Obama stops thinking positive

A year on from his inauguration, the president stands accused of reneging on inspiring campaign prom

Once, no one wanted to talk about Aids. Now the global pandemic commands $14bn a year, roughly half of all spending on health worldwide. The single most important contributor to Aids funding is the US President's Emergency Plan for Aids Relief, or Pepfar for short.

Launched by George W Bush in 2003, Pepfar is the largest financial commitment ever made by any nation to combat a single disease. It wields a budget of $6.7bn for 2010 alone, and claims to have succeeded in putting more than 2.4 million people on antiretroviral therapy, particularly in its "focus" countries (primarily in sub-Saharan Africa). This includes some double-counting with the other major provider of antiretrovirals, the Global Fund to Fight Aids, Tuberculosis and Malaria, but the scope is impressive nonetheless.

The tentative optimism needs to be put in context. There are still 33.4 million people with HIV, and, as access to antiretrovirals improves, the number living with the virus continues to climb. Moreover, Aids-related illnesses remain a major cause of death globally, claiming two million lives a year. Initiatives such as Pepfar may have provided life-saving drugs to many, but some global health advocates feel that such organisations are at times more accountable to themselves than to the people enrolled on their programmes. And their sheer scale can disrupt the local health systems of small African countries.

Under Bush, Pepfar faced more criticism than most. Its initial refusal to purchase and disperse cheaper, generic antiretrovirals, in preference for only drugs approved by the US Food and Drug Administration, delayed the roll-out of life-saving medicines and demonstrated an unseemly interest in extending the market for overpriced (and usually US-manufactured) drugs. Equally controversial was the Bush-era insistence that a third of the money slated for reducing HIV infection be spent on promoting social values, including abstinence, delay of sexual debut and partner reduction. Such policies are straight out of the Republican book of morals. A focus on monogamy has little value as a preventive tool in countries such as Thailand, where the main mode of transmission is now between married partners.

Self-selective choice

With the election of Barack Obama a year ago, hopes were high that much of this would change for the better and that Pepfar might become a more positive standard-bearer in the global fight against HIV and Aids.

The new president was quick to repeal the most controversial of Bush's global health policies: the "global gag rule" - an outright refusal to fund any organisation that offered (or even provided information about) abortion. And with the appointment of the new US global Aids co-ordinator, Eric Goosby, the emphasis at Pepfar soon began to fall less on the "emergency" response and more on sustaining existing programmes. Sustainability is important to avoid the emergence of drug resistance, which can render antiretrovirals ineffective.

However, some activists argue that such talk merely disguises the harsh reality of funding cuts. As early as May last year (when his budget plans for 2010 exposed a $1.5bn shortfall in Pepfar funding), they were arguing that the new president had reneged on his campaign promises on Aids.
Since then, Obama has not responded convincingly to their concerns. His new five-year Aids plan, released at the end of 2009, is silent on the extent to which Pepfar intends to address concerns about the ongoing lack of transparency in its funding. This worries global health advocates, who wonder if the strategic interests of the US, rather than the health needs of people in its programmes, may be determining Pepfar's choice of which Aids programmes to fund and where. Addressing these problems will be difficult, but it is essential that Obama should do so sooner rather than later. For all the importance of treatment, it remains the case that, for every two people being put on antiretrovirals, a further five are being infected.

There are, however, systemic as well as political problems to overcome. Pepfar allocates a great deal of funding on the basis of evidence it receives from Aids programmes already in operation. But according to Vinh-Kim Nguyen, a doctor and social scientist with the University of Montreal's department of social and preventive medicine, such evidence of the efficacy of particular interventions can be self-selecting. Organisations promoting treatment interventions (rather than, say, simple prevention or safe sex) find it much easier to get hold of supporting data, because much of the data is taken from individuals already enrolled on programmes being evaluated. Anyone else is excluded, so there is little countervailing evidence (it's hard to provide data on a person not yet infected). But that also makes it difficult to know whether treatment-only approaches to HIV and Aids are always the most effective.

