In October 2019, São Paulo’s benchmark stock index Ibovespa fell almost 3 percent after the Brazilian press reported that the country’s five largest banks were being investigated as part of the anti-corruption Operation Car Wash for their connection to money laundering. Federal Police accused Itaú, Banco do Brasil, Caixa, Bradesco and Santander of laundering some BRL 1.3 billion in bribes received by politicians and business owners.
In one day, the shares of Bradesco, Santander, Banco do Brasil, and Itaú Unibanco fell 3.86 percent, 3.44%, 3.4%, and 2.75%, respectively.
This is just one example of how corruption investigations in Brazil have had an effect on the country’s economy since the beginning of the Car Wash probe in 2014. Since then, analysts and public figures have debated how the authorities’ actions to put corrupt people behind bars can be improved, so that the economy—and consequently employment and the income of the population—may survive in spite of revelations of embezzlement and bribery.
Much has been said in Brazil about the losses caused by Operation Car Wash. Financial analyst Leonardo Palhuca showed back in 2016 that the ordinary shares of state-owned oil company Petrobras lost 60.65 percent in value purely as a result of corruption investigations. In the same period, fellow oil and gas companies saw devaluations of 35 percent due to the drop in oil prices and other specific factors.
Further projections of the time from consulting firm GO Associados showed that the Car Wash investigations stunted Brazil’s GDP by some 2.5 percent, while then-interim president Michel Temer estimated an effect of 1 percent on everything Brazil produced in 2016.
GO Associados went on to state that the public treasury lost BRL 9.4 billion in tax revenue with the slowdown in economic activity, after having an expected primary surplus...
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