World Economy

LatAm Combating Corruption to Save Economy

LatAm Combating Corruption to Save EconomyLatAm Combating Corruption to Save Economy

On June 19, leaders of the two largest construction firms in Brazil, Marcelo Odebrecht of Odebrecht SA and Otavio Marquez Azevedo of Andrade Gutierrez, were arrested as part of an extensive corruption probe into the state-owned oil company Petrobras.

Petrobras has been accused of various forms of malpractice including bribery and money laundering. While in the past, corruption in oil companies has led to blatant inaction—partly due to highly institutionalized venality—this probe has led to the indictment of over a hundred individuals affiliated with the company and has implicated dozens more, reported.

Bribes involving construction firms alone have totaled $2.1 billion and the scandal has cost the company over $16 billion. Accusations of corruption against Petrobras are emblematic of a larger problem across oil industries in the region, especially in Brazil, Mexico and Venezuela.

Each new allegation seems to come with an increasingly dramatic loss of funds. Tackling corruption in an industry that has remained so crucial to the health of the Latin American economy is one method of helping to eliminate institutionalized corruption in other industries equally vital to economic success and to further augment political and economic credibility for the region.

Corruption is not uncommon in Latin America. Global Financial Integrity reported in December of 2014 that the average annual percentage of illicit outflows from Latin America is equivalent to 3.3% of Latin America’s GDP.

Meanwhile, the Institute for International Finance reported in February that annual GDP growth for all of Latin America in 2014 was only 0.4% and forecasted that growth for 2015 will only be 0.2%. This means that the amount of money spent on corruption is over eight times that of region’s annual growth.

The oil industry holds a particular importance because of its economic influence and utility on a global scale. In Brazil, profits from the state-owned oil company account for 13% of the country’s GDP, in Venezuela, 25%, and in Mexico, 5%.

 Recent Accusations

Tensions have risen as the Petrobras corruption probe implicates more individuals. Paulo Roberto Costa, former head of Petrobras, was one of the first to be arrested in 2013. Since then, he has become a witness to the state, supplying valuable information about corruption schemes and accusing many politicians of involvement. On March 6, a Brazilian Supreme Court justice called for the investigation of 34 sitting politicians suspected of involvement in the Petrobras corruption. Although most are members of President Dilma Rousseff’s coalition, and she herself was the chair of Petrobras while most of the corruption was occurring, she has not been included in the investigation and denies any knowledge of the questionable activities.

Corruption in Mexico’s state-owned oil company, Pemex, has not led to the same legal action that corruption in Petrobras has. Although allegations against Pemex have not reached the same heights as those against Petrobras, Pemex and the Mexican government are facing the same issues. While the Brazilian government looked the other way for years, it has started to make headway through its corruption probe. Mexico must do likewise.