Brazil Haunted by Another Corruption Nightmare

08/28/2015 - 15h27

On the day last October when Dilma Rousseff's campaign finance chief was first accused of receiving bribes related to Petrobras, the Brazilian president was taking part in a rally in the north-eastern state of Alagoas.

Beside her on the stage was former president Fernando Collor de Mello.

When Mr Collor was impeached in 1992 on the basis of corruption allegations, Ms Rousseff's Workers party (PT) was on the front line of the massive public demonstrations calling for his ouster.

But as the Petrobras scandal threatens to engulf her government, Ms Rousseff and Mr Collor - now a senator and unlikely ally of the PT - find their fates linked closely together.

With Mr Collor formally accused last week by federal prosecutors of taking millions of dollars in bribes from Petrobras, the former president and Ms Rousseff have come to appear in the eyes of the Brazilian public as co- defendants in what is easily the country's biggest corruption scandal.

But beyond that, Brazilians are also looking closely again at the experience of impeaching Mr Collor to see whether they want to go down the same route with Ms Rousseff 23 years later.

"You were elected legitimately," Mr Collor is reported to have told the president at a dinner she held for leading members of congress earlier this month. "But so was I."

Amid the jaw-dropping revelations from the Petrobras scandal, which prosecutors believe has included about US$2bn in bribes, the involvement of Mr Collor is one of the most striking.

It was as if Richard Nixon got himself elected to the Senate two decades after Watergate, only to be caught bugging the offices of the California Democratic party.

The impeachment case against Mr Collor in 1992 involved the Casa da Dinda, the Brasília mansion he chose to live in when he was president instead of the official residence. A close aide was accused of soliciting US$2.5m in bribes from leading companies to pay for repairs and a garden oasis with eight artificial waterfalls.

In July, the federal police raided the same house, where Mr Collor lives again as a senator, and impounded three luxury cars - a Ferrari, a Porsche and a Lamborghini.

According to an indictment issued by federal prosecutors last week, the cars were paid for from the R$26m (US$7m) in bribes that Mr Collor received from the Petrobras corruption scheme.

"He is like the Bourbons, he has not changed at all," says Mario Sergio Conti, who in 1992 was editor of "Veja", the news magazine that played a central role in Mr Collor's impeachment. "He carries on as if he never did anything wrong."

Mr Collor has angrily denied the charges, accusing the federal authorities of operating an atmosphere of "terror and persecution".

Even if Mr Collor were not in the headlines, the Petrobras scandal would still have powerful echoes of the 1992 impeachment. Then as now, political and economic crises are feeding off each other.

Ms Rousseff's approval rating - now at a historic low of 7.7 per cent - is evidence of a similar level of deep popular disenchantment. Just as Mr Collor suffered, Ms Rousseff is often the subject of jeers if she appears in front of anything but tightly controlled audiences.

Fearing that political paralysis will lead to economic stagnation for the three remaining years of Ms Rousseff's second term, some sections of the economic establishment are eager to find a way to break the logjam.

One São Paulo businessman points out that the impeachment of Mr Collor not only relieved the intense pressure within the political system, it also provided the backdrop for important economic reforms - notably the Real Plan that ended hyperinflation.

In one sense, Ms Rousseff's situation is even more precarious. Mr Collor was brought down principally by the media who were helped by an explosive interview his brother Pedro gave to "Veja".

The Petrobras scandal, however, is being driven by an aggressive generation of prosecutors and judges who have much greater powers, including plea bargain agreements with several executives involved in the bribes.

However, there are also major differences with the 1992 impeachment. Unlike the evidence about Mr Collor's home repairs, there have so far been no revelations that personally link Ms Rousseff to the kickbacks.

In 1992, Mr Collor was the member of a tiny political party, which meant there was little backlash once he left office.

But Ms Rousseff is supported by the PT which, although much diminished, still has deep roots among trade unions and social movements. A post-Rousseff government could face a wave of strikes and angry protests.

Most importantly, there is little consensus among the economic, media and political elite about how to resolve the current crisis and considerable anxiety about the consequences of a new impeachment.

Roberto Setubal, head of Brazil's biggest private bank Itaú Unibanco, said impeachment would "create bad instability in our country".

An editorial in Folha this week argued that impeachment was a "traumatic" step, especially twice in three decades. "In theory, Brazil has already left its banana republic phase."

Joao Augusto de Castro Neves, a Brazil analyst at Eurasia Group, says: "She [Rousseff] is close to the brink and will remain close to the brink. But no one is willing to pull the trigger."

Copyright The Financial Times Limited 2015