Brazil

While politicians have focused primarily on the effects of trade, automation is rapidly transforming the nature of work. A recent McKinsey report estimates that half of the labor done today can be turned over to machines, fundamentally changing the nature of manufacturing, retail, food services, and data processing among other sectors. They predict that China, India, the United States, and Japan will see the largest and fastest shifts as a combination of easy capital, aging populations, and falling productivity speeds the transition away from a human workforce. By their calculations, nearly 400 million Chinese and 235 million Indian workers compete with robots today. In the United States and Japan, some 60 percent of jobs are susceptible to change. Although positions may not disappear altogether, the work people do will change, as roughly a third of today’s repetitive tasks could be taken over by machines. Latin America will also see significant change – with roughly half of the current labor mix in Mexico, Brazil, and Argentina vulnerable to automation, a higher percentage than the United States. Sales of robots already top $2 billion a year, showing that the shift is already underway. Brazil looks the most vulnerable to change, as its mix of stagnant productivity, an aging population, and the infamous “Brazil cost” make labor expensive. In manufacturing, retail, transportation, and agriculture more than half the work done by 32 million employees could be automated. Though Argentina’s economy is slightly less susceptible to automation, its aging population combined with a decade long lack of investment could lead companies to step up capital spending on robotics under the more market friendly Macri government. Slowing the process down are strong unions and unreliable electricity. But over half of its agricultural and manufacturing jobs are vulnerable. Structurally, Mexico has the highest potential to automate, as almost two-thirds of the work done in advanced manufacturing plastic, auto, and aerospace sectors could be phased out, affecting some five million workers. Yet the process in Mexico will likely be slower, cushioned by its younger population and lower wages. The global question is what comes afterward. The majority techno-optimists believe new jobs will emerge for these displaced workers, following the industrial and agricultural revolutions before. They point to car mechanics, coal miners, engineers and more recently app developers as previously unimaginable gigs that have appeared. The pessimists see this time as indeed different, as with the rise of artificial intelligence making machines viable substitutes for people. Leaning optimistic, McKinsey’s advice for advanced nations rings just as true for Latin America. Governments need to expand social safety nets to protect those most vulnerable to these coming labor upheavals. They also need to transform schools and educational curriculums to train a twenty-first century workforce that complements rather competes with robots, encouraging creativity, flexibility, and entrepreneurship. And governments need to support basic research and innovation, helping them shape the ongoing revolution. For Latin America especially, it means promoting these types of investments, as even though they disrupt today’s status quo they will help ensure the region isn’t left behind in these global shifts.

This morning, I had the privilege of testifying before the U.S. Senate Committee on Foreign Relations at a hearing titled “Venezuela: Options for U.S. Policy.” Also joining me before the committee were David Smilde, Senior Fellow, Washington Office on Latin America, and Mark Feierstein, Senior Associate, Americas Program Center for Strategic and International Studies. You can read my written testimony, the written testimonies of my fellow witnesses, and watch a recording of the hearing on the U.S. Senate Committee on Foreign Relations website.  

A wave of corruption scandals has roiled Latin America in recent years, from Chile’s campaign finance affairs, through Mexico’s Casa Blanca revelations. Most recently, the information divulged in the December Odebrecht settlement has sent a shudder of fear across regional politics after the Brazilian construction firm admitted to paying nearly $800 million in bribes in twelve countries. The tide of corruption revelations has contributed to massive protests, slumping incumbent polls, and political uncertainty throughout the region. Obviously, the scandals of recent years differ greatly from each other. The Odebrecht scandal was driven by a Brazilian context very distinct from the Guatemalan environment that led to President Pérez Molina’s downfall, or from the Mexican and Chilean cases. Empirical evidence about corruption trends in the region is also quite mixed, with polls showing contradictory findings about the direction of public experiences with corruption victimization and public perceptions of corruption more broadly. For all these differences, there is a common silver lining to the region-wide wave of scandal. As a perceptive study released this week by the Inter-American Dialogue argues, the region has seen declining public tolerance of corruption and a rising normative edifice that makes it easier to tackle abuses. On the public side, authors Kevin Casas-Zamora and Miguel Carter catalogue a variety of factors that are changing the accountability equation. Citizens are angry: three-quarters of the population in Latin America view their society as unjust, and fewer than two in five express satisfaction with their democracies. An economic downturn has driven down incumbents’ average approval ratings across the region. Meanwhile, citizens are not only more motivated to mobilize, they are better able to do so: the revelations come against a backdrop of improving information transparency, changing access to public information through the widespread adoption of social media, and growth of a politically active middle class. Simultaneously, a “new normative edifice” of international agreements and standards, alongside improved national laws and policies, has given teeth to previously weak anticorruption bodies (see figure below). Laws have been introduced or rewritten in ways that constrain money laundering, reduce campaign finance violations, increase fiscal transparency, and facilitate prosecution. The investigative capacities of police and prosecutors have increased. New bodies, such as governmental auditing agencies and civil society anticorruption organizations, have been created in many countries over the past two decades. Anticorruption measures adopted by Latin American countries, 1990-2015 Source: Kevin Casas-Zamora and Miguel Carter, “Beyond the Scandals: The Changing Context of Corruption in Latin America,” Inter-American Dialogue, February 2017. The authors are quick to remind us that there is a big gap between laws on the books and “their effective implementation and enforcement.” But the cautiously optimistic conclusion I draw from their analysis is that the pincer movement of greater public mobilization for effective accountability, on the one hand, and institutional changes, on the other, is having tangible effects in fighting longstanding patterns of impunity for corruption across countries as diverse as Brazil, Chile, Guatemala, Honduras, Mexico, and Panama. This two-pronged process may continue to cause political instability for the foreseeable future. And the list of reforms that are still needed is enormous, from structural changes, such as addressing the economic and political disparities that diminish the equality of citizens before the law, to more “technical fixes” such as improving judicial performance and enhancing political finance oversight. But overall, the trend is a largely positive one, with declining public and institutional tolerance fueling corruption revelations. These in turn often generate the political pressure for legal and institutional reforms that have the potential to create less corrupt and more accountable political systems. Whether one agrees with this hopeful conclusion or not, the report is well worth a read, marshalling substantial cross-national evidence on the evolution of corruption and accountability processes across the region.

