Raining on Rio’s parade

THEIR new-found hoard of oil still lies 7,000 metres (23,000 feet) beneath the Atlantic Ocean, but the signs are that it has already gone to Brazilian officialdom’s head. No sooner had Petrobras, the national oil company, announced the discovery of a gigantic cache of crude oil buried beneath a thick layer of salt below the ocean floor than every vested interest in the country had a plan to spend the windfall. Brazil’s 27 governors and its 5,600 mayors are all looking to garnish their budgets. Civic groups want their cut of royalties to fight poverty, scientists to fight climate change and students to improve education. “Pre-salt oil is like a pretty woman on a dance floor full of men,” Luiz Inácio Lula da Silva, Brazil’s president, put it bluntly. “Everybody wants a go.”

That is troubling for Rio de Janeiro, which as Brazil’s main oil province has until now enjoyed the lion’s share of royalties. Most of the new deposits lie off the shores of Rio and São Paulo states. Last month the lower house of Congress approved by 369 votes to 72 a bill by Ibsen Pinheiro, a congressman from southern Brazil, that would radically redistribute the oil bounty among all states and municipalities. To many Brazilians, spreading the wealth seems reasonable.

Oil accounts for no more than 15% of Rio’s annual revenues, but the immediate impact would be severe: its royalties would wither from around $4.1 billion a year to just $130m. (Espírito Santo, its northern neighbour, faces a similar fate.) A “lynching”, complained Sérgio Cabral, the governor of Rio state; in tears, he warned that the sudden drop in royalties could cause the state’s finances to collapse and jeopardise investment for the Olympic games to be held in the city in 2016.

“What am I going to do, stop paying 220,000 public employees and pensioners? Do I close all the hospitals and sack the police?” says Joaquím Levy, the finance secretary. “That’s how much money we’re talking about.” In late March, some 150,000 protesters, many of them bused in by the governor, braved the rain to rally for royalties in the city centre, while locals dressed up papier-mâché Pinheiros as Judas and thrashed his effigy in the streets. To make matters worse, more than 100 were killed and hundreds made homeless in the state this week as hours of torrential rain triggered mudslides in poorer areas.

The threat comes as Rio has been struggling back to financial health after half a century of setbacks, starting with the loss of its status as the national capital to Brasília and continuing under a string of inept populist leaders. Three years of strong fiscal and administrative reforms have put the state’s shambolic accounts in order—not least by using oil revenues to rescue the loss-making pension system. Standard & Poor’s, a rating agency, has just made Rio the first Brazilian state whose debt is ranked as investment grade. Even the police, one of the most brutal forces in the world, are starting to win praise for pacifying bandit-ridden slums.

Rio’s leaders point out that the state’s oil money balances out its relatively paltry share of federal tax transfers, which flow more copiously to poorer north-eastern states. They hope to persuade the Senate to scrap, or at least soften, the Pinheiro bill. If not, the supreme court might strike it down as unconstitutional. Either way, the bill has revived the rancour that long reigned between Rio and the rest of Brazil. It would be sad if it also derailed Rio’s incipient revival. “Resentment plays into the hands of the worst kind of populism,” says Octavio Amorim Neto, a political scientist at the Getúlio Vargas Foundation. That is a curse Rio’s residents know only too well.