Brazil’s silent revolution
New York-based Barclays economist Marcelo Salomon argues the case is part of a broader “silent revolution” in which the government and Brazilian institutions have made some moves in the right direction. These include a push to slash benchmark interest rates and intervene in sectors, such as electricity generation, to create lower costs for industry. This from Barclays:
We believe the Supreme Court Ruling in Brazil convicting high ranked former government officials represents a line in the sand, probably creating new behavior towards government expenditures. Despite the damage of government intervention on sector profitability, an environment of lower capital and production costs could be favorable for investments in the longer run. The government still needs to lift the regulatory uncertainty to overcome the wave of excessive investor pessimism, but the recent convictions could be just the push needed to start moving in the right direction. And this from Alexandre Gartner, equities strategist at HSBC:
The government is clearly making a push to finally get the major infrastructure projects out of the blue print. The shift in the growth driver (and stimulus measures) from consumption driven to investment has long been a demand from markets. We would add to the list tax reduction on electricity prices and the shift in labor charges from payroll based to revenue based. At the institutional level, President Rousseff finally pushed ahead the pension reform for Federal civil servants. And it is looking more likely that Brazil may take a historical step in punishing prominent individuals in corruption scandals, as has thus far been indicated by the case in the so-called Mensalão Supreme Court case.
Brazil’s silent revolution
October 11, 2012 11:55 pm
It is not often that the endless corruption scandals and political squabbles in Brasília make their way into the brokerage reports of Wall Street and Faria Lima, São Paulo’s financial district.
But in the past few weeks, the word “Mensalão” has begun appearing with more frequency in analysts’ notes.
The term, which means “big monthly allowance”, is the name of Brazil’s biggest corruption scandal, in which former ruling Workers’ Party (PT) lieutenants of ex-president Luiz Inácio Lula da Silva paid a stipend to opposition politicians using money stolen from government enterprises and elsewhere in return for their support in Congress.
Few had particularly high hopes for the trial – federal politicians rarely find themselves in court. It was only once the 11 Supreme Court justices last month began continuously and overwhelmingly delivering guilty verdicts against the lesser known players in the scandal – the businessmen and smaller politicians – that people began to take notice.
This week, the trial culminated in guilty verdicts against the three former senior PT henchman – led by José Dirceu, the one-time chief of staff of Lula da Silva. When he occupied the post in 2003-2004, at the time the court says he was running the Mensalão, he was arguably Brazil’s most powerful man aside from the former president himself. The fact that he has been condemned by the justices, many of whom were appointed by the PT, on a case brought by a PT-appointed prosecutor general, is being taken as a sign that Brazilian rule-of-law has moved a step forward.
New York-based Barclays economist Marcelo Salomon argues the case is part of a broader “silent revolution” in which the government and Brazilian institutions have made some moves in the right direction. These include a push to slash benchmark interest rates and intervene in sectors, such as electricity generation, to create lower costs for industry. This from Barclays:
We believe the Supreme Court Ruling in Brazil convicting high ranked former government officials represents a line in the sand, probably creating new behavior towards government expenditures. Despite the damage of government intervention on sector profitability, an environment of lower capital and production costs could be favorable for investments in the longer run. The government still needs to lift the regulatory uncertainty to overcome the wave of excessive investor pessimism, but the recent convictions could be just the push needed to start moving in the right direction. And this from Alexandre Gartner, equities strategist at HSBC:
The government is clearly making a push to finally get the major infrastructure projects out of the blue print. The shift in the growth driver (and stimulus measures) from consumption driven to investment has long been a demand from markets. We would add to the list tax reduction on electricity prices and the shift in labor charges from payroll based to revenue based. At the institutional level, President Rousseff finally pushed ahead the pension reform for Federal civil servants. And it is looking more likely that Brazil may take a historical step in punishing prominent individuals in corruption scandals, as has thus far been indicated by the case in the so-called Mensalão Supreme Court case.
Clearly, one should not expect too much from the present developments. The Mensalão case does not mark the end of scandal in Brasília, which is a part of political life in Brazil’s capital. Areas, such as campaign finance, remain problematic. The need for cash is so great that parties will always be looking for new sources of funding.
In addition, the Mensalão case begs the question as to why Lula da Silva was not called on to testify (he denied any involvement). And we still have to wait and see what punishments the court metes out to those found guilty.
But as a stepping stone towards a better things, the public could hardly have asked for better from the Mensalão trial – especially given how low expectations were before it began. |
