Scandal, protests, and impeachment threats: How bad is Brazil's crisis?

Brazil is in the midst of a tumultuous and potentially far-reaching shakeup – rattled by massive street protests, the arrests of high-profile businessmen and politicians, and renewed calls for the impeachment of President Dilma Rousseff. The turmoil is growing as this year’s summer Olympic Games draw nigh and officials struggle to confront the Zika virus and its suspected links to birth defects.

Now, what began with social protests and revelations of a bribery scandal threatens to unseat the president and reach deeply into the ranks of Brazil’s political class.

What's going on?

It seems like just yesterday that Brazil’s economy was booming and its middle class growing. But today, inflation and unemployment both hover near 10 percent, and some analysts see signs the recession may slip into outright depression. Brazil is also facing its largest corruption scandal in decades, with dozens of politicians and executives arrested or put under investigation related to a kickback scheme in the state-run oil company, Petrobras. In March, popular former President Luiz Inacio Lula da Silva, a close mentor of current President Rousseff, was detained in relation to the scandal and charged with money laundering. 

Rousseff tried to add Lula to her cabinet in what some allege was an attempt to protect him from prosecution. But the move backfired: A judge blocked the appointment, while another released a legally questionable taped telephone conversation between Lula and Rousseff that some say implies her involvement in the corruption scandal.

“This is the largest corruption scandal of Brazil’s democratic history and possibly of all time,” says Matthew Taylor, a senior fellow at the Council on Foreign Relations. The fallout, he says, is “less surprising than the quick pace and process. The country is in a state of shock.”

By the end of March, Rousseff’s ruling Workers’s Party (PT) lost the support of its biggest coalition party member, and other coalition parties are threatening to withdraw support. This greatly increases the chances of impeachment, technically on charges of allegedly manipulating the budget.

How did things blow up so quickly?

Back in June 2013, hundreds of thousands of demonstrators took to the streets in more than 20 cities to protest poor public services, government spending on mega sporting events like the World Cup and the Olympics, and high levels of corruption. These were some of the biggest protests in 20 years. As a result, says Gregory Michener, a professor of public policy at the Fundação Getúlio Vargas in Rio de Janeiro, the government soon passed two anti-corruption laws that set out “massively generous provisions for public prosecutors” to strike plea deals.

That had big implications for Brazil once the so-called Car Wash scandal came to the fore in the spring of 2014. As politicians and businessmen were investigated or arrested for overcharging for contracts with Petrobras, and using that money to pay bribes or cushion electoral campaigns, those new laws gave the investigation its ground-shaking reach.

“Plea bargaining on prison terms or fines in return for more names is a very new legal innovation in Brazil,” says Mr. Michener. “They allowed things to move forward and keep exponentially exposing more people,” all the way up to Rousseff’s inner circle.

Although Rousseff hasn’t been formally implicated in the Car Wash scandal, she was the president of the board of Petrobras while the alleged wrongdoing occurred. In addition, dozens of people fingered in the scandal have been linked to an investigation for offshore money laundering of the Panamanian law firm Mossack Fonseca.

What happens if President Rousseff is impeached?

Congress is expected to vote on proceedings in mid-April. Although the breakaway of the PT’s biggest coalition partner hurts, impeachment is not a given. Rousseff needs to receive one-third of the 513 votes in Congress to keep proceedings from moving to the Senate. If it did move to the Senate, that body would have up to 180 days to vote. Rousseff’s vice president would serve as the interim leader during that period.

A recently released Ibope poll found that 80 percent of Brazilians don’t trust Rousseff, while 69 percent rate her ruling PT as “bad” or “terrible.”

But many question whether the impeachment calls are less about legal wrongdoing than politics. The head of Congress, Eduardo Cunha, who is leading the charge, is under investigation for taking $5 million in bribes in the Car Wash scandal. A number of other top politicians are also being investigated.

If Rousseff is impeached, the new president “will have an opportunity to recreate a governing coalition,” says Taylor. Some hope impeachment could lead to a small economic rebound due to increased confidence in the government.

Is this all bad news for Brazil?

No. The Car Wash investigation has underscored the strength of Brazil’s institutions, says Taylor. “No one is arguing for extra-constitutional solutions. The military is still in the barracks. The constitutional process will be followed.”

Citizens are mobilizing, mostly peacefully, to air their demands, a relatively new trend in a nation that lived under a military dictatorship until 1985. And the fact that long seemingly untouchable business elites and politicians are being held accountable sends a new message.

“Corruption has been hidden for too long in this country,” says Michener. “[N]ow corruption is being brought to light, and people believe that is good.”