. The judiciary has been tested and has performed admirably thus far. Brazilian citizens’ spirit of civic engagement, strong support for the investigations, and higher expectations of their public officials could reshape the normative landscape in Brazilian politics, leading to improved outcomes across the board.

Many elected officials are still implicated in the ongoing investigations, and it will be a messy process. Continuing to govern during the upheaval in order to stabilize the economy will be a challenge. It seems Brazil’s best hope is to muddle through for the next two or three years, but the political, judicial, and social transformations it is experiencing may leave it better off as a country in the medium-term and beyond.