MARCH 2016
DUBAI COLLEGE
The Brazilian Petrobras Scandal
The Economics of Medicine
Lord Falconer Visit
In the UAE
DC ECONOMICS The Petrobras Scandal It’s no secret that corruption is rampant in Brazil – the people are so accustomed to scandal upon scandal ending with little to no punishment for politicians, that they have coined a phrase for this phenomenon –ending in pizza. This is meant to capture the nature of politics and justice in Brazil – although president Dilma Rousseff has had several impeachment hearings, action is at a deadlock, and under Brazilian law, ministers go to special courts which have historically been very reluctant to prosecute them. Brazilians are very aware that the political elite always get away with illicit activities. However, the recently uncovered political scandal signifies a much needed change. Petrobras, Brazil’s state owned Oil Company is responsible for a whopping 10% of the country’s GDP. The scandal involves a kickback bribery scheme. Petrobras is mostly controlled by the government, and expectedly, spends large sums of money on awarding construction contracts. From around 12 years ago, a few powerful Petrobras employees and the government officials who appointed them colluded with a small cartel of construction firms, awarding contracts to firms that greatly overcharged the government. The excess revenues were pocketed by both the Petrobras employees and politicians. While this type of scam is quite commonplace, the scale of the scandal is unprecedented - around $3 billion was given away in bribes. Around 20% of Brazil’s congress is under investigation, and recently, a previous employee of the oil company said that he had received $100 million through illicit activities. Political instability ensued – many Brazilians took to the streets and called for the impeachment of the president with renewed fervour. Economically, Petrobras’ plunge has massive repercussions for the economy. Previously, under Rousseff’s predecessor Lula da Silva, Brazil enjoyed economic expansion, reaching 7.5% growth in 2010. Brazil was part of the BRICS group of emerging markets and most politicians were very optimistic about the nation’s prospects. Oil revenues drove a lot of Brazil’s growth. However, the economy was extremely sluggish and took a large downturn during the past few years, and most put this down to president Rousseff’s populist policies. The Petrobras plunge only exacerbates this. It is currently valued at $70 bn, less than half of its value in 2010. The oil company remained a large part of the country’s economic identity for a long time and accounts for most of the government’s revenue, so the plunge is expected to worsen its already massive debt, and the Brazilian economy is forecasted to contract by around 1% this year. Low global oil prices have also resulted in the downfall of the Brazilian economy. Most
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