http://www.businessweek.com/magazine/rousseff-battles-brazils-graft-machine-09222011.html

Corruption

Rousseff Battles Brazil’s Graft Machine


For a city focused on beach, beer, and bikinis, the turnout on Sept. 20 wasn’t bad—about 2,300 people protesting corruption in a Rio de Janeiro square, including a man tied to a cross. Singer Cibelle Bastos, 33, wore a black mask. “It means we need to rob our money back from the politicians,” she says. “These costumes may seem silly, but we need to be dramatic to wake people up.”

What provoked the march—and a larger one two weeks earlier in Brasília—is a string of scandal-tainted resignations at the highest level of President Dilma Rousseff’s government. On Sept. 14, Tourism Minister Pedro Novais stepped down, the fourth Cabinet resignation amid corruption allegations since Rousseff took office on Jan 1. Her Cabinet chief fell in June, the Transport Minister in July, and the Agriculture Minister in August. Most of the revelations have come from press reports on judicial investigations. Rousseff reacted quickly and forced out dozens of lower-ranking officials. All have denied wrongdoing.

The President, who has yet to launch a full-blown war on corruption, finds herself caught between a public outcry for even more “housecleaning,” as Brazilians call it, and the increasingly testy political parties in her coalition. Should they feel their interests are threatened, they could turn against the government’s efforts to control spending. “There’s a demand for change and it’s helping Dilma’s image with the middle class,” says Rafael Cortez, a political analyst at São Paulo-based Tendencias Consultoria Integrada. “But she can’t be imprisoned by this anti-corruption agenda.”

Rousseff rose to power within a system perfected by her mentor and predecessor, Luiz Inácio Lula da Silva. During Lula’s tenure, a grab bag of parties supported the ruling Workers Party in return for Cabinet posts and state jobs. In Rousseff’s administration, 38 Cabinet positions are divided among seven parties. She has direct appointment power over 25,000 positions, compared with some 2,500 for Barack Obama, says Fernando Antônio Azevedo, a political science professor at the Universidade Federal de São Carlos. That’s a “recipe for graft,” he adds. An August study by the Industrial Federation of São Paulo State estimated the annual cost of corruption at $28.7 billion to $47.7 billion, or 1.4 percent to 2.3 percent of gross domestic product in 2010.

Scandals under Lula reached a zenith in the 2005 mensalão, or “big monthly,” referring to regular payments from the Workers Party to legislators so they would vote with the government. Lula denied any knowledge and held on to power. “His motto was ‘get on and get along,’ meaning look the other way and ignore corruption,” says David Fleischer, a political scientist at the University of Brasília. “Dilma won’t tolerate the most obvious episodes.”

One such episode involved the Tourism Ministry. Novais, 81, is a congressman from Rousseff’s main ally, the Democratic Movement Party. Shortly before he was sworn in as minister, the daily O Estado de S. Paulo revealed he had billed the public coffers about $1300 for a party at a motel. He repaid the money. In August the federal police rounded up more than 30 people, including the No. 2 official at the ministry, on charges that they siphoned off millions from the ministry through fake training programs. What finally brought Novais down was a story in Folha de S. Paulo, a newspaper, reporting that he kept a domestic employee on the congressional payroll. Novais contests the claim, saying the employee was a secretary and the expense was legitimate.

Indignation over wholesale theft is rising. The first anti-corruption march, 30,000-strong, in Brasília on Sept. 7 was organized largely via the Internet by two sisters in their 30s. “At first, we had meetings to decide issues with five people,” says one of the sisters, Lucianna Kalil, 31. “Now there are over 50 organizing the next protest,” slated for Oct. 12.

The bottom line: Brazil’s Rousseff is less tolerant of graft, which costs the economy an estimated $28.7 billion to $47.7 billion annually.

With Mario Sergio Lima and Carla Simoes
Maurer is an editor for Bloomberg News in Rio de Janeiro.
Ragir is a reporter for Bloomberg News.

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