This should not be taken as an argument for scaling back antiretroviral provision, but it makes it much trickier to gauge how, when and where treatment would be more effective than a less costly alternative.

Social complications

The underlying problem with Obama's Pepfar is that - for all the lip-service Goosby has paid in recent months - it is not fully engaging with the constellation of problems associated with HIV and Aids: vulnerability to infection, impoverishment, disempowerment of women, stigmatisation and a persistent Aids denialism, to name a few. These are social issues that are not always easily quantified, and are often the consequence of relative inequality as much as outright poverty.

In sub-Saharan Africa, women aged between 15 and 24 are more than three times as likely as their male counterparts to be HIV-positive; in the United States, the prevalence of HIV among African-American males in the District of Columbia ranks alongside that of some of the worst-affected countries. The only consistent feature linking sub-epidemics among injecting drug users in the former Soviet republics, men who have sex with men in Asia and heterosexual women in sub-Saharan Africa is the way that HIV can be seen, in each case, to cut along and reinforce pre-existing socio-economic divides.

With funding for many global health initiatives likely to decline in the current economic climate, there is concern that these underlying causes of vulnerability will be pushed further to the margins in a drive for greater statistical accountability and savings in initiatives such as Pepfar. Pledges to the Global Fund are down. The lives of those who have already been enrolled on antiretroviral programmes in settings where there continues to be a lack of development in local health systems will be put at risk. So, too, will the lives of many more people as yet uninfected.

Simon Reid-Henry is director of the Centre for Global Security and Development at Queen Mary, University of London

DC doubles up as infection capital

A report published in March 2009 revealed that more than 3 per cent of the population of the District of Columbia - Washington, DC - is infected with Aids or HIV. This makes the area the most severely affected in the United States. According to Shannon Hader, director of the district's HIV/Aids administration, such rates are "on a par with Uganda and some parts of Kenya . . . higher than in West Africa".

Following another report - issued in 2007 - that aimed to emphasise the unsettling reality of what was called a modern epidemic, the 2009 document showed a 22 per cent increase in the number of cases of the illness (currently estimated at roughly 15,120).

Worse still, health professionals observed, the latest figures are based on those who agreed to be tested; as such, the actual number is likely to be far higher than the report suggests. And the rate is "on the rise", claims Hader, due to the widening scope of the condition. Once mainly affecting men who have sex with men, HIV/Aids is now a health risk for people of every age, race and sex.

The US government has been criticised for failing to confront the crisis effectively. Critics note how policies that prevent the use of public funds for social programmes such as needle exchanges have led to an increase in the rate at which drug users are being infected by the virus.

Others suggest that the key to tackling the crisis is open discussion, to break down the taboos surrounding HIV and Aids.

Harriet O'Brien

This article first appeared in the 01 February 2010 issue of the New Statesman, Unforgiven

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Enough to educate 17 million children: the true cost of Brazil’s Car Wash scandal

As a new Netflix series dramatises one of the world’s largest corruption cases, Global Witness puts a figure on the cost of the scandal.

In the 1980s, Alberto Youssef was, alongside an older sister, smuggling whisky and electronic products from Paraguay to Brazil. Once, while being chased at a high-speed by police, VCRs kept falling out of the pick-up truck he was driving. Few would have guessed that this almost comical character would, one day, become a key player in what has been called the biggest corruption scandal in history. But then, the Car Wash, or as it’s known in Portuguese, Lava Jato, stretched far and wide across Brazil at a huge cost.

New research by Global Witness shows the damage caused by the Car Wash scandal far exceeds the sums stolen. The cost to the Brazilian treasury may be nearly eight times higher than the £1.4bn actually taken, enough to cover the salaries of more than a million nurses or provide a year’s education for over 17 million children.