A wave of corruption scandals has roiled Latin America in recent years, from Chile’s campaign finance affairs, through Mexico’s Casa Blanca revelations. Most recently, the information divulged in the December Odebrecht settlement has sent a shudder of fear across regional politics after the Brazilian construction firm admitted to paying nearly $800 million in bribes in twelve countries. The tide of corruption revelations has contributed to massive protests, slumping incumbent polls, and political uncertainty throughout the region. Obviously, the scandals of recent years differ greatly from each other. The Odebrecht scandal was driven by a Brazilian context very distinct from the Guatemalan environment that led to President Pérez Molina’s downfall, or from the Mexican and Chilean cases. Empirical evidence about corruption trends in the region is also quite mixed, with polls showing contradictory findings about the direction of public experiences with corruption victimization and public perceptions of corruption more broadly. For all these differences, there is a common silver lining to the region wide wave of scandal. As a perceptive study released this week by the Inter-American Dialogue argues, the region has seen declining public tolerance of corruption and a rising normative edifice that makes it easier to tackle abuses. On the public side, authors Kevin Casas-Zamora and Miguel Carter catalogue a variety of factors that are changing the accountability equation. Citizens are angry: three-quarters of the population in Latin America view their society as unjust, and fewer than two in five express satisfaction with their democracies. An economic downturn has driven down incumbents’ average approval ratings across the region. Meanwhile, citizens are not only more motivated to mobilize, they are better able to do so: the revelations come against a backdrop of improving information transparency, changing access to public information through the widespread adoption of social media, and growth of a politically active middle class. Simultaneously, a “new normative edifice” of international agreements and standards, alongside improved national laws and policies, has given teeth to previously weak anticorruption bodies (see figure below). Laws have been introduced or rewritten in ways that constrain money laundering, reduce campaign finance violations, increase fiscal transparency, and facilitate prosecution. The investigative capacities of police and prosecutors have increased. New bodies, such as governmental auditing agencies and civil society anticorruption organizations, have been created in many countries over the past two decades. Anticorruption measures adopted by Latin American countries, 1990-2015                           Source: Kevin Casas-Zamora and Miguel Carter, “Beyond the Scandals: The Changing Context of Corruption in Latin America,” Inter-American Dialogue, February 2017.   The authors are quick to remind us that there is a big gap between laws on the books and “their effective implementation and enforcement.” But the cautiously optimistic conclusion I draw from their analysis is that the pincer movement of greater public mobilization for effective accountability, on the one hand, and institutional changes, on the other, is having tangible effects in fighting longstanding patterns of impunity for corruption across countries as diverse as Brazil, Chile, Guatemala, Honduras, Mexico, and Panama. This two-pronged process may continue to cause political instability for the foreseeable future. And the list of reforms that are still needed is enormous, from structural changes, such as addressing the economic and political disparities that diminish the equality of citizens before the law, to more “technical fixes” such as improving judicial performance and enhancing political finance oversight. But overall, the trend is a largely positive one, with declining public and institutional tolerance fueling corruption revelations. These in turn often generate the political pressure for legal and institutional reforms that have the potential to create less corrupt and more accountable political systems. Whether one agrees with this hopeful conclusion or not, the report is well worth a read, marshalling substantial cross-national evidence on the evolution of corruption and accountability processes across the region.

We know very little about who will run Western Hemisphere affairs under the Trump administration. So far, the only named appointees are Homeland Security Secretary John Kelly and National Security Council (NSC) Senior Director Craig Deare. There are as yet no nominees for key Western Hemisphere positions at State, Defense, or Commerce, which is not unexpected for an administration this young. Although the Latin America team is not fully formed, the pressing Latin America agenda – which will get underway in earnest with today’s visit by a Mexican delegation – suggests that it is well worth reflecting on the central questions likely to determine the trajectory of the region during Trump’s presidency: Mexico: The wall, immigration, and NAFTA may all be on the table when Mexican Foreign Minister Luis Videgaray and Economy Minister Ildefonso Guajardo come to Washington this week, followed by President Peña Nieto at the end of the month. Even after today’s executive order paving the way for a wall, the central question looming over the talks – led on the U.S. side by Reince Priebus, Stephen Bannon, Jared Kushner, Peter Navarro, Gary Cohn, and Michael Flynn – is just how far Trump is willing to go. Is the incendiary campaign rhetoric about NAFTA simply the opening gambit of a negotiating strategy, as some suggest, or is Team Trump really sincere in its desire to sink the most successful hemispheric trade deal of all time? In the meantime, what does this uncertainty do to the Mexican economy, given that 85 percent of Mexican exports are to the United States and the country has already seen a decline in U.S. investment? What are the implications for integrated supply chains throughout NAFTA? What effect does a worsening labor market in Mexico have on migration flows? The Mexican response to Trump: Peña Nieto’s response so far has been measured, displaying perhaps a disbelief that Washington will allow the bilateral relationship to be scuttled, a recognition that there are elements of NAFTA that deserve renegotiation, and a desire to quickly resolve the uncertainty that is wreaking havoc on business decisions. But Penã Nieto is under considerable pressure to respond forcefully to U.S. pressure. Many Mexican thought leaders – such as Enrique Krauze and Jorge Castañeda – have called for the country to retaliate against any U.S. bullying by easing controls on both Mexican and Central American migration, backing down from the drug war, or building international alliances with China and Russia. The Peña Nieto administration has noted that the “whole relationship” is up for discussion – a subtle hint that the United States has much to lose if Mexico ceases to cooperate on security and migration. Mexican policymakers have also expressed their willingness to perhaps even contemplate dropping NAFTA if the United States pushes too hard. The frontrunner in the July 2018 elections, Andrés Manuel López Obrador (AMLO), seems unlikely to be more conciliatory than Peña Nieto’s Institutional Revolutionary Party (PRI) and, if anything, his electoral prospects seem enhanced by the bullying tone out of Washington. How far will the Mexican response go? Elections: As the AMLO phenomenon demonstrates, there is likely to be a Trump effect on the electoral landscape of Latin America. The mobilizing effect of Trump’s rhetoric is already being exploited by Corona beer, which has hit back hard against Trump’s vituperative statements with a well-received public relations campaign mocking Trump’s wall-building and America first jingoism. Silly though that may be, it points to the enormous public repercussion of Trump’s words south of the border. The next two years will bring elections in half of Central and South America, and although much has been made of the supposed rightward turn in the region, is it possible that nationalistic appeals responding to perceived American jingoism might provide succor to the left and/or to nationalist forces? Cuba: How far will Trump turn back the thaw in relations that took place during the second Obama administration? And what will be the practical effect on Cuba’s planned 2018 leadership transition? While