Jeffersonian democracy, tropical style

Brazil's bribery scandal

Jun 23rd 2005 SÁO PAULO
From The Economist print edition

True or not, bribery allegations made by Roberto Jefferson (pictured above being interrogated by a panel of television journalists) have left Lula's government reeling

LITTLE has been proven. Nearly everything has been denied. Yet a mushrooming bribery scandal that began with a thousand-dollar pay-off to a post-office official has knocked the stuffing out of the government of Luiz Inácio Lula da Silva, Latin America's leading left-wing president. On June 16th José Dirceu, the architect of the victory of the Workers' Party (PT) in the 2002 election, resigned as the president's chief of staff. His exit leaves the government adrift, the ruling party up in arms and Lula suddenly unsure of winning a second term in October 2006.

No one knows yet how deep the rot goes. In eight hours of testimony before a congressional ethics panel on June 14th Roberto Jefferson, then president of the Brazilian Labour Party (PTB), a catch-all grouping, spewed out allegations against Mr Dirceu, top officials of the PT and two allied parties in a sweeping indictment of the conduct of Brazilian politics.

The most sensational charge is that the PT, which lacks a majority in Congress, paid a monthly allowance of 30,000 reais ($12,500) to congressmen from two allied parties in return for their votes. Among the beneficiaries, Mr Jefferson charged, were two of the inquisitors facing him on the ethics panel. The PTB refused the allowance, but accepted a campaign contribution of 4m reais from the PT “in two huge suitcases”. “Everyone knows where the money comes from,” declared Mr Jefferson, an amateur baritone, in an operatic performance: companies that do business with state-owned firms (whose bosses are handpicked by politicians).

Even if the charges are false, there are so many that it could take months to discredit them. The opposition, which until a month ago saw no chance of beating Lula in the next election, has every incentive to sustain the agony through lengthy congressional investigations. Until then, the government will be in “permanent crisis”, says Walder de Góes, a political consultant in Brasília.

Mr Dirceu's resignation as Lula's top administrator is not itself a disaster. He was lamed politically in February 2004 by a bribery scandal involving one his aides. His return to his congressional seat shifts the focus of inquiry away from the president's office. Mr Dirceu had been a critic of high interest rates and tight budgets, which the government has used to keep the economy on course. His removal strengthens the main champion of that policy, Antonio Palocci, the finance minister . “The government had two prime ministers,” says Jairo Nicolau, a political scientist at IUPERJ, a research institute in Rio de Janeiro. “Now one is left.” Dilma Rousseff, Mr Dirceu's successor, was the energy minister; she is a competent manager but not a political heavyweight.

In theory, that should make for more coherent government. Officials talk of stepping up fiscal discipline by eliminating the budget deficit within five or six years and by scaling back earmarking, which dictates how nine-tenths of the budget will be spent. That would encourage lower interest rates and perhaps allow for higher public investment.

The scandal may also prompt Lula to cede more space in government to allied parties, especially the centrist Brazilian Democracy Movement Party (PMDB). At present, the PT holds half of the ministries. Handing some over would be a better way of drumming up congressional support than paying cash. But the president has sent mixed signals about whether he plans a broad cabinet reshuffle, and it is not clear how eager the PMDB will be for a larger share of a troubled government.

Soothing tension within the coalition risks widening the rift between the government and the PT. The party's left wing has never reconciled itself to Lula's austere economic policies or to alliances with pork-barrel parties of the centre-right, such as the PTB. Weakening economic growth and, now, scandal look like vindication. An internal party election is due in September.
Several left-wing factions plan to challenge the party's president, José Genoino—one of those named by Mr Jefferson. His defeat, unthinkable until recently, could transform Lula's own party into his government's most corrosive critic.

Belatedly, the government is contemplating reforms that would discourage corruption. It had already tried to deter spending schemes (known as “parliamentary amendments”) custom-made for individual congressmen, which often get funding only when the government needs votes. This proposal was blocked by a congressional committee. Officials now talk of trimming the vast number (19,000) of federal jobs held by political appointees. Political-reform schemes, which include public financing of elections and measures to discourage serial party-swapping by congressmen, are back on the agenda. But these bruise too many interests to get through a Congress racked by scandal.

If Lula really wanted to clean up the state he would slim it. Privatisation would put jobs at state banks, insurers and electricity-generation companies out of politicians' reach. But Lula and the PT did not wait nearly a quarter of a century for office to preside over a smaller government with less discretionary power. Their good intentions, they assumed, would be reform enough. That suited traditional politicians, who continued to exploit a bloated state for their own purposes. The flaws in this approach may now be dawning on Lula. Too late, perhaps.

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