Police only began to uncover the extent of the Car Wash scandal in 2013, when they became suspicious about the sheer quantity of cash churning through a bureau de change in a humble petrol station in the country's capital Brasilia. That led to the arrest of Youssef, which in turn led to further arrests. It soon became clear that this was no ordinary money laundering operation. Police had stumbled upon a racket that would involve at least 28 major corporations and 20 political parties, resulting in over 100 convictions. The list of those implicated reads like a Who’s Who of the Brazilian political elite, including two of the country's presidents.

Former Brazilian president Luiz Inacio Lula da Silva has been sentenced to more than 12 years, after it emerged he took bribes for helping a construction company win contracts with Petrobras. Lula says the case is politically motivated and remains free while appealing it. A ruling in a federal court on Monday, however, could send him behind bars, even as he takes the case to the Supreme Court.

Current president Michel Temer has also been at the centre of corruption investigations, most recently over allegations of bribery concerning a deal for operating services at the Port of Santos, Latin America’s largest container port. Congress has twice blocked Temer from standing trial on corruption charges while in office, and he denies the allegations.

The scandal has also inspired The Mechanism, a new Netflix drama from the director behind the biopic of Pablo Escobar, Narcos. The sums of money involved in Car Wash were almost at Escobar levels, but the billions lost to Brazil’s hard-pressed public services mean the scam might also have caused harm on a scale comparable to the druglord’s activities.

The fraud revolved around Petrobras, Brazil’s state-owned oil company. Instead of awarding huge contracts for construction projects, oil rigs, shipping and so on in the normal manner, the work was rotated around a cartel of companies in orderly fashion. Petrobras would over-pay the companies by at least 3 per cent, with the extra money forming a kickback to the directors responsible for awarding them the contracts. These directors would pocket some of the money, and hand the rest to the politicians who had appointed them to their lucrative posts. The money then went to the campaigns of Brazil’s political parties and provided backdoor funds that kept otherwise unstable governing coalitions together.

The result was a Byzantine racket of astonishing intricacy and scale in which everyone took a cut. Bribes came in the form of bricks of cash, expensive art works, aircraft and yachts; anonymously-owned companies in tax havens and foreign bank accounts helped launder the loot. One Petrobras director alone channelled €20m to banks in Monaco from accounts in the Bahamas, Panama and elsewhere.

“Once the mechanism is established, only the corrupt can take part,” says José Padilha, the Brazilian writer and director of The Mechanism. “If you’re an honest politician you’re doomed. The honest businessman will not get any contracts. There are only crooks.”

This “mechanism” had been running uninterrupted for at least 12 years.

Was this really the biggest corruption scandal of all time? Virtually every Car Wash explainer in the UK press poses the question – but none provides an answer. That’s probably because it’s notoriously hard to quantify value throughout history. In 193 AD, the Roman Praetorian Guard assassinated their emperor and held a fraudulent auction to appoint his successor, striking a deal worth 250 pieces of gold for each soldier in the army. (The empire was not theirs to sell). If not the earliest documented fraud, it was surely the most audacious – but trying to convert the ransom into modern currency is a fool’s errand.

But Padhila has no doubt. “It’s the biggest corruption scandal in the history of mankind,” he says. “It involves a mechanism which has been operating in Brazil in one form or another since at least the Eighties. Too many Brazilians fall into the trap of ideology, but the mechanism has no ideology. It is left wing and right wing. The whole political system is corrupted. Democracy has failed.”

Regardless of whether Car Wash is the biggest bribery case of all time, it certainly features in the ranks of the world’s corruption mega-scandals, sitting alongside mammoth state-thieving operations such as Malaysia’s recent “1MDB scandal” – US lawsuits claim an estimated $4.5bn has gone missing from a state development fund – and France’s Elf scandal, which shook the body politic and in which at least $400m was creamed off international oil contracts. All these scandals were linked to illicit political funding.

Taking a look at the cost of Car Wash to Brazil, first off there is the amount filched from the state oil company in improper payments. A Federal Police report seen by Global Witness conservatively estimates this at £1.4bn – all of which had to be laundered, sometimes moved physically. To put this logistical feat in context, if withdrawn in £10 notes the sum would make a stack eight miles high equivalent to almost 16 Burj Khalifas, the tallest building in the world (or, if you like, 343 Christ the Redeemers). The 119 tonnes of cash would take a fleet of 97 Ford Transit vans to deliver.