some lawmakers are pushing for more pressure on Cuba for human rights, it seems unlikely that the administration would be able to completely unwind U.S. investment on the island, given growing U.S. business interests. Even as he has promised to review Cuba regulations, Secretary of State Rex Tillerson seems to have put some space between himself and the most dramatic Trump campaign oratory. But a harder rhetorical line and the possibility of renewed sanctions from Washington may strengthen hardliners within the Cuban regime and diminish the impetus toward reform; already it has led to nationwide military exercises that belie the Cuban regime’s concern about a return to a more confrontational relation. Venezuela: Does the country implode slowly or explode catastrophically? And how does Washington respond? The Trump administration has so far adopted a fairly measured tone regarding Venezuela, but recent statements by lawmakers on both sides of the aisle calling for further targeted sanctions against President Nicolás Maduro’s officials may contribute to a ratcheting up of rhetoric against the autocratic chavista It seems unlikely that the Trump administration would continue talks with the regime that had taken place during the late Obama administration. But there are not many good multilateral options for addressing Venezuela’s crisis, nor is it clear that there are many effective unilateral options beyond targeted sanctions. Nevertheless, the deepening economic crisis and the increasing power of hardliners within the regime suggests that Venezuela will soon become a hemispheric hotspot, worsening the already devastating humanitarian crisis in ways that could test the new administration’s capacity to galvanize a regional response. Colombia: Although the peace deal has now been approved by the Colombian Congress, will the Trump administration commit to funding the peace? Even before Trump’s victory, there was uncertainty about the U.S. Congress’ willingness to fund the peace over the long haul, although it was heralded on both sides of the aisle as a rare bipartisan foreign policy success and a vindication of the huge investment in Plan Colombia. Homeland Secretary Kelly noted before his confirmation that it was “imperative” that the United States remain involved in Colombia, but Secretary of State Tillerson cast doubt on that commitment in his written responses to the Senate Foreign Relations Committee. Given continued lobbying by former president Álvaro Uribe and the isolationist tendencies of some Trump administration officials, it is by no means a certain proposition that the administration will invest in the Colombian peace, especially if Congress’ attention turns elsewhere. China, investment and trade: The Trump administration’s withdrawal from the Trans-Pacific Partnership (TPP), its promised renegotiation of NAFTA, and its inward-looking rhetoric have begun what looks like a paradigmatic shift of the trade and investment panorama in Latin America toward the east and the south. In the absence of a better deal up north, the Pacific Alliance is the new hot thing in the region. One Brazilian diplomat snidely remarked that Trump’s victory means that “Mexico will have to remember that it is Latin American.” Mexico has already suggested that the Pacific Alliance turn southward to Mercosur, which appears more open than ever to a deal that allows its Atlantic membership to reach Pacific markets. The savings-depleted nations of South America are also happy to turn eastward for increased foreign investment that might enable them to recover from the economic downturn. China is well aware of the opportunity this presents: President Xi Jinping arrived for the Asia-Pacific Economic Cooperation (APEC) summit in Peru only ten days after the U.S. election. Latin American countries are already moving “to put their eggs in a [Regional Comprehensive Economic Partnership (RCEP)] basket,” led eastward by Chilean and Peruvian expressions of interest. Will the end of TPP presage greater hemispheric trade integration, centered around a Mercosur-Pacific Alliance deal? What would be the implications of an even greater Chinese economic role in the region? Would the Chinese be willing to incorporate Latin America into RCEP? Would RCEP complement or weaken the BRICS, and what are the implications for the relative roles of Mexico and Brazil as regional leaders (and sometimes rivals)? Central America: These countries will likely be squeezed by the United States’ cooling trade relationship with Latin America, the stronger anti-migration rhetoric of the new administration, and the possibility that the US will double down even further on hardline measures in the drug war. The big questions for Central America will be: does the United States maintain the CAFTA-DR trade agreement (which was not mentioned by the Trump team during the campaign)? Where does the Trump administration find the balance between its stated desire to cut foreign assistance budgets and the need to maintain aid programs designed to slow migration and quell security problems? And how will migration and remittances be affected by the Trump administration’s emphasis on illegal workers and the border, amidst already desperate conditions that led to increasing apprehensions of Central Americans in Mexico and the United States in recent years, and a record-breaking 2.7 million deportations under the Obama administration? Anticorruption: In recent years, the U.S. government has played a largely unheralded role in anticorruption efforts in Latin America, ranging from support for Guatemala’s CICIG (International Commission Against Corruption and Impunity) to indictments and actions against firms and executives accused of corrupting regional officeholders. While it does not seem likely that the U.S. Department of Justice will shut down Foreign Corrupt Practices Act (FCPA) enforcement (given the pipeline of pending cases, the competitiveness arguments that can be made for FCPA, and the investments that have been made by business to ensure compliance), in all likelihood the anticorruption agenda at both State and DOJ will become far less of a priority under a regulation-averse Trump administration. Will the Trump administration actively work to water down anticorruption efforts and cross-border enforcement? If so, what will be the repercussions for countries that have undergone significant anticorruption reforms in recent years, and are seeking to consolidate anticorruption gains, often against powerful domestic opposition? The Monroe Doctrine: Given the proximity of Latin America to the U.S. homeland, Washington policymakers have long been concerned by the efforts of countries like Iran, Russia, and China to penetrate into the hemisphere. Trump’s Latin America advisor on the NSC, Craig Deare, has written critically of Secretary John Kerry’s 2013 declaration that the “era of the Monroe Doctrine was over,” noting that it served “as a clear invitation to those extra-regional actors looking for opportunities to increase their influence.”[1] He further argued, with reference to China’s growing role in Latin America, that the United States has the right to protect its geopolitical interests in the region, and “if it does not do so, [it] cedes to China its strategic goal of ‘reshaping the current world system in a fashion more to its liking.’” Will the Monroe Doctrine be resurrected? What are the practical implications of this renewed emphasis on U.S. primacy in the region? As the United States turns inward, what tools will policymakers have to prevent perceived meddling by extra-regional forces? How will the Trump administration balance its rapprochement to Putin with concerns about, for example, Russia’s growing role in Venezuela? How will the administration react if Latin America does indeed turn more forcefully to Asia, and particularly China, on trade? In sum, although Latin America has long been one of the most neglected regions of U.S. foreign policy, the next four years are likely to significantly shift the trajectory of regional relations, regardless of whether the Trump administration adopts an active or passive role. The coming appointments of key Latin America personnel will provide us with a better sense of where the administration hopes to come down on some of the questions raised above. [1] Deare, Craig A. “Latin America,” in Charting a Course: Strategic Choices for a New Administration, edited by R.D. Hooker, Jr. Washington: National Defense University Press, 2016.

