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How Cronyism and Corruption Created a Libertarian Moment in Brazil

The libertarian moment might as well be the real deal in South America. But things didn’t change overnight.

If the late Austrian economist Ludwig von Mises were alive today, he would have used one of South America’s largest countries, Brazil, as an example of his teachings. Not only because the effects of heavy-handed interventionism have finally propelled the anti Workers Party movement that is now taking over the country, but also because of what happened prior to the current turmoil.

As Brazilian President Dilma Rousseff (Workers Party or “PT”) struggles to conquer hearts and minds amidst the legal difficulties her administration has been facing due to the crony capitalist nature of Brazilian politics, millions of Brazilians wearing traditional green and yellow soccer jerseys flood the streets—and social media—with signs reading “Dilma out!” The anger is understandable. In a country where Brazilians from all income brackets are forced to pay about 36 percent in sales taxes on most goods and services—a regressive tax that ends up hurting the poor—and give up about 28 percent of their income yearly, things haven’t been easy for quite some time.

Trouble began to brew for Dilma’s administration in 2009, when authorities launched an investigation into a network of currency exchanging businesses connected to Alberto Youssef. He was accused of forging contracts and moving billions of Brazilian Reais domestically and abroad using front companies and foreign bank accounts.

As the investigation broadened, authorities learned that Youssef had business relationships with Paulo Roberto Costa, the former director of the state-controlled oil giant Petrobras, major contractors and their lobbyists, and other Petrobras servicers. On March 2014, both Costa and Youssef were arrested.

As Costa agreed to cooperate with the authorities in August of 2014, Brazilians learned that he and several other directors of Petrobras received bribes and passed them along to politicians for their campaigns. In a matter of weeks, authorities got Youssef to join Costa, and revelations about one of the largest embezzlement schemes in the history of the country started flooding the news.

As both men started feeding authorities with the names of contractors involved in the scheme, Odebrecht and Andrade Gutierrez, the country’s two largest construction companies, were dragged into the investigation. Banker André Estevez, owner of Latin America's largest investment bank, BTG, was also involved.

In March 2015, a series of politicians were also accused of participating in the scheme.

By August, José Dirceu, the former prime minister under president Luiz Inácio “Lula” da Silva, was accused of receiving payments from Odebrecht and Andrade Gutierrez. Brazil Senator Delcídio Amaral (PT) and Lula’s close friend, the farmer José Carlos Bumlai, were arrested. The President of the Chamber of Deputies Eduardo Cunha (PMDB) and several PMDB party leaders were also targeted.

In no time, state prosecutors learned that the embezzlement scheme benefitted political parties in charge of Petrobras’s leadership appointments. At least 53 politicians are under investigation. As federal judge Sérgio Moro showed signs he believed former president Lula had profited from the scheme, prosecutors from the state of São Paulo added insult to injury by accusing Lula of “hiding his ownership of a beach-front condominium.” As rumors about his future hit the news, Rousseff decided to appoint her predecessor as her chief of staff. In a piece from The Economist, writers claim Lula is a “canny political operator,” which may have helped Rousseff make the decision to bring him onboard to boost her reputation. But what the cabinet position means to Lula may have served as the sole incentive.

From The Economist:

“By acquiring the rank of a government minister, Lula would have partial immunity: only the country’s supreme court could try him. In the event, a judge on the court has suspended his appointment.”

According to documents obtained by the Brazilian magazine “Época,” Jornal Opção reports, former president Lula was heavily involved in the embezzlement/crony capitalist scheme.

In what local media outlets call an “explosive” piece, Época writers claim Lula was the “lobbyist in chief” of Brazil during his administration and the period he has spent as a private citizen thereafter.

The magazine alleges that most of the former president’s time was spent traveling on behalf of Odebrecht contractors. Writers Thiago Bronzatto and Filipe Coutinho accuse Lula of aiding “Odebrecht billionaires” in deals with other countries using Brazilian taxpayer money.

According to the piece, the federal bank Brazilian Development Bank, or BNDES, threw billions of dollars into Odebrecht projects abroad. “After Lula left office,” Bronzatto and Coutinho claim, “he met with the Ghana and Dominican Republic presidents shortly before BNDES closed a $1.6 billion deal with Odebrecht.”

Overall, Odebrecht reportedly received $4.1 billion dollars from BNDES to develop projects in Venezuela, Cuba, Ghana, and the Dominican Republic. None of which benefitted the Brazilian people.

In the transcript of a conversation between Lula and Rousseff, which was obtained via a wiretap ordered by judge Moro, Rousseff tells Lula she was sending him investiture documents for them to use “if necessary.” Rousseff’s phone wasn’t intercepted by the federal police, unlike NSA whistleblower Edward Snowden appears to have claimed. Lula’s was. The current president’s conflicting claim hasn’t been confirmed.

As the country cries for impeachment, a smaller faction of the population stands with Rousseff and Lula, despite her lack of support among the general population. But as her approval ratings hover in the single digits, it is the country’s working class, not the country’s “wealthy factions” leading the way. As demonstrated by nanny Maria Angélica Lima, the woman turned famous for appearing in a photograph of a family taking part in one of the anti-Rousseff protests.

Glenn Greenwald describes the scene as a viral image depicting “a rich, white couple decked out in anti-Dilma symbols and walking with their pure-breed dog, trailed by their black ‘weekend nanny’—wearing the all-white uniform many rich Brazilians require their domestic servants to wear—pushing a stroller with their two children.” But what Greenwald failed to note was that nanny Lima was also taking part of the protest because she’s “tired of corruption.”

She told the newspaper:

“Lula wasn’t the president everybody expected. Neither was Dilma. We need to take our chances with something new. I was tired of hearing the same lies, seeing the same corruption.”

As Brazilians struggle with increasing unemployment rates and rampant inflation, they also learn Lula—whose past popularity got the world jealous—was the leader of one of the largest crony capitalist schemes in the country’s history, working on behalf of major corporations, securing them deals with the state-owned firm, and doing all of that while on the taxpayer dime. It’s no wonder everyone is so angry.

As Mises once wrote in Human Action, “corruption is a regular effect of interventionism.” What Brazil—and America—now needs is a culture of liberty. More now than never.

Alice Salles is a native of Brazil and now resides in California. She is a writer at VoicesofLiberty.com and the Advocates for Self-Government.