Brazil Needs to Get Past Dil­maged­don The Les­son From a Coal Gi­ant’s Col­lapse

Vice Pres­i­dent Te­mer is pre­par­ing for the postRouss­eff era. There’s lots to do—and quickly Bankruptcy shouldn’t stop Pe­abody from clean­ing up the mess it’s leav­ing be­hind

Bloomberg Businessweek (North America) - - Bloomberg View -

The vote by Brazil’s lower house to push for­ward the im­peach­ment of Pres­i­dent Dilma Rouss­eff prom­ises an end to a long po­lit­i­cal im­passe. Mar­kets have been re­spond­ing with an op­ti­mistic surge. But once Rouss­eff is out of of­fice, Brazil’s next lead­ers will need to ap­pre­ci­ate that the win­dow for new co­op­er­a­tion and re­form will be nar­row.

The wide mar­gin of the lower house vote sug­gests the Se­nate may con­clude im­peach­ment pro­ceed­ings as early as midMay. Vice Pres­i­dent Michel Te­mer, the leader of the Brazil­ian Demo­cratic Move­ment Party—pre­vi­ously Rouss­eff’s chief coali­tion part­ner—has al­ready been reach­ing out to po­ten­tial cabi­net mem­bers to form a govern­ment of na­tional unity.

Te­mer has his work cut out for him, and not only be­cause he lacks wide­spread pub­lic sup­port and will face stub­born re­sis­tance from Rouss­eff and her pa­tron, the for­mer Pres­i­dent Luiz Iná­cio Lula da Silva. Like many other mem­bers of the Demo­cratic Move­ment Party—in­clud­ing the lead­ers of the lower house and the Se­nate—te­mer him­self may yet be im­pli­cated in the multi­bil­lion-dol­lar bribery and kick­back scan­dal at the state-owned oil com­pany, Petro­bras, that is cen­tral to Rouss­eff’s cri­sis. There’s still a chance the elec­toral court will call for new elec­tions be­cause of cam­paign fi­nance ir­reg­u­lar­i­ties in the 2014 con­test.

Even set­ting aside such threats, the work needed to im­prove the econ­omy is con­sid­er­able. Rouss­eff’s ad­min­is­tra­tion squan­dered the fruits of the global com­mod­ity boom. With that boom now a bust, pub­lic and pri­vate debt is grow­ing. Last year the econ­omy shrank by al­most 4 per­cent, and the con­trac­tion is ex­pected to con­tinue in 2016. Un­em­ploy­ment has al­most dou­bled since Rouss­eff’s 2014 re­elec­tion.

So vot­ers are in no mood to see a care­taker govern­ment im­pose the kind of aus­ter­ity it would take to get Brazil out of its fis­cal bind. Te­mer will need to work with other mar­ket-friendly par­ties to spur growth. In a man­i­festo is­sued last fall, his party The bankruptcy of Pe­abody En­ergy, the largest U.S. coal pro­ducer, is the most vivid il­lus­tra­tion yet of the mar­ket’s deep and wel­come shift away from coal. It could also be calami­tous for the en­vi­ron­ment: If Pe­abody goes out of busi­ness, who will clean up the pol­lu­tion it has left be­hind?

Un­der fed­eral law, com­pa­nies must pay for the recla­ma­tion of the land they have con­tam­i­nated through min­ing. The usual way to do this would be to re­quire them to put up money or col­lat­eral to cover those costs. But some states, with the fed­eral govern­ment’s bless­ing, al­low com­pa­nies to “self-bond”—es­sen­tially, to prom­ise that when the time comes to clean up a mine, they’ll have enough money to do the job.

Pe­abody’s bankruptcy shows the folly of this prac­tice. Of the six states in which Pe­abody has mines, four—wy­oming, New Mex­ico, Illi­nois, and In­di­ana—al­low self-bond­ing. In those states, tax­pay­ers could be on the hook for up to $1.15 bil­lion.

A fed­eral bankruptcy judge has some dis­cre­tion to force Pe­abody to make good on its com­mit­ments to states, and the judge should use it. Fail­ing to clean up an old mine, be­yond leav­ing be­hind an eye­sore, can let tox­ins leak into the wa­ter sup­ply, threat­en­ing an­i­mals and peo­ple alike. Leav­ing a sur­face mine un­re­claimed can also pre­vent lo­cal com­mu­ni­ties from us­ing the land for graz­ing, farm­ing, hunt­ing, and recre­ation. Wy­oming’s Pow­der River Basin alone will re­quire an es­ti­mated $800 mil­lion.

The broader ques­tions are how many more Pe­abodys there may be and how to pay for the en­vi­ron­men­tal dam­age they have caused. The com­pany is the lat­est in a string of U.S. coal pro­duc­ers to fail, in an in­dus­try that has lost 20,000 jobs and 94 per­cent of its mar­ket value since 2011. U.S. coal pro­duc­tion in the first three months of 2016 fell 38 per­cent from the same pe­riod last year. <BW>

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.