Prison violence has taken the lives of more than one hundred Brazilian prisoners since the beginning of the year. While the recent killings have been gruesome and especially numerous, they are a continuation of a long-standing pattern of savage prison violence that has developed its own macabre logic of control. Scarier still than the calculated horror of the past week’s violence, though, is the possibility that this prison violence may contribute to the consolidation of a particularly virulent form of criminal organization that threatens the rule of law in Brazil and its neighbors. Like many other countries in the hemisphere, Brazil responded to an upsurge of violence after the return to democracy with a get-tough policing strategy. The prison population nationwide has more than quintupled since 1990. Brazil imprisons more of its population per capita than any other country in South America (307 prisoners per 100,000 inhabitants), and has the fourth largest prison population in the world. Conditions in the prisons are abominable, with many facilities outsourced to profit-oriented contractors, who often abdicate internal control to inmates. Government investment in building new prison capacity has been a low priority: occupancy rates are officially nearly 60 percent higher than capacity, and pre-trial detainees account for more than one third of all prisoners. These abysmal conditions are fertile ground for prison gangs who exploit the vulnerable populations behind bars. The most perverse development of the past generation in Brazil, though, has been criminal organizations’ increasing recognition that dominance of prison populations also gives them enormous control over criminal activity outside prison gates. This logic works as follows: prison gangs can extort individuals on the street because they hold their friends and family hostage in jail. Further, because criminals currently on the street are likely to spend time in jail at some point in their careers (where they will be vulnerable to gang violence), they have incentives to either join those gangs or pay tribute to them. The predictable result, as David Skarbek demonstrated with reference to the Mexican Mafia prison gang in Southern California, is that prison gangs have control not only within prisons, but also – by virtue of their lock on vulnerable populations behind bars – enormous influence on the streets. Given the scale of Brazil’s prison gangs, the consequences for the rule of law are significant. In May 2006, the Primeiro Comando da Capital (PCC) – one of the prison gangs currently vying for power in Brazil’s northern states – responded to the planned transfer of some of its leaders in São Paulo state by engaging in a series of targeted attacks outside the prison system. At least 140 people were killed in the first round of attacks, and the industrial metropolis of São Paulo shut down as police and the PCC battled. The very idea that the PCC could confront the state directly is frightening. More horrific still is the fact that the PCC is now battling other prison gangs for control of prisons in the northern states of Brazil, far from its original home base in the southeast of Brazil, as well as challenging the Comando Vermelho on its home turf in Rio de Janeiro, which the PCC has traditionally treated as off-limits. The PCC has already shown that it is capable of terrific exploits when left unchecked. The gang is said to have been behind the theatrical and record-breaking 2005 heist of $70 million from the Central Bank regional headquarters in Fortaleza. It has engaged in widespread corruption of public officials. It is believed to be active across national borders, with an active presence in Paraguay and interest in developing ties along Brazil’s northwestern border to Colombia, Bolivia, and Peru. It is active not only in illicit activities, like drug trafficking, but is also believed to have moved into the licit economy. And it now appears to have broken its longstanding armistice with the Comando Vermelho, in a move that may be calculated to ensure it can control northern drug routes. The short-term implications are already clear—prison violence will probably continue to percolate until the gangs establish a new pecking order. The longer term worry is that the battle for dominance of the prisons could result in an even more powerful, nationwide criminal organization with enhanced capacity to organize effectively, act with impunity, corrupt at will, and when necessary, confront the Brazilian state.

It is hard to overstate the meaning of the settlement announced by U.S. authorities on December 21 with Odebrecht. Under this "largest-ever global foreign bribery resolution,"[1] the construction giant and its petrochemical subsidiary Braskem have agreed to pay at least $3.5 billion to Brazil, U.S. authorities, and the Swiss Office of the Attorney General. Of the total criminal fines, 80 percent of Odebrecht’s payments and 70 percent of Braskem’s payments will go to Brazil, a victory for both Brazilian prosecutors and for the cash-strapped Brazilian government. For anyone casually following the Lava Jato case in Brazil, the U.S. court documents offer a startling and precise summary of the wrongdoing that has been slowly revealed over the past three years by Brazilian prosecutors in the Lava Jato case. Odebrecht, which operates in twenty-eight countries, has admitted to paying $788 million in bribes in twelve distinct countries, in exchange for $3.34 billion in ill-gotten benefits. Its business model was rooted in a remarkable amount of subterfuge, including a shadow budget administered by a “Division of Structured Operations” using two shadow computer systems (one of which was destroyed in an effort to hide evidence). Payments were made through shell companies set up in Belize and the British Virgin Islands, and the company even bought a bank in Antigua to administer the offshore payment of bribes. The Odebrecht/Braskem agreements also offer a textbook illustration of several of the most devastating costs of corruption: The economic cost: Odebrecht and Braskem admit to paying $599 million in graft in Brazil alone, for $2.19 billion in ill-gotten gains, a 360 percent return on investment that presumably came at the expense of potential competitors and taxpayers. Said another way, these two companies alone made off with more than a third of the annual cost of Brazil’s much-vaunted Bolsa Familia conditional cash transfer program. Several other companies are still in prosecutors’ cross-hairs, suggesting that the direct economic costs of the corruption uncovered by Lava Jato could reach the double-digit billions. The indirect economic costs are even broader, including the nearly 100,000 Odebrecht employees who have been laid off in the wake of the revelations; The cost to public policy: the charging documents indicate that bribes enabled the two companies to force a variety of changes in pricing policies and tax credits, to pay legislators to rewrite statutes in their favor, and to prevent state-owned oil company Petrobras from terminating a joint venture with Braskem. Such insider efforts surely led to distortions in the policy framework, regardless of whether or not they contributed to the recession, as many critics of the Workers’ Party allege; The cost to democracy: as though the profound crisis in Brazil in recent years were not sufficient proof, the Odebrecht court documents show how corruption consequentially distorted politics. Brazilians have long suspected that off-books campaign contributions have given corrupt politicians an undue edge in Brazilian elections and may have even dwarfed official contributions. Legal campaign contributions during the 2010-2013 political cycle in Brazil totaled $2.2 billion. Odebrecht and Braskem were among the most important legal campaign contributors to candidates for federal office in 2014; their legal contributions that year, though, were a mere 3.5 percent of the total bribes these companies have admitted to paying between 2002 and 2014. In light of the many costs laid bare in the settlement, it is somewhat odd that reaction has been so low-key on the ground here in Brazil. Many Brazilians seem quite blasé, perhaps reflecting exhaustion after two years of drip-by-drip revelations of brazen corruption. It could be that Brazilians are ambivalent after recent over-reaching by prosecutors; or convinced by some defendants’ recent efforts to play the national sovereignty card. But it is more likely that Brazilians’ calm reaction may simply reflect the recognition that despite its unprecedented scale, the U.S. agreement is only one, early step toward accountability in a long process. Individual plea bargains from Odebrecht executives are still under review, several other companies and their executives are still negotiating agreements of their own, and the years-long criminal cases against sitting politicians are only just getting underway in the high court. [1] Although the total fines paid by Odebrecht and Braskem are the largest ever, Richard Cassin of FCPA Blog notes that it is not the largest FCPA enforcement action because the value paid to U.S. authorities is smaller than the US$1.6 billion paid by Siemens in 2008.

