Event

This month, Brazil surprised the world with a new corruption probe. This time it concerns sales of tainted meat. The ‘Weak Flesh’ investigation alleges widespread bribery and corruption between health inspectors and the operators of regional meat plants, resulting in sales of bad meat both at home and overseas. As Brazil is the world’s largest exporter of beef and poultry, this news alarmed most of the world. In response, a number of countries temporarily banned or curbed beef and poultry imports from Brazil. However, after an intense lobbying effort by the government, good news followed a couple of days later: China, which accounts for about one third of Brazil’s meat exports, Hong Kong, the largest destination for Brazilian beef, and some other major customers lifted the bans. 

Impact on country risk

The meat corruption scandal shows the vulnerability of Brazil’s recovery. The bar of meat comes at a time when Brazilian exports are being boosted thanks to a weaker currency, the pickup in commodity prices and bountiful harvests. As meat is an important export product, a prolonged ban could have negatively impacted the narrowing current account deficits (estimated at -1.5% of GDP in 2017). Nonetheless, it seems the worst has been avoided as the Brazilian trade surplus hit a record high in March. Furthermore, a prolonged ban could also have delayed the fragile recovery of a country wrestling with the worst recession in more than a century. Nevertheless, despite the meat scandal, the economy is still expected to grow by 0.5% this year, after two years of recession. However, the ‘Weak Flesh’ investigation can still have a negative impact on the political side as it represents yet another corruption scandal for an already discredited political class. The government is implicated in corruption cases involving state-owned producer Petrobras and construction company Odebrecht in a time it needs to push through necessary but unpopular reforms. An important example is the overhaul of Brazil’s expensive pension system that has to be steered through congress and could prove crucial to economic recovery, encourage investment in the country, tackle the fiscal deficit (expected at -9.5% of GDP in 2017) and curtail the rapidly increasing public debt (78.4% of GDP at the end of 2016). Therefore, this new corruption case may undermine the government's reform prospects and consequently still stem economic recovery.

Analyst: Jolyn Debuysscher, j.debuysscher@credendo.com