MercoPress. South Atlantic News Agency

Fears of political crisis encroaching Brazil economy

The corruption scandal engulfing Brazil is beginning to have effects on the economy and business confidence since it will delay government efforts to keep the country on a steady sustainable growth track, was the main conclusion of an economists and bankers conference in Sao Paulo organized by the Council of Americas.

The growing claims aired in Congress and the Brazilian press that the Workers Party of President Lula da Silva had mounted a bribes ring to ensure Congressional approval of legislation, fed on money skimmed from government run companies, has led investors to believe that the current administration is virtually paralyzed and has lost precious initiative to promote crucial labour and fiscal reforms.

Furthermore most participants referred to the situation as a "crisis", even when both the ruling coalition and opposition parties have made special efforts to keep President Lula da Silva insulated from the expanding claims.

"We still face the risk that the economy is finally contaminated with the crisis", said Paulo Viera de Cunha, head of HSBC Securities Latinamerica economists.

"The crisis also impedes Brazil from having an improvement in its risk analysis and better credit", warned Regina Nunes from Standard & Poor's.

"If it had not been for the political crisis, we could be talking instead of an improved risk assessment, but we must be realistic", added Ms. Nunes.

So far the "political crisis" has gobbled the top leadership of the Workers Party, President Lula's main and closest advisor, a minister and several officials in government managed companies, the last of which the head of the Minting Office.

All of them have been involved in the bribes for votes ring with tens of millions of US dollars, which were collected and handed out through a "friendly" public relations and publicity agency.

All participants in the Council of Americas conference agreed that the fundamentals of the Brazilian economy are strong and investors are satisfied with President Lula da Silva's administration's policies and performance.

However the political crisis has made it difficult to predict when Brazil will be able to move ahead in strategic areas such as education, improving infrastructure and creating millions of jobs for a country of 182 million people.

"It's not very clear what can happen before the presidential election of (October) 2006, which will take us to a new administration in 2007", highlighted Ms. Nunes.

Actually President Lula da Silva has emerged quite unscathed from all the corruption claims and he has kept a prudent distance from the Workers Party promising to punish all those involved in wrong doing.

But in spite of a 45% public opinion support for President Lula da Silva, it's becoming doubtful that he can survive until October when, until a few weeks ago, he was planning with a smooth re-election.

Participants in the conference estimated Brazil's economy this year will finally expand 2,5%, one of the lowest in Latinamerica and half the rate of 2004.