Half of the eighteen nations of Central and South America will hold presidential elections over the next two years.[1] The number of elections is not unprecedented, but the degree of uncertainty is, given the economic doldrums and political crises that have afflicted the region in recent years. As a consequence of the electoral outlook’s uncertainty, many of the coming year’s events in Latin America will need to be interpreted through the peculiar lens of candidates’ strategic calculations and parties’ maneuvering for advantage at the polls. Of the seven largest Latin economies, all but Peru face elections before the end of 2018. Argentina is the only one of the six remaining big countries that will not be holding presidential elections, but given the hostile Congress Mauricio Macri faces, the legislative elections of October 2017 will in many ways be a referendum on the course of his presidency, determining how far and fast he can bend Argentina’s course. In his first year, Macri has chalked up many achievements in the opposition-dominated Congress, approving more than seventy new laws. Growth is projected to reach as high as 3 percent in 2017. But inflation is stubbornly high, the fiscal deficit looms, and tax reform has stalled, none of which bodes well for Macri’s reform efforts. As a consequence, the legislative elections will be a bellwether of the country’s longer-term trajectory. Chile is in many ways the harbinger of the uncertain presidential election season. It will be the first of the large countries to go to the presidential polls, in November 2017. Incumbent Michelle Bachelet is barred from running for reelection, but the social conflicts of her presidency are very much center stage. Deteriorating relations between the Nueva Mayoria coalition and civil society have been highlighted by November public sector strikes, following a poor coalition showing in the October municipal elections. The Nueva Mayoría is fractured, and while former president Ricardo Lagos remains the frontrunner for the coalition’s nomination, he has had to push back against internal competitors such as Senator Isabela Allende Busi (who has withdrawn) and former OAS secretary general José Miguel Insulza (who has not). This means that the run-up to the mid-year primary that will select Nueva Mayoría’s candidate could be turbulent. In the face of this divided center, conservative former president Sebastián Piñera looks increasingly like the national frontrunner. But relative outsiders could still roil the race, from politicians such as Senator Alejandro Guiller to businessmen such as Leonardo Farkas. Colombia holds legislative elections in March 2018, followed by the presidential contest in May. The elections hinge on the fate of the new peace deal with the FARC rebels, which was narrowly defeated in a national referendum in October, renegotiated, and then unanimously approved in a December 2016 legislative vote (boycotted by opponents led by former president Álvaro Uribe). The fate of the peace deal is so deeply intertwined with the 2018 elections that the presidential election can be said to be a second, definitive referendum. Neither President Santos nor President Uribe can run for reelection, but their rivalry is playing out in the implementation of the deal. For Uribe and the right, the calculus seems to be that the longer implementation is delayed, the more likely the FARC can be driven back to conflict, and the less likely voters will support the deal. For Santos and the center-left, the calculus seems to be that a successful deal could help voters to set aside the unpopularity of Santos’ government in favor of a legacy of peace. The degree to which implementation can be delayed in the run-up to the mid-2017 disarmament deadline may therefore have big effects as the political campaigns begin to ramp up in the second half of the year. The next question is who will run, and how: the current frontrunner in the polls is Vice President Germán Vargas Lleras, whose Radical Change party falls on the center-right, in the space between the center-left that backs the peace and the uribistas on the right. If the center-left were to gel together, they might be able to pick up a legislative majority, but the question is whether the current leading center-left candidate, peace negotiator Humberto de la Calle, will have the popular support needed to take the presidency. Meanwhile, although none of the uribista candidates are currently polling strongly, it is possible that this could be an election decided in the second round of voting. Much will depend on the peace deal’s success in coming months. Mexico’s electoral season will be dominated by a politician from other parts: Donald Trump, whose August visit to the country was seen by many Mexicans as one more in a string of strategic miscalculations by incumbent Peña Nieto. Significant reforms opening the economy have been overshadowed by recrudescent violence, a ham-handed government response to the Ayotzinapa disappearances, and a string of corruption scandals that have diminished the governing party. The PRI was severely punished in the June 2016 gubernatorial elections, and repeated stories of corrupt governors—including some on the lam—have done little to improve its electoral chances. The top running PRI candidate, government secretary Miguel Angel Osorio Chong, currently polls in third place behind the PAN’s top-seeded Margarita Zavala (wife of former President Calderón) and the PRD’s Andres Manuel Lopez Obrador. Lopez Obrador has been seen as the candidate most likely to push back against the new U.S. administration’s efforts to revisit NAFTA and migration issues and, perhaps as a consequence, he has risen to meet Zavala in recent polls. Both far outpace Osorio, suggesting that whoever wins, this election will lead the country away from the PRI. In Brazil, Dilma Rousseff’s impeachment has thrown the political class into disarray. The big question at present is whether her successor, Michel Temer, will survive until the October 2018 vote: he faces an impeachment threat of his own, and his centrist coalition appears to be fraying in the face of a massive set of plea bargains by executives at construction giant Odebrecht. Given the breadth of political corruption exposed by the Car Wash investigation, it is hard to know who will be the last man standing. At present, it looks to be a woman, Senator Marina Silva (Rede), who leads head-to-head simulations of second round voting. Former President Lula, of the Workers’ Party, continues to lead in first round voting projections, but his high levels of rejection mean that Marina Silva could prevail in a second round. The big question in Brazil may be less about the presidential race, though, then about the coalition the new president must pull together to govern effectively in 2019. The judicial phase of the Car Wash investigations is unlikely to proceed quickly enough to remove scandal-ridden legislators from office by 2018, and the intricacies of Brazilian electoral law mean that voters may not do much better at throwing the bums out, however much they may wish to do so. There is at least the prospect, then, that an electorate desirous of change may elect a relative outsider such as Marina Silva as president, only to find that she is forced to govern with the same old crowd that has caused such upheaval in the first place. Finally, Venezuela, where elections are—in theory, at least—scheduled for December 2018. The profound economic and political crisis means that it is not even clear at this juncture whether elections will happen, much less who the candidates might be. The opposition Democratic Unity Roundtable (MUD) has dominated the National Assembly since 2015, but its efforts to impose a recall referendum have so far been sidetracked by a skillful set of dodges and parries by Hugo Chavez’s successor, President Maduro. Most recently, Maduro appears to have used Vatican-sponsored talks to delay any real discussion of a recall until January of next year, thereby ensuring that even if a recall were to take place, the PSUV would continue to govern.  Given unprecedented levels of popular discontent and the depth of the crisis, however, it is hard to envision a scenario in which Maduro survives as a viable candidate for the 2018 election, or continues in office beyond 2018 with any kind of popular mandate. Venezuela is in uncharted waters. [1] Brazil, Mexico, Colombia, Venezuela, Chile, Ecuador, Costa Rica, Paraguay, and Honduras.

This morning, I had the pleasure of joining Tom Keene on Bloomberg Surveillance to discuss Venezuela, Brazil, Cuba, and China’s increasing opportunities in Latin America. You can watch the two clips of our conversation here and here.

