In his first interview since taking command of troubled Brazilian oil giant Petrobras earlier this month, Aldemir Bendine made all the right noises.
He promised to restore transparency and credibility to the state-controlled firm, which has been pummelled for months by its biggest corruption scandal. Appearing last week on Brazil’s flagship news programme he called on minority shareholders disillusioned with the corruption and mismanagement revealed by the scandal to “continue believing in the company”.
So it was somewhat unfortunate that he had to spend part of his public debut as Petrobras boss defending himself from accusations of wrongdoing during his previous job running state bank Banco do Brasil.
Bendine characterised as “old and empty” the accusation that he improperly helped a well-known socialite obtain a loan. That may be true but the optics were poor considering that Petrobras, once a source of national pride, has in recent months become synonymous with corruption due to a sprawling investigation that has seen dozens of former senior Petrobras managers and executives from its suppliers arrested.
But Bendine’s legal difficulties were not the reason markets reacted to his appointment to Brazil’s biggest company by further beating down its already battered shares. Instead it is the widely held perception of him as a faithful servant to President Dilma Rousseff. She is short on credibility among investors after her increasingly interventionist handling of the economy during her first term resulted in weak growth and ballooning deficits.
Presidential influence
Control over state enterprises such as Banco do Brasil and Petrobras has become a key means of exercising presidential influence in the economy and during his time at the helm of Banco do Brasil Bendine complied with Rousseff’s demand that state banks flood the market with credit. His bank’s profits suffered but the policy failed to hold rates lower for long or stimulate growth.
Anger at state interference led all three independent members on Petrobras’s board to vote against Bendine’s appointment. After their defeat one of the three accused the government of “once again imposing its will above the interests of Petrobras, ignoring the appeals of long-term investors”.
This last group has seen the value of its shares routed despite the company’s discovery in recent years of giant reserves of oil, and many investors have joined a class action suit in the United States against the company.
Bendine’s loyalty to his boss also raises doubts about President Rousseff’s new commitment to a more orthodox economic policy, signalled with the announcement in November of Joaquim Levy as her new minister for finance.
Levy’s arrival has been welcomed by the market – if not by many of Rousseff’s own supporters – as he set about implementing fiscal austerity, raising taxes and cutting back costly electricity and transport subsidies in an effort to balance the government’s books.
But despite the turn towards orthodoxy, investor confidence in the president remains low. Many recall that they have been here before. Upon coming to power in 2011 Rousseff ordered budget cuts to correct some of the fiscal excesses of the country’s response to the 2008 global financial crisis. She quickly reversed course, however, and many of her supporters are calling on her to do so again, while denouncing Levy as a neoliberal imposter within the government. Amid such pessimism the São Paulo bourse is a bear market and the real has plunged in recent days against the dollar and euro, reaching its lowest level against the US currency in over a decade.
Fuel-pricing policy
Reinforcing concerns, in his interview Bendine ruled out any change in Brazil’s fuel-pricing policy. In recent years the government has required Petrobras to sell fuel below cost. The subsidy was an effort to keep inflation in check but drained Petrobras of tens of billions of euro when it was raising funds for the world’s biggest corporate investment programme of almost €200 billion.
“Markets wanted a name to bring Petrobras the credibility and the corporate governance lacking today. Those hopes were ended with Bendine. It is not a question of whether he is competent or not but rather than he is linked to Dilma,” said Marcelo Varejão, an investment analyst with São Paulo brokerage Socopa.
Bendine has an early chance to earn market credibility as his immediate task is to try to publish 2014 full-year results and have auditor PwC sign them off by the middle of the year. That will require a massive write- down of the firm’s assets to reflect the damage done by the corruption and mismanagement of recent years.
Such a step will be politically explosive as it will expose to the public the cost of the ruling Workers’ Party’s stewardship of the company. Failure to file results on time could see Petrobras facing creditors’ claims of tens of billions of euro. Bendine said he expects to publish the results by the end of March.
