In the shadow of Brazil’s political turmoil: Market friendliness at any cost?

by Stina Nilsson, Senior Engagement Manager at GES

I think no one with the slightest interest in global politics has missed the political turmoil in Brazil, resulting in Dilma Rousseff having to temporarily step down as president. While the process leading to her losing her seat, as well as the all men all white interim government leave many Brazilians disappointed, let us have a look at what consequences the interim government already is having on real politics in Brazil.

When appointing his interim government, acting President Temer made Mr. Blairo Maggi Minister of Agriculture. Recently, Mr. Maggi led the work in the Brazilian senate to water down the quite stringent environmental licencing process for large-scale infrastructure projects. End of April, the Commission of the Constitution, Justice and Citizenship approved a constitutional amendment (PEC 65). The amendment establishes that, if an entrepreneur is carrying out a public work, such as large-scale infrastructure projects like roads or hydropower dams, the project cannot be suspended or cancelled, provided that the contractor has submitted a basic environmental impact study.

The amendment is in stark contrast to the current three step environmental licencing process for such projects. In the first step, a “provisional licence” is granted, which is an authorisation of an environmental impact study. Subsequently, if the project is considered viable, an “installation licence” is given. Conditions are normally added to the installation licence and the fulfilment is monitored by the national environmental authority, and when relevant the authority for indigenous peoples’ rights. Only after a third licence, the “operational licence”, operations are allowed to commence. The same procedure is required for all public works, whether a highway, a hydroelectric dam or an oil platform. According to NGOs, if PEC 65 is approved, all three stages become redundant.

While the constitutional amendment might be business friendly, facilitating large-scale infrastructure developments in Brazil, it might have devastating effects not the least in the Brazilian amazon. One should look out for the apparent gap in business friendly as opposed to sustainable business friendly here. A lax environmental licencing process together with the existing large-scale plans to extend hydropower in the amazon could have crippling and incalculable results. Several large-scale hydropower dams similar in their scale and design as the controversial Belo Monte project could get green light without much of environmental requirements or monitoring, should the amendment be passed. Business friendly? Yes. Sustainable? Most likely, no.

A constitutional amendment is of course not approved over night, but this one is proceeding with force and it might ultimately be up to acting president Temer to veto it against the will of his own Minster.

Turning our attention to where this whole political turmoil started – in the partly state-owned oil company Petrobras. The government’s control of the company extends to the ability of appointing its CEO, and that’s exactly what just happened. The former CEO of Petrobras, appointed by President Dilma has resigned and in comes Pedro Parent, with long experience from the Brazilian private sector. In one of his first statements as the new CEO, Parente said Petrobras would continue selling off assets in order to pay down its high debt. He also said the government will not interfere. It remains to be seen if he is the right person to turn an indebted company with low level of trust into the economic engine Brazil badly needs.

The latest developments around the Petrobras bribery scheme suggests that the extensive investigation including various members of the Brazilian elite is not only troublesome for Dilma’s former government, but also for Temer’s interim one. In the course of days, two ministers have had to step down following recordings being released in the public domain. In the recordings, the ministers allegedly conspire to hinder the ongoing extensive bribery investigation. The latest “victim” of the two was the Minister of Transparency, who had to step down after the minister’s own staff stopped him from even entering the ministerial building.

And it does not stop there. Prosecutors have recently asked the country’s highest court to arrest senior political allies of Temer, for allegedly obstructing the bribery investigation. Among them are former president Jose Sarney, former planning minister and current Senator Romero Juca (one of the ministers caught on tape allegedly trying to obstruct the bribery investigation), lower house Speaker Eduardo Cunha and Senate head Renan Calheiros. All four politicians belong to Temer’s party (PMDB).

While no one would be able to predict exactly where the turmoil will end, it is fair to say that more people from Brazil’s political elite will follow the two ministers. In the meantime, it remains to be seen to what extent the interim government manages to also turn around real politics, in the shadow of the elite battle happening in Brasilia right now. In doing so, do we have to sacrifice sustainability for short term focus on economic growth? Well, the interim government hasn’t exactly ensured us the answer to that question is no.

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