When he officially became president three months ago, Michel Temer’s game plan was simple and bold: in the roughly eighteen months before the 2018 presidential campaign ramped up, he would undertake a variety of legislative reforms that would put the government’s accounts back on track, enhance investor confidence, stimulate an economic recovery, and possibly set the stage for a center-right presidential bid (if not by Temer himself, at least by a close ally). Temer’s band of advisors—Brazilian Democratic Movement Party (PMDB) stalwarts and long-time Brasília hands Romero Jucá, Geddel Vieira Lima, Eliseu Padilha, and Moreira Franco—would ensure that he had the backing of Congress to push through reforms that might not bring immediate returns, but nonetheless might improve investor confidence, prompting new investments in the short term. Sotto voce, many politicians also assumed that the PMDB—which has been an integral player in every government since the return to democracy in 1985—would be well placed to slow the pace of the bloodletting occasioned by the massive Lava Jato investigation and stabilize the political system. This game plan appears to be running into a variety of self-inflicted troubles that will force the famously elastic Temer into difficult choices between his party and an angry public. Last week, the public’s worst suspicions of the PMDB-led government were confirmed in a two-bit scandal that claimed government secretary Geddel Vieira Lima. Vieira Lima fell on November 25 because of a petty effort to bring political pressure to bear on a historical registry office that had been holding up construction of a Salvador building in which he had purchased an apartment. More shocking, perhaps, was that the preternaturally cautious Temer helped Vieira Lima to exert pressure on the minister of culture whose office oversees the registry. The minister resigned, Vieira Lima fell, and Temer was left looking smaller than ever—a dangerous spot for a president whose legitimacy is already suspect. Temer sought to repair the damage by holding an unusual press conference Sunday in which he promised to veto a proposed congressional amnesty of illegal campaign contributions. But Temer now faces another important ethical fork in the road: how to respond to the remarkable chutzpah of the Chamber of Deputies, which moved in the early morning hours of November 30 to neuter anticorruption reforms and prevent judicial “abuses,” a move widely seen as an effort to intimidate judges and prosecutors. The severely mangled anticorruption reform, bearing little semblance to the original draft, now heads to the Senate, which seems unlikely to repair the damage, and indeed, may further distort the bill in an effort to undermine Temer’s ability to resurrect the reforms through selective vetoes. The reform package had been a poster child for the prosecutors that are spearheading the Lava Jato investigation, and it was pushed onto the legislative agenda in a petition drive that gathered more than two million signatures. Widespread grief over the Chapocoense tragedy may temporarily blunt public reaction to this bold late night maneuver, which was only possible because it had support from across the political spectrum, including the Workers’ Party (PT) of impeached president Dilma Rousseff, the clientelist Progressive Party (PP), and of course, members of the governing PMDB. But the public is fed up with politics as usual, and it does not take a leap of imagination to imagine that sporadically brewing public demonstrations might easily tip into a broad groundswell against the self-serving political class. Meanwhile, Lava Jato continues to cast a long shadow, and the possibility that a deal may soon be signed between the Odebrecht construction firm and Brazilian, Swiss, and U.S. authorities has caused many a sleepless night in Congress. Press reports suggest that this may be the largest deal ever announced, surpassing even the US$1.6 billion in penalties that Siemens paid to U.S. and European authorities for worldwide corruption in 2008. The possibility that nearly eighty Odebrecht executives might sign individual plea bargains, and reports that as many as two hundred federal politicians may be implicated, suggests that the Congress could soon be paralyzed. Meanwhile, the PMDB’s motley crew has been decimated, undermining Temer’s ability to coordinate with Congress: Geddel Vieira Lima has resigned; Romero Jucá was driven out of the Planning Ministry soon after he was appointed in May (when wiretaps caught him discussing efforts to slow down Lava Jato); the high court this week is expected to take up a criminal case against Senate President Renan Calheiros (for allowing a construction firm to pay childcare to a mistress); impeachment impresario Eduardo Cunha is in jail; and Eliseu Padilha and Moreira Franco are frequently rumored to be next in the Lava Jato crosshairs. Despite some initial success on fiscal reform, the appointment of solid and credible managers to key positions in state companies and ministries, and important regulatory changes intended to attract new investment, the outlook for the remainder of the Temer term remains grim. Economic forecasts now show economic growth of less than 1 percent in 2017. The budget situation of the twenty-six state governments is critical, and politically influential governors are begging for federal help. A much-needed pension reform promised by Temer has not yet been made public, much less begun the tortuous amendment process in Congress. Temer increasingly is being forced into a choice between helping his legislative allies and achieving economic reform, or satisfying a public that is baying for accountability and a political cleanup. It will take all of Temer’s considerable political skills and knowledge of backroom Brasília to revise his game plan for these challenging times.

While much attention is rightly focused on Syria and the Middle East, there are a growing number of refugees in the Western Hemisphere. The largest group comes from Central America’s Northern Triangle—Guatemala, El Salvador, and Honduras. For each of the past three years between 300,000 and 450,000 Central Americans have fled north. Of these, between 45,000 and 75,000 are unaccompanied children; another 120,000 to 180,000 families (usually a mother with children); and between 130,000 to 200,000 single adults. These numbers peaked in May and June 2014 when more than 8,000 unaccompanied minors crossed the U.S. border each month. 2016 numbers are again rising, with August inflows higher than ever before. These migrants are fleeing violence (El Salvador, Honduras, and Guatemala are some of the most dangerous nations in the world), poverty, and the economic devastation wrought after three years of record droughts. They are pulled to the United States through personal ties. One study of interviewed minors found 90 percent had a mother or father in the United States. Many of these U.S. residents from Honduras and El Salvador came on temporary protected status (TPS) visas, meaning they can live and work legally in the United States but may not sponsor other family members (including their children). While the overall numbers leaving Central America have been fairly steady, those reaching the U.S. border have fluctuated dramatically. In FY2014, 257,000 were apprehended at the border; this number fell to 149,000 in FY2015. Nearly 200,000 have made it to the southern U.S. border during the first eleven months of FY2016. The differences largely reflect Mexican enforcement and absorption. The Mexican government sent back 167,000 migrants in FY2015, and likely absorbed tens of thousands into its own society. FY2016 numbers look similar so far. Other nationalities are leaving home as well—many headed for the United States. 5,000 Haitians recently showed up at the San Diego-Tijuana border crossing having traveled some 7,000 miles over land from Brazil (part of the 80,000 Haitians who have migrated to Brazil since the 2010 earthquake). In an effort to stop this exodus, the Obama administration effectively ended Haitian access to TPS visas (given after the earthquake), announcing that the 1,000 still at the border now waiting for immigration appointments and any others that come (estimates are that up to 40,000 more are on their way) will be deported back to Haiti. The order was then delayed—but not repealed—in the wake of Hurricane Matthew. Cuban migration has risen dramatically with changes on the island—since 2013 Cubans no longer need government permission to leave—and due to fears that the United States will end the 1966 Cuban Adjustment Act (CCA). Better known as the “wet foot, dry foot” policy, CCA allows Cubans that make it to U.S. soil to immediately receive a visa and access to U.S. services including social security, health care, job training, and even cash transfers. In FY2014, 24,000 Cubans came; FY2015 and FY2016 numbers grew to 43,000 and 47,000 respectively. Many first flew to South American and Central American nations and then began making their way by land north, putting stress on the migrant and refugee services in those nations on their path. These many flows will likely continue and may grow. The Food and Agriculture Organization of the United Nations estimates that 3.5 million Central Americans are in need of humanitarian assistance. Haiti (population 10 million) has been without a recognized government since June (the interim president’s term expired and was not renewed). Hurricane Matthew killed hundreds and left another 350,000 people in desperate need. And the number facing “food insecurity”—already 3.6 million—will surely rise given the decimation of harvests throughout southern Haiti. Venezuela poses a crisis in the making. Outflows have been rising, mostly to Colombia, Spain, and the United States, which has received 10,000 asylum applications in 2016 so far. A recent poll found more than half of Venezuelan voters would leave the country if given the option, following the nearly 2 million that have migrated since Chavez came to power in 1999. If the current economic and political situation implodes, the exodus could quicken dramatically. All told, hundreds of thousands if not millions of individuals and families in the Western Hemisphere could be forced to leave their country. It is hard to see where they will be welcomed.

