Dissolving corruption in Brazil

Dissolving corruption in Brazil

Chamber Articles Category: Economic News Post Date: 10/05/17 Source: OMFIF By: Otaviano Canuto
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Brazil's judicial investigation into widespread government corruption has unveiled an expansive network of illicit relationships between small clusters of private firms, public sector officials and politicians.

Several high-level businessmen and politicians have been convicted. The short-term economic implications have been dire, as private groups and corresponding value chains faced a sudden freeze of client demand, operations and finance. However, these investigations may have a far-reaching positive impact on the interaction between the public and private sectors in Brazil and, thereby, on the country's economic performance.

As a result of these investigations and changing popular sentiment, the consequences of being caught behaving corruptly have never been more dire. Brazilian firms are overhauling their compliance functions in what some are calling a 'corporate governance revolution'.

The harmful economic effects of abuse of public sector positions for private gain are manifold. Public expenditure and economic resources tend to be allocated in ways that maximise opportunities for 'corruption rewards' rather than economic efficiency. In this system, conferring privileges on corrupt bodies eliminates the functioning of a competitive marketplace.

As a consequence of Brazil's corruption purge, there is potential for change in at least three economic dimensions. First, the cost effectiveness of public spending can improve substantially. The selection of projects, regulatory decisions, choices between suppliers and other public sector choices will be optimised for the public good, rather than for the benefit of corrupt bodies. Second, the investigation is likely to lead to extensive change in those sectors of the economy where there is significant interaction with the public sector. The system of 'organised creation and distribution' of public sector demand among a few privileged private sector actors has been broken. Third, there will be an improvement in the perception of Brazil's 'rule of law', a boon for attracting foreign investors. Read Full Article