Odebrecht Bribery Scandal Shakes Government and Society
The revelations from the Lava Jato investigations in Brazil, and from a U.S. Department of Justice investigation into illegal practices of Brazilian companies, are shaking the continent, and the Dominican Republic, too. The hottest topic is an extensive bribery scheme that the Odebrecht construction company carried out in many countries, to obtain infrastructure contracts on very advantageous terms.
Data released by the U.S. DOJ, with which Odebrecht has reached an agreement in order to avoid litigation, indicates that the DR is the third most affected country after Brazil and Venezuela, where the company paid $92 million in bribes. The DR is fourth in terms of benefits obtained, due to $163 million in inappropriate payments. This data covers 2001-2014, and three Dominican presidential administrations. But most contracts were granted during the Leonel Fernández administration.
The Punta Catalina coal plant project is in the spotlight, as Odebrecht’s main current project, and since it was awarded under the current Danilo Medina administration. The project was highly controversial from the start: there were significant suspicions that it was an illegitimate.
The case has generated enormous pressure to bring the bribery scheme’s beneficiaries to court. There was a huge recent protest march to demand an end to impunity – the biggest and most significant civic action in decades.
The Prosecutor General's office has opened an investigation, and is questioning former ministers of public works, and other top officials. Odebrecht has already identified the scheme’s middlemen.
The government is maneuvering to defend itself. The president appointed an independent commission to investigate the coal plant bidding. But the outcome is unlikely to be adverse to the adjudication process, or the government. Medina may also try to use the case to further weaken Fernández. If mobilization and social activism to fight corruption continues and deepens -- and that’s likely -- the political costs for the PLD and Medina will increase, as will the likelihood of legal sanctions. Now it will be much tougher for the government to make progress on fiscal reforms. The Fiscal Pact continues to slip away. The political situation will also make it more difficult for the PLD to maintain its tight control over the so-called High Courts.
Central Bank preliminary data sets 2016 GDP growth at 6.6%, close to our recent estimates. For the third year in a row, the DR leads the region in economic expansion. Prices spiked in December, pushing accumulated inflation for 2016 well above our expectations. CPI growth rose to 0.9% last month, pushing accumulated inflation from 0.79% in November to 1.7% in December.
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