[This post was co-authored with John Polga-Hecimovich*. It is the third of a series that begins with this post.] The collapse in Venezuela has many potential costs: democratic regression in Latin America; destabilization of neighboring countries, including, potentially, the fragile peace process in Colombia; the possibility of a significant migrant crisis; rising violence, corruption, and criminality; and threats to hemispheric energy security. A mix of frustration with President Nicolás Maduro’s recent moves and apprehension about the potential outcomes of the crisis has led to a frantic search for alternatives, none of which seems particularly likely to be effective on its own. The paucity of alternatives suggests that the best the international community may be able to hope for is to isolate the regime, demonstrate to moderates within the regime that there are costs to sticking with Maduro, and make efforts to ameliorate the worst humanitarian consequences of the crisis. Taking Advantage of Latin American Leverage In recent years, U.S. policymakers have tried to encourage South American nations to take the lead on regional matters, recognizing that the region may be better positioned to foment meaningful dialogue and consensus than the United States, especially given the checkered past of U.S. interventions in Latin America and lingering local sensitivities about U.S. involvement. But Latin America has been slow to recognize the deterioration of the Chavista regime into an authoritarian state. Chavismo’s determined but patient degradation of checks and balances over the course of seventeen years; the huge revenues available to influence regional friends; the ideological affinities between Hugo Chávez, Nicolás Maduro, and regional leaders; and the government effort to present at least a façade of comity have helped dilute regional opposition to the regime. But this tolerance is slowly changing, not least because of the deepening crisis and shifting ideological winds in South America. At the level of regional bodies, three initiatives are underway. Mercosur has taken an increasingly firm stand against Maduro. During June and July, the new Brazilian administration joined Argentina and Paraguay to overcome Uruguayan resistance and suspend Venezuela from the Mercosur presidency. It also gave Venezuela until early December to meet conditions for accession that it had never met since joining the grouping in 2012. In effect, this signaled Venezuela’s impending expulsion, given that there was never much chance that Venezuela would meet the economic requirements imposed by the bloc. But a lack of consensus meant that Mercosur did not invoke the “democratic clause” that allows the trade grouping to suspend any member who fails to guarantee basic democratic rights. The four original Mercosur members will undertake discussions on the democratic clause on the sidelines of the Ibero-American Summit in Cartagena on October 28 and 29. Such a move to call out Maduro for his authoritarianism would be a significant symbolic rebuke, after years of close ties between the four original Mercosur nations and Chavismo, and it would increase the Venezuelan government’s international isolation. But it would do little to change the internal calculus that keeps Maduro in power, and the sanctions it imposes—suspension from the trade group—will have little practical effect on the Maduro administration in light of Venezuela’s already tenuous claim to membership. A major downside is that such a move might also complicate a more energetic effort to push humanitarian aid, such as medicines and medical relief, which Maduro would be unlikely to accept from the United States, and which Latin America is unlikely to offer if Brazil and Argentina do not lead the push. A second initiative is underway in the Organization of American States (OAS), whose Secretary General Luis Almagro is one of Latin America’s most passionate critics of the Maduro regime’s restrictions of political and civil rights. But Almagro leads a fractured organization, and it will be an uphill climb to the two-thirds support needed to invoke the OAS’ Democratic Charter suspending Venezuela from membership. It is telling that even a joint communique from the organization condemning last week’s events obtained only twelve signatories. Most importantly, of the silent countries, seventeen are members of Petrocaribe, who have benefited from considerable oil subsidies from Chávez and Maduro and remain net debtors to Venezuela. There may be room to split some of these nations from their support for Maduro, but the United States itself had until recently been reluctant to invoke the Democratic Charter, for fear of destabilizing ongoing talks by U.S. officials in Caracas. So it may take a while to gear up new efforts in this regard. Finally, the Union of South American Nations (UNASUR) has been playing a complex role. Of the three organizations, UNASUR under Secretary General Ernesto Samper is the most ideologically aligned with Maduro, and therefore may offer the best prospect for bringing him into dialogue. But this also raises suspicions among the Venezuelan opposition. UNASUR earlier this year created a special commission of former national leaders José Luis Rodríguez Zapatero (Spain), Martín Torrijos (Panama), and Leonel Fernández (Dominican Republic), who visited Caracas several times beginning in May to stimulate dialogue in the run-up to the expected recall vote. But these efforts paid few dividends, and some observers, including Almagro himself, have suggested that the UNASUR mission was a calculated ploy designed to slow the recall. After a hastily arranged visit with Maduro, reportedly requested by Samper, Pope Francis on Monday offered his good offices to “avoid an escalation of violence.” Talks sponsored by the Vatican and UNASUR are to begin on Venezuela’s Isla Margarita on Sunday, October 30. But almost immediately after the announcement, it became clear that not all members of the opposition Democratic Unity Roundtable (MUD) coalition were aware that talks were being discussed, raising concerns that this might be yet another stalling action by Maduro. The repeated use of such talks by the Maduro regime to delay progress or defuse opposition mobilization has left many MUD members skeptical of the value of trying to negotiate with the regime. Washington’s Toolkit There are not many good levers available to the U.S. government as it works to ameliorate the crisis. The best option available to Washington seems to be a combination of dialogue, continued work within regional bodies to pry away votes for the Maduro regime, targeted sanctions, and planning for post-crisis reconstruction. Talks between the Maduro regime and the U.S. government have been underway, most notably during a high-profile visit by Undersecretary of State Thomas Shannon to Caracas in June. Such talks have not shown many public results, but they are important to defuse the worst paranoid rhetoric out of the Maduro regime, to keep open a channel for dialogue, and to demonstrate to the region the willingness of the United States to contribute to a negotiated solution. It may be difficult to find the ten or so additional votes needed to invoke the OAS Democratic Charter, but patient efforts to sway Caribbean nations from their support of the Chavista regime may begin to pay off as the regime’s ability to invest in petrodiplomacy falters. Vice President Biden signaled the wedge that the Obama administration hopes to drive in a January speech to Caribbean leaders, noting that “no country should be able to use natural resources as a tool of coercion against any other country.” Meanwhile, the important repudiation of the regime by previously supportive governments in South America may yet contribute to a broader shift in Caribbean sentiment. The United States has already implemented targeted sanctions against members of the regime: Obama’s Executive Order 13692 in 2015 led to sanctions against seven senior officials. There was broad outrage in Venezuela and throughout Latin America against the order, not least because it labeled Venezuela as a national security threat (U.S. law requires such a determination before sanctions can be imposed). Maduro was able to use the order as a cudgel against the opposition, and he has promoted some of those who have been sanctioned or indicted in the United States. Yet narrowly targeted