November 16, 2014 / 3:22 PM / in 3 years

Petrobras scandal may change Brazil forever, Rousseff says

(Reuters) - A widening corruption scandal at state-run oil company Petroleo Brasileiro SA may change the country forever, Brazilian President Dilma Rousseff said on Sunday in her first public remarks since a sweeping police operation last week.

The headquarters of Brazilian oil company Petrobras is seen in Rio de Janeiro November 14, 2014. Brazilian police arrested a former Petrobras executive on Friday and the state-run oil giant's shares sank 5 percent after it was forced by a widening corruption scandal to delay the release of its financial results. Former engineering director Renato Duque was the second senior Petrobras executive arrested in the investigation into a money laundering and bribery scheme that allegedly skimmed billions of dollars off contracts and into the pockets of politicians. REUTERS/Sergio Moraes (BRAZIL - Tags: BUSINESS ENERGY CRIME LAW)

Police on Friday arrested top executives of some of the country’s largest construction and engineering firms as part of a probe into money-laundering and bribery allegations at Petrobras, as the oil company is commonly known.

A former senior Petrobras executive responsible for some of the company’s biggest contracts was also arrested.

“This may change the country forever,” she told reporters in Brisbane, Australia during a summit of the G20 Group of Nations. “How? By ending impunity.”

The scandal puts new pressure on the recently-re-elected Rousseff as weak growth and high inflation pose serious challenges to her effort to boost the economy.

She may also have difficulty distancing herself from the problems at Petrobras. She was chairwoman of the board of directors, the company’s highest official, from 2003 to 2010.

Several thousand Rousseff opponents gathered in Sao Paulo, Brasilia and Rio de Janeiro on Saturday to protest her management of the company, according to state police.

One of the world’s 10 largest companies in 2008, its market value has dropped by more than $200 billion since, as investors discounted its once shining promise. Despite the discovery of giant offshore reserves and hundreds of billions of dollars of investments, production has disappointed.

Lawmakers of the largest ruling parties, including Rousseff’s Workers’ Party, are under investigation, according to Brazilian media. The construction firms involved were among the largest donors to Rousseff’s and other campaigns, including that of her challenger, Aecio Neves.

Rousseff said the scandal was symbolic because it was the first large corruption case being thoroughly investigated.

“This will change forever the relationship between ... Brazilian society, the Brazilian state and private companies.”

On Thursday Petrobras delayed the release of its third-quarter earnings. It plans to release unaudited results by Dec. 12 and will hold a conference call on Monday.

Rousseff, under growing market pressure to slash government spending and reduce state intervention in the economy, ruled out budget cuts that could reduce demand and drag Brazil’s battered economy further down.

“We will make an adjustment. But we don’t think curbing demand is the best policy to get out of a crisis.”

Reporting by Silvio Cascione in Brasilia; editing by Keiron Henderson

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