Brazil: recession and corruption

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Between April and June 2015, Brazil’s economy fell into recession; GDP contracted 1.9% compared to the previous three months, the country’s worst downturn in 25 years, expected to become the worst since the 1930s. Compelled to find a way out of a deteriorating economic and social environment, the bourgeoisie are using the revelations of one of their own largest corruption scandals to hammer the Workers’ Party coalition government into moving from placating the working class to openly attacking it. Behind this stand the global investors.

To punish the government’s August proposals for a 2016 budget deficit of 0.5% of GDP ($Reals30.5bn or US$8.1bn), Standard and Poor’s aggressively downgraded Brazil’s investment grade rating to ‘junk’ on 15 September. With ‘junk’ ratings, global pension and insurance funds automatically start removing capital from a country. The ratings agency insolently demanded ‘unwavering cabinet support’ for the surplus’s planned by the former investment banker and new Finance Minister Joaquim Levy.

Immediately after this attack, an emergency budget of spending cuts and tax increases was announced ($Reals65bn or US$16.9bn), including a freeze on public hiring, a cut of about 1,000 government jobs, and eliminating ten ministries altogether: all aimed at creating a primary budget surplus of 0.7% GDP. This is an impossible target, requiring a contraction in state spending of 4.2% in real terms — more than any other government has achieved, even in the boom years of 2003 to 2011. Yet the rating agency then downgraded dozens of big Brazilian companies, including several large banks.

From boom to bust

With the global commodities boom from 2003, Brazil’s GDP was growing at 7.5% a year by 2010. In 2007 Brazil had struck vast deposits of deep-sea oil. The bourgeoisie prospered. The modest safety nets for the poor made possible by this boom, introduced by the Workers’ Party and its coalitions, cut absolute poverty. However, 8.5% of the population still live on less than US$1.30 a day. The two million wealthy, the richest 1%, take 13% of all household income, the same as the poorest 50% - about 80 million Brazilians. More than half of Brazil’s inhabitants are black yet they constitute more than two-thirds of the country’s slum and shanty town dwellers. Brazil’s murder rate rivals Mexico’s. Public health care is a lottery, 40% of Brazilians are not covered by local primary health care. Children attend school in two, sometimes three shifts a day and fewer than half Brazil’s pupils leave school fully literate. The mass of Brazilians need real benefits from the country’s economic activity just as global capitalism demands that the masses receive even less than they do.

The economic recession

From 2011 to 2014 Brazil’s GDP growth was only 2% a year. In 2014 Brazil’s GDP was $2.35 trillion, the seventh largest in the world, but in the first five months of 2015 foreign investment was down to $25.5bn from $39.3bn recorded in the same period for 2014. Overall investment in the country has fallen for nearly two years. From July 2011 to today the currency has fallen 61.5% against the US dollar, two-thirds of this over the last year to 22 September 2015! So, the property owning class has exported much greater quantities of material and foodstuffs, products and services, for the same amounts of foreign currency, intensifying the plunder of both the workers and the soil. The economy is expected to contract around 2.5% this year. Inflation is nearing 10% and unemployment is rising towards 9%. The global ‘financial’ crisis, the over-investment of capital of insufficient profitability, with its consequent stagnant pools of money capital, has now hit Brazil, China and other ‘developing’ capitalist economies.

Using the latest scandal

Only Brazil’s Congress can unlock the roughly 90% of the budget that is ring-fenced. To remove the limited gains made by the workers since 2003, the Workers’ Party coalition must be incapacitated or removed. The revelations concerning the ‘Operation Carwash’ scandal serve this political end.

In March 2014, Paulo Roberto Costa, chief of refining of state-owned Petrobras, was caught money-laundering in the largest scheme ever to be uncovered in Brazil. He confessed to awarding contracts from his division to companies in exchange for diverting 3% of their value into political slush funds. Most of the money went to members of the governing Workers’ Party or their coalition allies for political campaigns. Hundreds of thousands of mostly white, well organised, middle class anti-government protesters took this cue and demonstrated on 15 Marchand 16 August 2015 demanding the impeachment of President Rousseff, reduced state spending and lower taxes, alongside such reactionary demands as opposition to the widening of citizenship, and an end to university quotas for black people and state school pupils, and labour rights for domestic servants.

The treasurer of the Workers’ Party, João Vaccari Neto, arrested in April is now serving 15 years in prison for corruption and money laundering. Over two dozen executives from Brazil’s largest construction companies and more than 50 politicians have been arrested. Until today, 54 people are to be investigated by the attorney general, including 21 federal deputies. 12 senators are now under investigation. Of the top ten corporate donors in the 2014 elections, five currently have senior executives in preventive detention, accused of involvement in the Petrobras scandal. Initial estimates valued the bribes at nearly $4bn.

In August the president of the Congress’ Chamber of Deputies Eduardo Cunha, of the Brazilian Democratic Movement Party (PMDB) and part of the governing coalition was charged with corruption. The PMDB holds 19 of the 81 senate seats and 71 of the 513 lower house seats. Cunha is accused of accepting a $5 million bribe for helping a company win contracts to supply Petrobras. He has tried to impeach President Rouseff, undermine her unpopular austerity programme, and, ironically, expand investigations into corruption to other areas of the federal government. The PMDB Federal Senate leader, Renan Calheiros, is also being investigated. In order to stay in government these two parties have to co-operate, and ‘Operation Carwash’ is splitting them apart.

The masses are at a loss. The Workers’ Party has already seen splits in 2004 and 2005. There are about 30 factions in the Party. The 2014 elections saw the Workers’ Party lose seats in both houses of the Congress. The nests of criminals that make up the propertied classes in Brazil have squashed any semblance of progressive legislation, and through the economic forces of international capitalism have forced a full return to the neoliberal agenda.

Senator Collor (an ex-president) is charged with accepting €6.6m in bribes in return for contracts in Petrobras fuel distribution business. He was impeached from the presidency for corruption in 1992. Former President Lula da Silva is being investigated for influence-peddling for construction giant Oderbrecht. It is charged with paying Petrobras $155m in bribes.

Petrobras, downgraded to a ‘junk’ investment by Moody’s Investors Service, is sharply cutting back investment and selling off assets. By the end of 2014 it admitted $Reals6.2bn losses directly related to corruption investigations, and more than $7bn for such losses between 2004 and 2012. UK Universities Superannuation Scheme is leading other shareholders in a class action against Petrobras in the US courts. Together they claim to have lost billions of dollars; a severe blow for the imperialist state’s privileged middle classes. The new British labour aristocracy benefits enormously from its plunder of Brazil.

A more recent scandal involves the Administrative Council of Fiscal Resources. Some of its members allegedly ruled in favour of firms in exchange for 1% to 10% of reduced taxes, costing $5.8bn over the last ten years, nearly 50% more than the Petrobras bribery sums, but without big names attached it receives far less attention.

On 17 September the Brazilian Supreme Court banned corporate donations to candidates and parties in future elections. Corruption is a way of life in all economic systems run out of individual self-interest, while millions live in desperate poverty. The poor are in desperate need of a party that acts in their interests, and works with the masses to end the continuous crisis of global exploitation.

Alvaro Michaels