Brazil as Petro-economy

November 23, 2008

Ever since the announcement of the discovery of Brazil’s Tupi oil field earlier this year, I haven’t really taken the time to think about the political implications of the new-found reserves. This article from the Christian Science Monitor is suggestive in that regard. Unfortunately, the piece hews to a decidedly optimistic storyline about how the income will pay for new social welfare programs. That’s all well and good, but let’s take off the rose-tinted glasses long enough to consider at least a few of the less attractive alternatives.

I share the view that Brazil’s new-found oil wealth will bring about transformative changes within the country’s economy, its state, and its society. The infusion of cash will indeed open up untold opportunities for closing Brazil’s notorious wealth gap. It will also further entrench Petrobras – already one of the largest firms in the Global South – as a worldwide energy-production leader. To the extent that these opportunities are managed effectively, Brazil will gain in influence, wealth, and international prestige.

However, to the extent that the Petrobras windfall is managed poorly and generates unanticipated spillover affects, it could easily produce a catastrophe. The sudden surge in income will likely give Petrobras executives and investors even more political clout than they already have, leading to increased opportunities for corruption (already a neverending problem in Brazilian politics), graft, and nepotism within the state. Furthermore, only an immense amount of well-channeled political goodwill can prevent the expansion of Petrobras from encroaching on the political interests of Brazil’s other burgeoning industries and its most vulnerable citizens.

This is not about simple optimism or pessimism, but rather about the realities of imbalanced petro-economies. The reasons why other oil-rich nations have such a horrendous track-record in terms of political accountability, transparency, and inequality has a lot to do with the pressures that a burgeouning state-owned energy sector tends to place on the rest of the state and private sector. Just because Brazil has enjoyed sustainable growth and social progress since the mid 1990’s does not mean that it has somehow “advanced” beyond the point at which its oil might prove more troublesome than its worth.

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