Directors of the beautiful Casa Daros art space stunned Rio when they announced it would shut its doors just two years after opening. Does this forebode a dark period for cultural projects as the city is pounded by recession and scandal?

By Nathan Walters
Rio de Janeiro

A tragedy has struck Rio de Janeiro, and unfortunately, it seems to be part of a larger pattern. Botafogo’s exquisite Casa Daros art space will close this December after only two years of exhibitions, despite the fact that tens of millions were spent refurbishing the neoclassical mansion. The directors blame high maintenance costs and say the decision is irrevocable, but some are still hoping for a change of heart or for some deep-pocketed investors to step up.

More than a few observers are questioning the Zurich-based Daros Collection’s real motives for closing. Some are whispering about real estate speculation, without proof for their suspicions. A few have used the closure as a starting point to discuss high labor costs, but this can’t be fully explanatory. These are a headache for any business owner in Brazil.

Across the board, low turnout, high costs, and a local economy hit especially hard by the Petrobras scandal paint a grim picture for the future of private art institutions in Rio.

The city has witnessed an encouraging expansion of cultural spaces in recent years, and Casa Daros was one of the best. A beautifully refurbished 19th-century structure, a former Catholic school for orphaned girls, would house large-scale contemporary works from Brazilian heavyweights like Vik Muniz, Ernesto Neto, and Luiz Zerbini.

Daros has one of the most impressive collections of Latin American artists, and exhibitions were as fun as they were thought-provoking. The museum seemed to always be comfortably uncrowded, but it was also common to see Botafogo’s hipsters scoping a Cildo Meireles installation alongside school kids.

As with the some of the other museums that have opened recently, such as Museu de Arte do Rio (MAR), Casa Daros had a strong educational agenda and sought to enhance access to contemporary art. The loss of high-quality cultural programs could compound problems that the loss of oil revenues – Rio’s main industry is petroleum, whose company Petrobras is mired in a multi-billion dollar scandal – poses for education funding in Brazil, and Rio in particular.

The project got off to a rocky start and refurbishing work proved to be more challenging than initially planned. The Daros institute sought to refurbish the space to its original splendor, and went through a painstaking process, sourcing original materials and plans. The result was magnificent.

Problems with construction work didn’t seem to deter Daros, and in a lemonade-from-lemons-gesture Muniz created the Nossa Senhora das Graças photo(pictured above), based on the seal that adorns Casa Daros’ façade, from the trash leftover from renovation.

But much here is troubling. How is it possible that a presumably highly organized group like the Daros Collection planned so poorly? Or did something else happen behind the scenes? Have costs jumped so much higher than forecasted?

The wave that Brazil had been riding for ten years has come to an end, yes, but is it really this bad? Or was the grim reality of the country’s current state not considered when the company was shelling out millions to refurbish the 12,000 square meter space?

“Times are tough now, but we Brazilians, who have seen worse times, look for creative ways to respond to the changes,” says Rio-based curator Bat Zavareze. “I don’t understand the response from Casa Daros. It’s not the apocalypse. But is a real pity because it’s a very important cultural and education space.”

The curator for the avant-garde Multiplicidade music festival, Zavareze says he is working in a much different climate than a few years ago but still finds a way to make it work. Other emerging Rio-based artists say they have seen a slowdown in the frequency of government-sponsored events, but continue to work more or less as they have in the past.

The hysteria surrounding Brazil a few years ago has been replaced by the re-emergence of old problems. Staggering corruption, violence, and economic problems have re-appeared, and that is making more than a few foreign individuals and companies nervous.

The idea that the Olympics would be followed by a great exodus of foreigners always seemed more of a joke than a reality, but a completely different outlook on Brazil’s future is prompting some to consider a real exit.

Not long ago, Dilma Rousseff and Maria das Graças Foster were widely praised as the new faces of Latin America. Now, the billion-dollar corruption scandal has finally brought down Petrobras CEO Maria das Graças Foster (above). She had to go. But with President Dilma Rousseff also against the wall, 2015 is shaping up to be very difficult for the region’s few female leaders. 

By Nathan Walters

After months of speculation and some high-profile back-and-forth, Maria das Gracas Foster, Petrobras chief executive since 2012, resigned on Tuesday along with five other directors. The news sent Petrobras stock prices soaring; the rebound made up for losses that came last week after the company released unaudited and incomplete statements.

Investors are right to want new leadership at the company, which is facing serious problems on all fronts. Dilma Rousseff, who is close to Foster, likely did all she could to stave off the CEO’s departure.

But what should we make of news that former Brazilian president Luiz Inácio “Lula” da Silva was reportedly pressuring Rousseff to accept Foster’s resignation (which is said to have already been thrice offered and thrice refused). It’s no secret Lula may be thinking of staging a comeback in 2018. But is former guerrilla Rousseff not her own woman? The leader of Brazil?

In 2012, closer to the height of the euphoria surrounding Brazil, Foster had been appointed not only because as a Petrobras lifer (rumored to bleed green and yellow [and not on account of exposure to fracking fluid]) she had the technical chops, but because she could be a symbol of the country’s economic and social progress.

