But even as the political drama unfolds with almost daily damage to Brazil’s high-powered political elite, we shouldn’t allow these stories to overshadow the larger plot: the damage corruption causes to national infrastructure, socioeconomic development, businesses’ confidence and even foreign policy. These consequences will long outlast the individual stories that are now in the spotlight.
The chief public prosecutor in the Car Wash investigation, Deltan Dallagnol, estimated in 2015 that corruption in just one company, the state-controlled oil giant Petrobras, amounted to $5 billion. Other estimates run much, much higher. Corruption has infiltrated the decision-making process in virtually every main government agency and company capable of tackling poverty and inequality, two long-standing challenges in Brazil. By allowing small cliques of elite business and political actors to focus these decisions around their own financial interests, the Brazilian state ended up steering investments away from the needs of Brazil’s 22 million poor.
An indispensable step toward social and economic development in poor areas is construction of transportation networks, energy grids and other public projects. Brazil desperately needs this infrastructure: It lacks inter-city passenger trains, for example. Yet despite the critical importance of the sector, it is mired in scandal and inefficiency.
For example, the country’s largest construction firm, Odebrecht, had built what prosecutors called the “bribery department” (under the Orwellian official name of “Department for Structured Operations”). The department’s former head, Hilberto Mascarenhas, told prosecutors the company had paid $3.3 billion in bribes. Prosecutors have alleged that one of Odebrecht’s competitors, Andrade Gutierrez, may have paid bribes linked to a contract to build the Angra 3 nuclear energy reactor, near Rio de Janeiro.
This corruption drove taxpayer funds toward projects that were unsustainable or unnecessary. Consider Sete Brasil, a public company that designs and builds drilling rigs. The Public Prosecutor’s Office stated last year that Sete Brasil was created to be a “corporate structure to expand the corruption scheme” involving Petrobras. The company borrowed double the amount invested in it and went into bankruptcy proceedings last year.
Other projects have raised suspicion due to their tenuous connection to national interests. For instance, in July 2016 the country’s anti-corruption ombudsman (Controladoria-Geral da União, CGU) opened an investigation into the Mariel port in Cuba, the island’s largest project since the 1959 revolution. Odebrecht gained hefty loans from state development bank BNDES during the end of Lula’s government and the beginning of Rousseff’s. The CGU, however, stated that the purpose of BNDES investment abroad is to open new markets for Brazilian exports, making the $682 million invested in Mariel hard to understand given Cuba’s isolation and small consumer market.
Not only did these dodgy projects waste government resources, but they also undermined foreign policy goals by wrecking Brazil’s reputation in two crucial regions for diplomacy and defense cooperation: South America and Africa. Odebrecht has admitted to paying bribes to officials in 11 countries other than Brazil. It wasn’t alone: Oil giant Petrobras’s projects are also being investigated, including some in West Africa. In Peru, Odebrecht is accused of bribing its way to winning a contract for the Inter-Oceanic Highway, a project with the singularly ambitious aim of linking Brazil to the Pacific. Peru’s former president Alejandro Toledo is accused of receiving $20 million in bribes from Odebrecht. The Brazilian section of the highway, in dire conditions just a few years after completion, now moves just seven commercial vehicles per hour.
Both internally and externally, the infiltration of corruption into democratic institutions has resulted at the very least in costly long-term distractions: It has diverted resources into dodgy projects decided by rigged procurement processes. As a result, national strategic objectives have been postponed.
But time, ironically, seems to be on Brazil’s side. The younger generation of prosecutors, judges and Federal Police agents, who play key roles in the Car Wash investigations, have displayed independence and resilience in face of powerful vested interests. Since 2014, Car Wash and the independence of the judiciary from political interference have increased the costs of corruption and left the population and the media more vigilant. If this resilience continues, there is a real chance that Brazil’s institutions and people will see the strong bond between anti-corruption efforts and the country’s long struggle against poverty and inequality.