Rio corruption scandal raises red flag on Olympic plans

Opposition to the ruling Workers' Party is reaching a fever pitch as demonstrators take to Brazil's streets to pressure the government, many exasperated by a graft scandal unfolding at the state oil company and a tanking economy.

The movement is putting the beleaguered President Dilma Rousseff on the back foot, with the president quickly responding to the protests with a series of anti-corruption proposals announced Wednesday. It also raises a red flag on how the scandal could affect preparations for the Olympics 17 months from now.

The graft scandal, which has been investigated over the past year and involves allegations of hundreds of millions in kickbacks from contractors of the state oil company to the ruling party, is putting the Workers' Party in its most serious political crisis in its 12 years in the presidency.

Rousseff's disapproval rate amongst Brazilians is the highest of any president since 1992 — when President Fernando Collor was impeached for corruption charges.

"We don't want this promiscuity between businesses and government," said Edna Theodoro, 59, a lawyer at a protest last Sunday in Rio de Janeiro. Similar demonstrations under the banner of "Impeachment for Dilma" brought hundreds of thousands to the streets that day, reportedly in more than a hundred cities. Theodoro referred to the contractors cited in the investigation, dubbed by police the "Car Wash Operation," as "sharks."

The investigations have implicated six companies which are also responsible for the lion's share of infrastructure projects for the Summer Olympics, to be held in Rio next year. Major projects they are responsible for include the Olympic Park, the athlete's village, and transportation and sanitation projects related to the Games.

The Car Wash Operation has named more than 50 current and former politicians, many in the close circle of President Rousseff and allied with her party. They also include Rio de Janeiro's current governor and his predecessor.

A cooperating witness from one of the implicated contractors told investigators that the collusion amongst companies as they arranged bribes and divided lucrative deals became so well organized that it was comparable to the rules guiding a soccer tournament.

The criminal investigation and a parallel inquiry by Brazil's comptroller general could imperil many companies' access to credit and their ability to receive government contracts. In the oil sector, Petrobras has already halted payments on many projects and prohibited some service providers from signing new contracts, bringing projects like an ambitious refinery in the suburbs of Rio all but to a stop.

But in a twist, even as a number of these companies have long been the object of protest by mega-sporting event activists on the left who complain about their lack of transparency, the tone of demonstrations last week and the country's polarized political climate have left many critics unsure of how to respond.

Contracts amongst six companies cited in the Car Wash tally a reported 27 billion reais (approximately $9 billion), about three-quarters of the budget for Olympic infrastructure and related projects.

The companies are being hit hard in the Car Wash investigations. For example, a former Petrobras manager testified that Andrade Gutierrez — responsible for pollution projects in the region of the Olympic Park — paid bribes for six projects worth about $4 billion in contracts from the oil company.

In February two executives from Camargo Corrêa, which is involved in two public transportation projects linked to the 2016 Games, signed plea bargains with the government and became cooperating witnesses for the Car Wash Operation.

In response to requests for comments, Olympic contractors OAS Construction, Queiroz Galvão, and Andrade Gutierrez all expressed confidence in the companies' abilities to carry out their projects for 2016 and said that work continued on schedule. Odebrecht, Camargo Corrêa and Carioca Engenharia did not respond to requests for comment.

All are under investigation by the national comptroller general except for Carioca Engenharia.

Brazilians have expressed a multitude of grievances on the streets — from complaints over the poor quality of public schools and hospitals to exasperation with pricey public bus fares — since nationwide protests alarmed the government since 2013.

Last week showed a turn: Now demonstrators focused their ire squarely on the ruling Workers' Party, with many calling for the president's impeachment. The current protests have tapped into the long-seething resentment on Brazil's right, who complain that the Workers' Party has become a corrupt patronage machine which effectively buys votes through populist handouts while taxes are high and public services deficient.

But some say the outrage over the Car Wash investigation is misguided. Corruption is not just today and it's not just in Petrobras, said João Roberto Lopes Pinto, a professor at UniRio and the coordinator of an institute that researches the rise of Brazil's largest companies.

He said many on Brazil's left are avoiding what they see as an opportunistic movement to focus only on the Workers' Party and not a series of companies whose relationships with the Brazilian government date back to the 1964-85 military dictatorship.

"What the Car Wash Operation presents us are very strong denunciations of the institutionalization of this cartel. It's not just an episodic thing," said Mr. Pinto. "It seems to confirm many of our suspicions about the cartel-style way that many of these enterprises act."

That ambivalence over how to protest in the current political climate was on display last week at a gathering of the activist group called the Popular Committee of the World Cup and the Olympics in the grunge-bohemian party neighborhood Lapa.

The current graft investigations implicate the very companies to which they had long been calling attention, but the polarized political moment meant that the anti-government marches of the weekend were far off their radar. Members in the group said they had no plans to carry out any sort of counter-demonstrations, neither wanting to play into the hands of the Brazilian right nor look like pro-Rousseff governistas.

Asked if last Sunday's demonstrations were similar to other political crises in Brazil — the vote-buying "mensalão" monthly payoff scheme during the government of Rousseff's predecessor or the 1992 impeachment of President Collor, Caio Lima, a self-described socialist economist, deadpanned: "You should have asked if it's reminiscent of 1964."

That was the year Brazil's armed forces overthrew the populist government of President João Goulart, installing a 21-year military dictatorship. One of the political prisoners who spent three years in jail and suffered torture was a 22-year-old member of a banned revolutionary group named Dilma Rousseff.