SAO PAULO, (Reuters) – A political crisis in Brazil is starting to careen out of control as new allegations of graft surface almost daily and President Dilma Rousseff looks increasingly like a bystander with little ability to keep the fallout from spreading to the economy.
Media reports over the weekend detailed new allegations of corruption or allegedly unethical conduct involving five members of Rousseff’s cabinet — her chief of staff, plus the ministers of cities, tourism, communications, and institutional relations — and raised the risk of further departures from a government that has already lost four ministers since June.
With each passing day, the wave of scandals is looking less like a coordinated anti-corruption drive by Rousseff, as some media and government officials have portrayed it, and more like something more unpredictable and dangerous.
Officials tell Reuters that the crisis seems to come down to one main factor — money, specifically a sudden lack of it in Brasilia due to recent budget cuts.
Politicians upset over the cuts began leaking dirt on government officials to the media and it has since escalated into a free-for-all between rival factions inside Congress.
“The truth is, (Rousseff) wants this all to end as soon as possible,” one official said, speaking on condition of anonymity. “She’s not the one pushing this.”
The distinction is critical because, if Rousseff is not leading an anti-corruption putsch, it means she also has little or no ability to stop the onslaught of scandals.
While Brazil’s financial markets have so far shrugged off the crisis, that may change if new allegations surface involving Rousseff’s inner circle or if disgruntled members of Congress move to sabotage her economic policies — as some have already publicly threatened to do.
“There’s an assumption that Brazil’s economy will be fine as long as the politicians don’t muck it up,” said Charles Lieberman, chief investment officer for Advisors Capital Management, a New Jersey-based money management firm. “But we’re watching the government closely right now.”
The fallout could take several forms.
A top legislator for the PMDB party, Henrique Eduardo Alves, this month threatened unspecified “protests” until Congress received more “respect.” Officials close to Rousseff are also concerned that lawmakers in her own coalition could delay her economic reform agenda or lash out by passing new spending bills, complicating her government’s fight against inflation.
OPEN REVOLT IN SOME PARTIES
The starting point for the current crisis was Rousseff’s decision shortly after she took office on Jan. 1 to slash $30 billion from this year’s budget. A large share of the cuts fell upon the so-called “discretionary funds” that are considered a sacred perk for members of Brazil’s Congress.
The cuts sought to cool the economy and ensure a “soft landing” after roaring growth of 7.5 percent in 2010.
They have helped prevent inflation from spiraling out of control. Yet they have also enraged the parties that make up Rousseff’s coalition, which had become accustomed to being handed endlessly increasing revenues, with few strings attached, during Brazil’s long economic boom under her charismatic predecessor, Luiz Inacio Lula da Silva.
With Lula gone, Rousseff has struggled at the kind of back-slapping that has traditionally defused similar crises in Brazil. Meanwhile, the economy has slowed even more than expected in recent months, adding to the tensions as lawmakers fight for control of a smaller pool of resources.
The time-honored weapon of choice for feuding politicians in Brasilia has long been the artful leak of graft accusations to magazines — often the influential weekly Veja — which forces their enemies to step aside.
Such was the case with the resignation last week of Agriculture Minister Wagner Rossi, a senior figure in the PMDB, the largest party in Rousseff’s coalition. He quit after a fellow party member denounced in Veja the presence of “bandits” in a public company linked to the agriculture ministry, and accused Rossi of involvement.
The PMDB has been in open revolt all year over the cuts, which party leaders say have fallen disproportionately on their heads. PMDB leaders have also trained their fire on each other as they compete for a reduced pool of spending outlays and political appointments in Rousseff’s government — a fight that triggered Rossi’s departure, officials said.
“(Rousseff) was not seeking for Rossi to leave,” a second official said. “This was fratricide within the PMDB.”
Some officials say that the leak of personal financial data that cost chief of staff Antonio Palocci his job in June was likely in retaliation for his role in forcing the budget cuts. Rousseff stood by Palocci for weeks until it became clear he had lost the support of the PMDB and her Workers’ Party.
Revenge attacks between different factions are mounting.
The two most serious allegations over the weekend were that the tourism minister, also of the PMDB, had transferred 1 million reais ($625,000) to a shell company with no clear purpose; and that the cities minister offered legislators cash in return for their support. Both denied the accusations.
By responding quickly to more recent allegations, and publicly vowing to prosecute all involved, Rousseff has avoided major damage to her own image so far.
Yet that could change. A poll earlier this month showed that her popularity had dipped in part because of public fatigue with the constant drumbeat of scandal.
Rousseff herself is widely seen by both friends and foes alike as untouchable, with a sterling record through more than 20 years in government.
In one sign that Rousseff is trying to ease nerves, her government vowed last week to release about 1 billion reais to legislators to fund some discretionary projects.
Meanwhile, some within her government are hoping that the aggrieved parties will eventually just run out of ammunition.
“(Rousseff) detests corruption, of course … (and) when these things come to light she will act. But it’s an enormous distraction, and what we really want is to get on with our agenda, things like the fight against poverty, the reason we came to Brasilia,” the first official said. ($1 = 1.60 reais)
