Call it a tale of two countries. Two would-be Latin American powerhouses, both with populations surpassing 100 million people – and both with weak presidents who are beset by corruption problems. Both, in other words, are severely underperforming countries, whose chronic inability to live up to their potential continues to undermine growth, stability, and hope for the future.
Begin just south of the United States border in Mexico, a one-time success story, which has been reeling for months. The trouble began in late September, when 43 students were in Iguala. An appalling and grizzly atrocity to be sure, made worse by the alleged involvement of local law enforcement and even the mayor of Iguala. Local authorities in the southern state of Guerrero (home of Iguala) are evidently horrifically corrupt – they have been bought off by the local drug cartels. Unsurprisingly, Mexico has been rocked by weeks of protests as a result of the slayings.
But it’s not only local governments that bear the stench of corruption; in tandem, a corruption scandal has played out at the upper echelons of Mexico’s government. Last month, it was revealed that President Enrique Pena Nieto’s wife had purchased a multi-million dollar mansion from a company that had received major public works contracts from Pena Nieto when he was a state governor, and later from the central government. (A “real family home,” the First Lady of the opulent $7 million property.) In fact, this year, a subsidiary of the company in question was part of a consortium that won a nearly $4 billion contract to construct a high-speed rail line. Indeed, there was only one bid – other companies claim they were not given enough time to bid on the project. The mansion flap points to a far too cozy relationship between certain companies and the Mexican government – the kind of classic corruption that has bedeviled the country for far too long. This news too sparked an outcry.
Unlike the leader of his neighbor to the north (President Obama is nothing if not very shrewd at playing politics), Mexico’s Pena Nieto has something of a political tin ear. To wit, in the midst of major anti-corruption protests, the president decided to travel some 7,000 miles away from home. While protests raged in Mexico, Pena Nieto elected to visit China and Australia. This was, suffice it to say, not a savvy political move, and his approval ratings suffered. That’s a shame, because Pena Nieto needs all the political capital he can get, as he continues on a bold reform agenda; he’s already opened up Mexico’s telecommunications market, as well abolished the country’s oil monopoly. But he wants to do more.
Now, Pena Nieto is in full damage control mode. His wife cancelled her mansion purchase. And, more seriously, Pena Nieto has announced an anti-corruption reform plan that will, among other steps, allow the central government to dissolve local police forces that have been infiltrated by drug cartels. “Mexico cannot go on like this," the 48-year old president said in announcing the plans, "After Iguala, Mexico must change." He’s right – though it remains to be seen whether fundamental change is possible in a country with such a rich and long history of endemic corruption.
Further south, Brazil has similar problems – a major corruption scandal involving the state-backed energy giant Petrobras is raging. The Brazilian Federal Police are currently conducting “Operation Car Wash,” and what they are finding is astounding. Executives at Petrobras, the world’s sixth largest energy company, are alleged to have paid bribes to Brazilian government officials totaling as much as $1.6 billion in exchange for lucrative government contracts. The bribe money was allegedly siphoned off of company profits. Senior executives at the company have been arrested, as have bosses of construction and engineering companies who work with Petrobras. More heads are sure to fall as the case develops.
Most seriously, Brazil’s president Dilma Rousseff, the political heir to former president Lula de Silva, is implicated in the scandal. While there is no evidence that she benefited personally from the kick backs, she headed Petrobras’s board of directors during much of the time in question, from 2003 to 2010. Moreover, many of Petrobras’s bribes ended up in the coffers of Rousseff’s own Workers’ Party. She is expecting that some of her political allies will be arrested soon.
The scandal could not have come at a worse time for Brazil, with its ballooning debt, , and widespread dissatisfaction with shoddy public services. The importance of Petrobras to Brazil’s economy can scarcely be exaggerated, as well: in fact, a mere 10% cut to Petrobras’s investment budget would shave off 0.5% of national GDP, economists Brazil can’t afford to take a hit like that. Nor can President Rousseff, who, faced with a grim economic situation, will have little choice but to cut government expenditures – a policy that will put her in direct conflict with members of her own party.
Like her counterpart in Mexico, Rousseff is a weak politician. She has largely disappeared from public view since her October re-election, and has barely addressed the scandal that is now threatening to engulf her government. Instead, she has simply hunkered down, hoping, it seems, that the scandal will go away. But it won’t.
As two large, dynamic, middle-income nations, Mexico and Brazil should both be growing rapidly, modernizing, and charging ahead. Alas, no: corruption, that old curse, continues to bedevil these two important countries.