Then there is the £2.1bn fine Petrobras has agreed to settle a US investors’ class action, already bigger than the amount actually stolen. But both the theft and the losses are dwarfed by (and reflected in) the collapse in Petrobras’s share price. Before the scandal broke in September 2014, shares were at $19.33 but as of March 2018 they had dropped to $14.07. The government suffered a paper loss of £14.1bn for its 29 per cent stake in the company.

September 2014 was also the moment that global oil prices began a long decline, but the damage was too great for Petrobras to hide. “I would say 90 per cent of the fall in share price is due to Car Wash,” says Tiago Cavalcanti, a Brazilian economist at the University of Cambridge.

Petrobras’s 3.7 billion shares are supposed to furnish Brazil with a healthy income, and in the three years before Car Wash exploded, they provided Brazil with an average annual dividend of £360m. No dividend was paid in 2015, 2016 or 2017, costing the country £1.1bn.

Then comes the kicker. So vast was the upheaval  with billions slashed in investment   that some believe it helped bring about the worst recession in Brazil since records began. In March 2014, when the first Car Wash arrests were made, the Brazilian unemployment rate was 7.1 per cent. By last summer it was at 13 per cent. São Paulo consultancy GO Associados, headed by economist Gesner Oliveira, calculated that the fallout from Car Wash hit GDP by 2.5 per cent in each year the investigation was going on, from 2015 to 2017. The consultancy has now told Global Witness it has revised those figures up to an extraordinary 3.6 per cent — which would mean almost the entire drop in output during 2015 and 2016 was accounted for by Car Wash.

GO Associados said that would imply an annual $4.6bn (£3.3bn) in lost tax for each of the three years the fallout from Car Wash was at its most extreme £9.9bn. This figure would appear to be on the conservative side: it is based on the hit to the economy from Petrobras’s reduction in spending plans  but does not take into account the wider impact on Brazil’s giant construction companies, many of which lost contracts elsewhere in Latin America as a result of the scandal. Such firms were also banned from any public contracts in Brazil. The figure also fails to include the reduction in foreign investment in Brazil as a result of the political turmoil.

So even setting aside Brazil’s paper loss – Petrobras shares may well continue to rise  Lava Jato could have cost the government at least £11bn in revenue in lost tax and lost dividends from its stake in the company. That’s almost eight times the amount stolen from Petrobras in the first place.

“That number sounds very plausible and the calculation is logical,” says Cavalcanti, who has himself calculated that without Car Wash and other governmental policies Brazilian GDP would have grown by 1.2 per cent in 2015 and 2016 (as opposed to an actual fall of 3.8 per cent and 3.6 per cent). “Another reason for the recession was the falling price of commodities, but Peru and Chile did not have the fall Brazil had. Certainly Car Wash was a very big factor in the recession.”

Who knows the real difference that £11bn could have made in a country where universal healthcare is still some way off and about 7 per cent remain illiterate. The real price of Car Wash is incalculable.

“I feel disgust and exasperation,” says Padilha.

You might think that at such terrible cost, the Brazilian public would rather the fraud had never been exposed. But a recent poll suggests 94 per cent of Brazilians think the investigations should continue despite the current turmoil. For many, this is a golden opportunity to tackle the corruption that has afflicted the Brazilian body politic for decades before the mechanism started turning.

Because according to the filmmaker, Petrobras is the tip of the iceberg.

“There is no public contract in any village, town, city or state that is not affected, from the tiniest new road to the biggest government project,” he says. “All are corrupted - and none of this is exposed yet. In my country you can turn any stone and there will be cockroaches underneath.”

Ed Davey is an investigative journalist for Global Witness.

This article first appeared in the 01 February 2010 issue of the New Statesman, Unforgiven