Brazil is well known for its machismo, and the storybook ascent of a female who had pulled herself out of very real poverty to become the leader of the country’s most important company was a loud retort to all those who claimed Brazil’s gender relations were antiquated.

At the same time, Mr. Eike Batista, the white son of Brazilian privilege, was creating his own “up by his own bootstraps” myth, which was also peddled around the country in response to claims that it lacked a culture of entrepreneurship. The legend was as inflated as OGX’s prospects, and both eventually collapsed.

Foster’s arrival at the top belied very real gender equality issues in Brazil the same way Barack Obama’s ascent distorted the reality of race relations in the U.S. At a time when people were complaining that Brazil was applying a new paint job, rather than going through a process of fundamental change, Foster was the brightest coat on the market.

Though an icon for the company and the country’s quick development in economic and social issues, Foster was also given the reigns in an attempt to steer the company away from the good ol’ boy culture that created the conditions for all of the corruption that is alleged to have happened…starting long before she took over.

Foster was faced with tough decisions left over after the departure of previous CEO Jose Sergio Gabrielli. The well-connected Gabrielli  exited when Petrobras image was near its strongest, though there were a host of problems waiting to be uncovered.

Brazilian president Dilma Rousseff is another classic figure of the same type – a donna, in Brazil’s patriarchal vocabulary, a firm woman who would get the house in order. Like Foster, she has been counted on to fix problems that were partially caused by men.

In the public’s mind, Foster failed to complete her task—though efficiency programs introduced during her time at the head of the firm produced some real results — and must be jettisoned to make way for the next leader, like another white male. The same fate awaits Rousseff in 2018, if not even before.

Female directors in Brazil account for a paltry 7%, on par with Argentina but well below the Colombia and Peru. Since July 2014, “the number of women CEOs in the Global 500 has dropped from 17 to 14. Non-American CEOs, like Foster, have led the exodus,” according to Fortune magazine. But Foster’s directorship was even more spectacular because it was an oil company, an industry not known for its minority leaders. The importance of her position was not limited to Brazil, but was an accomplishment celebrated around the world.

Nearby, in Argentina, President Cristina Kirchner has problems of her own.

Foster’s legacy may not fare well. She may have failed to quell the chaos unleashed by very necessary investigations into shady dealings at Petrobras, but, based on information disclosed thus far, did not engage in dealings herself.

In a time like this, when the market gods require a sacrifice, everyone must go. There is a long list of heads that could, and may still, roll for what’s allegedly transpired. Foster may be the big name that will calm the hysteria in the short-term, but it’s unlikely to fix a much bigger problem that has dogged Brazil for ages.

Next week, Cariocas will don a Gracas Foster-inspired Carnaval mask, which have been flying off the shelves as the Petrolão heats up. An honor, or that’s how it was sold when a mask of Joaquim Barbosa, the Afro-Brazilian supreme court judge of Mensalão fame, was the must-have mask of 2012. Foster may be reduced to a Carnaval novelty, but let’s hope the change she represented for women does not go the same way she went.

The world expected Brazil’s state oil industry to oversee a boom driven by offshore reserves. But Petrobras is stuck between a rock and a hard place, as the government has needed to use the company to combat the eternal threat of inflation, grinding relations with the investors the industry needs.

By Dom Phillips

Graça Foster, CEO of Brazil’s state controlled oil giant Petrobras, was in this newspaper yesterday, doing some fire fighting. The reason was the fallout from the price rises Brazil announced just over a week ago – 4% for gasoline and 8% for diesel. This might not seem like a such a big deal, apart from the cost to Brazilian motorists, but it was front page news in Brazil.

This was not just a price rise. It is part of a political and economic battle that goes to the heart of how Brazil is run. And the analysts and observers who make their livings telling their clients what this sort of thing means were not very impressed.

Here’s why. Brazil used to export oil, but it doesn’t any more because it hasn’t got enough for itself. One reason is that a lot of cars keep being sold, in part because of credit people can get to buy them, in part because the government historically bet on cars rather than trains – there are hardly any here – and in part because the government has sometimes zeroed sales tax on cars to stimulate the economy.

Brazil doesn’t have enough gasoline and diesel to go round – so it has to import it. This process is controlled by Petrobras, the state-controlled oil company. But the government, which effectively controls Petrobras, makes the company keep prices low to keep inflation down. As a result Petrobras has been hemorrhaging cash by subsidising gas and diesel for the local population. Petrobras shareholders have gotten itchy.

Brazil is still traumatised by the hyperinflation it went through in the 1980s and early 1990s and ever since the financial system stabilised under presidents Fernando Henrique Cardoso and Luiz Inácio ‘Lula’ da Silva, the spectre of inflation’s return has haunted the country. Inflation is deeply unpopular in Brazil, especially amongst the poor, and has been hovering around the maximum the government says it can tolerate for some time. The government has been forced to take some very difficult measures to stop it going up any further. And the strategy Brazil has used with Petrobras has cast a shadow over what looked like a very promising oil boom just a few years ago.

