Supreme Court delivers Operation Car Wash’s worst defeat

In today’s issue: Supreme Court delivers Operation Car Wash’s worst defeat. Government unorganized in the pension reform effort. 

Supreme Court delivers Operation Car Wash’s worst defeat

By a narrow 6-5 majority, the Supreme Court decided that Operation Car Wash cases related to electoral crimes should fall under the scope of the Electoral Justice system—and not under criminal courts. The decision is a huge blow to the 5-year-old anti-corruption investigation that has put many politicians and businessmen in jail, despite having committed some excesses. Justice Gilmar Mendes, the most vocal opponent of the operation, suggested the prosecutors working for the probe are immoral.

Why it matters: Brazil’s Electoral Justice system is even more politicized than other superior courts. It is also short-staffed and overburdened. Not to mention its lack of experts on investigating sophisticated money laundering schemes. From any angle, this is a loss for Operation Car Wash. Its coordinator, Prosecutor Deltan Dallagnol, said “the window to fight corruption in Brazil is closing.” One Supreme Court justice said the decision could lead to overturning past convictions.

Context: Federal prosecutors and the Supreme Court have declared war on each other. Leaders of Operation Car Wash had asked for voters to corner the Supreme Court on social media. In response, Chief Justice Dias Toffoli opened a probe into this “menacing” online behavior.

Internal struggles: Operation Car Wash has created an enemy in Raquel Dodge, the Prosecutor General. Since she took office in 2017, her office has cut down the operation’s budget. Recently, Ms. Dodge opposed to the idea of using money from criminal convictions to create an “anti-corruption fund.”

Crossfire: Meanwhile, Congress has not given up its idea to corner the Justice system. A center-right senator got the 27 signatures necessary to create a parliamentary committee of investigation against superior courts. Formally, the committee would investigate if justices are ruling on cases on which they have pecuniary interests.

Government unorganized in the pension reform effort

Although President Jair Bolsonaro has said time and time again that the pension system reform is his administration’s top priority, the government still has no solid support base. In order to pass the reform, the Jair Bolsonaro administration needs the support of 60% of Congress (308 congressmen and 49 senators). But it only has around 150 congressmen so far, according to the latest political map drawn by Atlas Político, a consulting firm.

And while Congress has not even started to analyze the proposal, Economy Minister Paulo Guedes is already showing signs that he could give up on one of the reform’s core points: changing Brazil’s current pay-as-you-go system to a capitalization one. Right now, active workers fund the pensions of retired workers. Mr. Guedes wants each pension to be funded by workers themselves, over their active working life.

Jair Bolsonaro’s economic tsar has said that unless Congress approves a reform allowing for a BRL 1 trillion economy within the next 10 years, the change to the capitalization system becomes impossible—as the transition would be way too costly to be worthwhile. During the inauguration ceremony of new Central Bank President Roberto Campos Neto, Mr. Guedes jokingly said he would have to leave the administration if the reform was watered down by Congress, not making it clear whether he actually meant it.

• Podcast:How to reform Brazil’s pension system

What else you need to know today

• Diplomacy. During Jair Bolsonaro’s visit to Washington next week, the U.S. is expected to designate Brazil as a “major non-NATO ally,” which gives a country preferential access to the purchase of U.S. military equipment and technology. However, the U.S. is reluctant to support Brazil’s bid to join the OECD. Having the U.S. support would be a tangible—although improbable—win for President Bolsonaro. The Trump White House supports Argentina’s bid, though.

• Corruption. Federal prosecutors indicted 12 people for fraudulent schemes amounting to BRL 1.86bn within the National Development Bank (BNDES). The list includes some of the biggest business owners in Brazil, as well as two former Finance ministers and former BNDES president Luciano Coutinho. They are accused of receiving bribes in exchange for loans at low interest rates. Prosecutors want them to pay, tin total, BRL 5.6bn—three times as much as they allegedly siphoned.

• Antitrust. The Jair Bolsonaro administration will be very consequential for the public administration. Besides naming 9 judges to superior courts (including two Supreme Court Justices), his administration will also pick three of five members of Cade, Brazil’s antitrust authority. The names will be chosen by Economy Minister Paulo Guedes and Justice Minister Sergio Moro—that could mean members who are more lenient on mergers and acquisitions, and stricter on matters related to corruption.

• Violence. As families buried the 8 victims of Wednesday’s shooting in a state school in Suzano (Greater São Paulo area), São Paulo Governor João Doria offered them BRL 100,000 in compensation. The money, though, is conditioned to the families signing a document refusing to sue the state administration (which runs the school). Mr. Doria was accused of trying to pay hush money to the families.

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