Brazil’s pon­der­ous jus­tice sys­tem poses lit­tle dan­ger to Te­mer’s pub­lic spend­ing re­form

Financial Times Middle East - - International - JOE LEAHY — SAO PAULO

Talk to any politi­cian in Brasília these days and he or she will in­evitably men­tion the “to­tal con­fu­sion” reign­ing in Congress from in­ves­ti­ga­tions into a scan­dal at Petro­bras, Brazil’s sta­te­owned oil group.

The sub­ject of the probe has ex­panded from kick­backs at the oil com­pany into a broad po­lice in­quiry into en­trenched cor­rup­tion across Latin Amer­ica’s biggest coun­try. It re­ceived a boost this month when Ro­drigo Janot, chief pub­lic prose­cu­tor, sought Supreme Court per­mis­sion to in­ves­ti­gate 83 politi­cians.

How­ever, mar­kets barely re­sponded, despite Congress re­act­ing with alarm to the “Janot list”. It has not been made pub­lic but lo­cal me­dia re­port that it con­tains five min­is­ters of the pro-busi­ness govern­ment of Pres­i­dent Michel Te­mer and many mem­bers of his coali­tion.

The rea­son in­vestors re­mained san­guine was that they have seen this film be­fore, an­a­lysts say. A sim­i­lar list pro­duced two years ago re­quest­ing per­mis­sion to in­ves­ti­gate 50 politi­cians has re­sulted in cases against only four of them with no con­vic­tions, ac­cord­ing to news­pa­per Folha deS Paulo.

“The first big ques­tion is how the Supreme Court will re­act in terms of the speed of pro­cess­ing these cases,” said Thomaz Favaro, a po­lit­i­cal an­a­lyst at Con­trol Risks, a risk con­sul­tancy, of the new list .“The prece­dents are not good .”

Any threat to the Te­mer govern­ment and its al­lies in Congress would nor­mally worry in­vestors, who are bank­ing on its pro­posed re­forms to bring Brazil’s bal­loon­ing bud­get deficit back un­der con­trol and end a re­ces­sion in the con­ti­nent’s most im­por­tant econ­omy.

Brought to power by the im­peach­ment of his left­wing pre­de­ces­sor, Dilma Rouss­eff, last Au­gust, Mr Te­mer’s “in­terim” govern­ment has al­ready passed a re­form to limit real bud­get spend­ing in­creases to zero for up to 20 years. It is seek­ing to de­liver a pen­sion re­form that econ­o­mists be­lieve is es­sen­tial if pub­lic ex­pen­di­ture is to re­main within the new ceil­ing.

Mar­kets have cheered the re­forms. Over the past 12 months, the stock mar­ket has risen 26 per cent and Brazil’s cur­rency, the real, has gained about 17 per cent. “Slowly but steadily the Brazil­ian econ­omy is moving to­wards a bet­ter macro equi­lib­rium,” said Gold­man Sachs econ­o­mist Al­berto Ramos in a re­search note.

The abil­ity of the Te­mer govern­ment to main­tain this mo­men­tum, how­ever, de­pends in part on the Petro­bras in­ves­ti­ga­tion, known as Op­er­a­tion Car Wash, an­a­lysts say.

The new list of 83 politi­cians pr of­fered for in­ves­ti­ga­tion this month is based on plea bar­gains from 77 ex­ec­u­tives of Ode­brecht, Brazil’ s biggest con­struc­tion com­pany. Re­spon­si­ble for many of Petro­bras’s big projects, and for other state-led pro­grammes such as building sta­di­ums for the 2014 soc­cer World Cup and the 2016 Rio de Janeiro Olympics, Ode­brecht was at the centre of what the US Depart­ment of Jus­tice last year de­scribed as “an un­par­al­leled bribery and bid-rig­ging scheme”.

In spite of the po­ten­tially dam­ag­ing ev­i­dence con­tained in the Ode­brecht tes­ti­monies, an­a­lysts be­lieve it could take years be­fore those politi­cians im­pli­cated could face charges, much less be con­victed. In Brazil, only the Supreme Court can try sit­ting con­gress­men and its per­mis­sion is re­quired be­fore they can be in­ves­ti­gated.

An­a­lysts point to the prece­dent of the men­salão, a vote-buy­ing scan­dal that in­volved the most se­nior mem­bers of left­wing for­mer pres­i­dent Luiz Iná­cio Lula da Silva’s rul­ing clique. This took eight years to reach a con­clu­sion. Then there is the 2015 list of 50, which has since been largely for­got­ten.

The rea­son for the slow­ness is that Brazil’ s Supreme Court was con­ceived in the model of its US coun­ter­part as an in­sti­tu­tion that would re­solve the high­est con­sti­tu­tional is­sues. In prac­tice, how­ever, it has be­come the court of ap­peal for a stag­ger­ing va­ri­ety of cases, dras­ti­cally over­bur­den­ing its 11 judges, an­a­lysts say. Whereas the US Supreme Court might deal with 100 cases a year, Brazil’ s deals with 100,000.

“This was to be a Supreme Court with 11 judges to dis­cuss dif­fi­cult con­sti­tu­tional ques­tions and not one that would have to deal with proof and all the el­e­ments that a crim­i­nal court re­quires and which the lower courts are bet­ter at deal­ing with,” said Michael Freitas Mo­hallem, a pro­fes­sor at FGV Dire­ito Rio, a law school in Rio de Janeiro.

With the next elec­tion due in 2018, and many of those im­pli­cated in the cor­rup­tion in­ves­ti­ga­tions al­ready near­ing the end of their ca­reers, they might al­ready be out of of­fice or even dead by the time their cases reach trial.

Mean­while Mr Te­mer’s most im­por­tant re­forms, such as over­haul­ing the pen­sion sys­tem, are ex­pected to pass Congress by this year’ s third quar­ter.

Paulo Whitaker/Reuters

Un­der pres­sure: Michel Te­mer speaks dur­ing an Amer­i­can Cham­ber of Com­merce meet­ing in São Paulo yes­ter­day

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