Petrobras' immediate financial problems caused by the scandal are waning. By releasing its third- and fourth-quarter financial results, Petrobras demonstrated to investors that it is committed to transparency, at least when it comes to the size of its write-down because of corruption. Petrobras had also negotiated leniency agreements with more than 20 private construction firms involved in the scandal. The firms have been prohibited from bidding on new contracts for nearly four months or accessing state credit, which has slowed cash flow at some of the companies. Reopening these negotiated agreements would enable private firms to begin bidding again. The agreements would also likely reimburse the government billions of dollars to offset the amount companies overcharged Petrobras for construction and supply contracts. Ultimately, Petrobras posted a yearly loss of around $7.2 billion. The company's annual write-down as a result of the scandal was $2.1 billion.
The Damage to Brazil's Economy
At this point one of the main concerns is addressing the scandal's damage to Brazil's economy. Because of the ban on bids and access to state credit, some companies under investigation in the corruption probe, colloquially known as the Operation Carwash investigation, are facing cash flow problems. Oil rig supplier Sete Brasil negotiated with creditors while Oasis Petroleum and construction firm Galvao Engenharia filed for bankruptcy protection and credit agreements. The ban on contracting has also delayed Petrobras' investment plans because the company was shut out of most international credit markets for much of the scandal and had to seek its yearly financing from other sources, including the China Development Bank. Investment in Brazil and abroad, such as the construction of natural gas modules in Brazil and Petrobras exploration plans in Colombia, are probably going to be delayed, lowering Petrobras' profits. Stalled projects are almost inevitable in the short term, but further scrutiny of Petrobras' contracts could delay additional investments — and company production goals — by months or even years.
But with the immediate threats from the scandal largely averted, the Brazilian government will now focus on addressing the scandal's effects on the country's weakened economic growth, not to mention Rousseff's political capital. With the president's popularity waning, the ruling Workers' Party will negotiate key political and economic decisions with its crucial partner, the Brazilian Democratic Movement Party. Despite rumblings of dissatisfaction from opposition legislators, a successful impeachment of Rousseff by opposition parties is highly unlikely. Brasilia will try to reactivate economic growth through a greater openness to foreign direct investment and seeking new markets abroad, increasingly outside of the confines of its immediate neighbors in the Common Market of the South, or Mercosur.
Declining exports will also drive Brazil to seek new markets abroad, particularly for its manufactured goods. Reductions in the global prices of specific commodities such as iron ore and soybeans reduced Brazilian export revenue by more than 10 percent between 2011 and 2014. Brazil may seek to make up the difference by exporting manufactured goods, such as aircraft and other machinery exports, to other markets. But Argentina's economic downturn and low economic growth elsewhere likely leave the United States as the most important market for Brazilian goods. While Brasilia has long been looking for trade options outside of Mercosur, increased exports to the United States are unlikely to conclusively address the country's trade imbalance. Consequently, Brazil will continue experiencing slow growth for several years.
The Damage to Political Approval
Rousseff will likely take steps to bring her political allies closer. The Workers' Party political alliance with the Brazilian Democratic Movement Party (PMDB) underpins its control over congressional action, since the latter has nearly as many senators and lower house congressmen as the ruling party. The political scandal has greatly reduced Rousseff's public approval, from 42 percent in December to 13 percent in April, according to one estimate. With the drop in popularity, other political parties, such as the Brazilian Social Democracy Party, have begun discussions about impeaching Rousseff. The legal rationale for impeachment is tenuous. For Rousseff to face impeachment procedures, an investigation would have to uncover wrongdoing during her current presidential term. The president of the lower house, who is from PMDB, has also refused to accept any impeachment proceedings.
Although PMDB's loyalty currently forestalls any moves to impeach her, Rousseff is unlikely to take any chances. She will likely try to keep PMDB close through political concessions, such as increased ministerial appointments for PMDB members. But the two parties differ on key economic policies, particularly concerning Petrobras. PMDB legislators will likely try to force a congressional vote on a law to modify Petrobras' role as the sole operator of pre-salt oil fields and to potentially reduce local content requirements soon. While such a move could eventually encourage more investment at a time of economic hardship, it is likely to be politically controversial and may not clear Congress.
A less controversial measure is a new plan for railroad concessions, which could be among the concessions launched in May. The new railroad concessions may be awarded based on the highest bid presented to the government, not according to which company presents the lowest charge for operating the railroad. Such a measure could make railway investments more attractive to potential investors. In the end, the government will try to avoid political conflict while promoting efforts for economic growth. But corruption will plague both Brasilia and Petrobras in those efforts.