The company has $237.7 billion of investments in its 2013-2017 business plan – much of will go to equipment to exploit the ultra deep water, ‘pre-sal’ or ‘sub-salt’ reserves that Brazil has off its Atlantic Coast. Another big chunk of it is going to refineries that it is building because it can’t actually refine enough gasoline and diesel. Petrobras is stuck between a rock and a hard place – losing money hand over fist, but unable to put the prices up more than once or twice a year when the government says it can.

The narrative played out like this. In October, Petrobras said it was going to adopt a new system in which domestic prices would automatically readjust to international prices. The market liked this and Petrobras shares went up. Petrobras had a board of directors meeting to decide all of this marked for November 22. Then everything changed.

We don’t actually know what happened, but according to Brazilian media and newspapers like this one and business daily Valor, generally quoting anonymous sources, the government did not like the Petrobras plan one bit. Automatic fuel price rises could impact badly on inflation – and that could impact badly on a government up for re-election next year.

The Petrobras board meeting was postponed for a week. Then after the meeting happened, on November 29, the company announced the price rises and said had introduced a new pricing mechanism, but that it wasn’t going to tell anybody what that mechanism was.

This looked like there was no new policy at all and that price rises would continue happening as and when the government decided – just as they had been. Shares fell. Analysts were very critical. At the Itaú BBA bank analysts said the difference between international and domestic prices remained at 22% for diesel and 17% for gasoline and that Petrobras would lose Real 6 billion ($2.57 billion) on imports in 2013.

It had been painted as a battle between Finance Minister Guido Mantega fighting an anti-inflation platform on one hand, and Petrobras CEO Graça Foster on the other, trying to stop her company’s losses with imports. The thinking is: Mantega won, Foster lost. Although Foster denied anything of the sort in her interview – insisting the relationship remained positive.

Whatever the personal relationships involved, this had been a financial, political and philosophical battle at the heart of Brazil. Capitalists say that Petrobras should try and make as much money as possible for its shareholders. Statists say it should do what will benefit Brazil. Cynics say the government uses it as a tool to benefit politicians. All of them have a point.

Foster, smiling in her interview photograph, said the drop in share price had been awful but overall, she insisted everything was fine. There might be price rises in 2014, she said. And she had no plans to quit. “The days are extremely long,” she said. “You have every kind of problem and every kind of good news.”

The famous friendship between Petrobras CEO Graça Foster and President Dilma Rousseff had not worked in Foster’s favour. But inflation might not go up as much as was feared. Brazil still does not have many trains but it does have plenty of traffic jams. Rousseff leads the polls to win next years election. And the Petrobras Downstream department – that’s the one that deals with refining and imports – keeps losing money.

But this is about much more than just the fate of 17 unhappy executives at Chevron, the major US oil company. The project to extract oil from Brazil’s offshore “pre-salt” reserves is arguably the most important challenge this country is facing over the next decade. The future of Brazil’s economy likely depends on its success as much as anything else.

Understandably, much attention has been focused on Brazil’s preparations to host the World Cup in 2014 and the Olympic Games in 2016. But compared to the country’s oil plans, those investments are tiny.

One expert put it this way in my Los Angeles Times piece in December:

“This will be one of the largest investment projects in all of human history,” said Pedro Cordeiro, an oil expert at the Bain & Co. consultancy in Sao Paulo. “Putting a man on the moon, for example, cost 30% less in current terms than will be spent [on Brazil’s oil project] in just the next five years.”

So it was understandably a source of considerable concern when one well (though not a “pre-salt” well) sprung a leak in November, and then it seemed like operator Chevron had misrepresented the problem.

Brazil needs to find a way to efficiently extract the offshore oil deposits, while maintaining high environmental standards, but without scaring off international investors or partner companies. This is a tricky balance to strike.

Reuters today reported that the 17 employees could face charges Wednesday relating to safety standards, and cited experts that implied Brazil might be coming down too hard on Chevron, with the potential to slow down extraction plans or scare away other companies.

For example:

“We are in uncharted territory,” said Cleveland Jones, a Brazilian oil geologist at the State University of Rio de Janeiro. “Do we want better environmental standards? Yes. Did the environment get really hurt? No. If you applied the same standards to the whole industry, you’d probably have to shut it down, and we aren’t applying the same standards to others.”

and

The Chevron leak was less than 0.1 percent of BP’s massive spill and no oil reached shore, raising concern from Chevron and others that the charges may be politically motivated or unfair.

and

Much larger and more damaging spills by Brazilian state-run energy giant Petrobras, which owns 30 percent of the Frade field operated by Chevron where the leak happened, have not led to criminal charges against Petrobras or its executives.

Is all of this fair? It may be too early to tell. The Reuters documents don’t seem to be comprehensive and we haven’t seen the actual charges. For all we know, the issue is really the claim that Chevron may have lied to the government.

But one thing is certain: all of this matters very much. Like it or not, Brazil is on the path to become more of a petro-economy, and if this does not go according to plan, a lot of money will be lost. If you care about the hard numbers behind the Brazilian economy, take your eyes off the football pitch and look deep below the ocean’s surface.

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