sanctions, announced publicly so as to send a clear signal, may be more effective today than they were even in the recent past, given the depth of the crisis. Sanctions against individuals—such as permanent visa restrictions and Office of Foreign Assets Control (OFAC) determinations—underline to Maduro’s moderate allies that they must be careful in how far they go in their support of a wobbling strongman. Individually targeted sanctions also send a message to regional governments about the worst players in the Maduro coalition, including embezzlers, cocaine traffickers, and abusers of human rights. So too do efforts to pursue Venezuelans abroad, like Maduro’s nephews in Haiti or the failed effort to nab a former intelligence chief in Aruba. Strategically targeted sanctions may contribute to breaking apart two coalitions: domestic supporters of Maduro’s regime, and the coalition of Latin nations that is stymying international efforts against that regime. Finally, the depth of the crisis suggests that there must be a significant international effort to design humanitarian aid and financial reconstruction. On the humanitarian side, as a recent Human Rights Watch report makes wrenchingly clear, Venezuela is facing one of the most horrific self-inflicted humanitarian disasters ever seen in Latin America. Although Latin American nations (led perhaps, by Brazil’s much-vaunted peacekeepers?) may be better able to orchestrate the delivery of humanitarian aid, the United States is uniquely positioned to provide the scarce medicines and equipment that will be needed to put Venezuela on a steadier footing. With regard to financial reconstruction, as CFR’s Robert Kahn has noted, the depth of the crisis in Venezuela means that returning the country to long-term solvency will be a massive project for international financial institutions. Proactive planning is needed to structure a financial reconstruction plan, as well as to engage with Venezuela’s biggest creditor, China, to ensure the plan’s credibility. The U.S. government must also think hard about what political conditions it will require on the ground before it lent its backing to such a significant financial support package. The good news is that the U.S. government already is engaged on many of these fronts. The bad news, unfortunately, is that none of these policies seem likely to bring quick relief to the Venezuelan people. *John Polga-Hecimovich is an Assistant Professor of Political Science at the U.S. Naval Academy. His research interests include comparative institutions of Latin America, especially the executive and the bureaucracy, as well as presidential instability. He has published peer-reviewed articles in The Journal of Politics, Political Research Quarterly, Electoral Studies, Party Politics, Latin American Politics and Society, and others, and conducted fieldwork in Venezuela, Ecuador, and Brazil. His Twitter handle is @jpolga. Disclaimer: The views expressed in this blog post are solely those of the authors and do not represent the views of or endorsement by the United States Naval Academy, the Department of the Navy, the Department of Defense, or the United States government.

The Brazilian Federal Revenue Secretariat (SRF) has some good news to cheer: a big haul of fines and taxes from assets held offshore by Brazilians. The deadline for filing under Brazil’s equivalent of the Offshore Voluntary Disclosure Program ends October 31, but news reports suggest that more than US$12.6 billion in foreign bank accounts held by more than 25,000 Brazilians have already been disclosed, leading to fines and taxes of nearly US$4 billion on money ferreted away in accounts that had previously been inaccessible to tax officials. More than a third of that money has been declared in the last week alone, suggesting that by the end of the month, the absolute volume of fines and taxes may be near the amounts collected under a sister program in the United States, whereby 45,000 taxpayers contributed $6.5 billion to the U.S. Treasury. The voluntary disclosure program is an important part of a broader push to improve government control over Brazilians’ assets abroad. Brazil in recent years has signed a number of agreements governing the bilateral exchange of banking information, and just this month came news that the Swiss high court had upheld efforts to share banking information on more than 1,000 Swiss bank accounts believed to be held by Brazilian politicians and former Petrobras executives. In the past two decades, Brazilian regulators have also closed various glaring loopholes in domestic regulations covering foreign exchange transactions. The SRF has gained personnel and seen its budget increased, enabling it to push for and enforce tougher laws, often in cooperation with the Ministério Público, Brazil’s quasi-autonomous prosecutorial service. Together, these improvements seem to be bearing fruit. Not coincidentally, the massive Car Wash operation began as a money laundering investigation, and revenue agents have played a significant role in the operation. The recent Panama Papers leaks, listing more than 1,300 offshore accounts held by 400 Brazilians, will add fuel to this effort. The speed with which the voluntary disclosure program has come down the pike in Brazil has been impressive. The U.S. Congress approved the Foreign Account Tax Compliance Act (FATCA) in 2010, and the U.S. government launched its program in July 2014. Prodded along by the global implementation of FATCA and associated agreements on the automatic exchange of financial information, the Brazilian Congress approved its Repatriation Law in December 2015 (in the midst of the political crisis that would eventually lead to President Dilma Rousseff’s impeachment), regulations were finalized by March 2016, and now the program is nearing completion. Although they may seem small as a share of the $3 trillion economy, the taxes and fines collected under the program are extremely significant. Global Financial Integrity estimates that each year between 2010 and 2012, on average Brazilians illicitly transferred more than $33 billion to accounts abroad. While the accounts disclosed under the repatriation program may not always be reflective of corruption or tax evasion, the fungibility of money and the multiple ways it can find its way from illicit to licit channels suggest that it would be ingenuous to assume the assets were all aboveboard. More important, by bringing even ostensibly licit funds into tax compliance, it will be increasingly difficult for major launderers or the corrupt to hide their ill-gotten gains in the murky backwaters of international finance. One reason for the apparent speed and success of the program is the prospect of heavy penalties that will hit Brazilians who fail to register. Under the program, participants agree to a 15 percent tax rate and a one-time 15 percent fine on previously undeclared assets. But in November, the tax rate will rise to 27.5 percent and the fine to as much as 225 percent, along with the increasingly credible and frightening prospect of criminal prosecution. Further, bilateral agreements on bank information sharing suggest the dragnet is closing, and it will be much harder to hide funds in future. SRF officials have made a concerted effort to drum home the costs of non-adherence to the program, noting that as of January 1, 2017, they will have in place agreements with 103 countries for automatic tax revenue information sharing, as well as bilateral agreements on investigation with 34 countries. Another recent report detailed the SRF’s analysis of nearly 1,000 high net-worth Brazilians with bank accounts in the United States, and authorities’ suspicions that nearly two-thirds of these were evading Brazilian taxes. While the admirable recent gains in Brazilian anticorruption efforts should be credited entirely to Brazilian authorities and their supporters in civil society, their recent successes will be helped along immensely by FATCA and the attendant effort to share financial data across borders. As one leading Brazilian tax official boasted, “the world is beginning to have no boundaries for the [SRF].” No longer will investigators lose track of the trail at the water’s edge; indeed, the information made available under the program should help to invigorate the increasingly bold efforts to curb massive corruption at the intersection of Brazilian politics and business.