Questão 3399

(Cesgranrio - 2008)

Oil could transform Brazil’s economy. But not necessarily for the better

The legend is that Brazil never lives up to its vast potential. When Stefan Zweig, an exiled Austrian writer, said in 1941 of his new home that it was the “country of the future”, popular humour quickly added “and it always will be”. More [5] recently, when Goldman Sachs classified Brazil together with Russia, India and China as the “BRIC” countries that collectively represent the world’s economic future, there was much complaining that its mediocre rate of economic
growth condemned it to be an intruder in such dynamic [10] company.

Yet there are reasons to believe that South America’s economic powerhouse of 190 million people is starting to count in the world. Economic growth has risen steadily, to 5.4% last year. That is modest by Chinese standards — [15] but the comparison is misleading. Brazil enjoyed Chinese rates of growth in the third quarter of the 20th century.

That was when it was almost as poor as China. It is much harder for a middle-income country, as Brazil now is, to grow at such rates. And now it looks as if Brazil will [20] become an oil power, too.

Brazil’s previous growth boom was derailed by debt and high oil prices, a collapse that obliged its then military government to give way to civilian rule. The early years of restored democracy saw chronic inflation, economic torpor [25] and political drift. In the past decade and a half, however, under reforming democratic governments, Brazil has conquered inflation, opened a protected economy to the world and begun to tackle its social problems. Poverty and inequality are falling steadily.

[30] All this has gradually created a new mood among business people. Brazilian companies, traditionally inward-looking family-owned affairs, are going to the stockmarket to raise funds, in many cases to finance expansion abroad. Some, such as Vale, the world’s second-biggest mining company, [35] and Embraer, its third-largest maker of civilian aircraft, both privatised in the 1990s, are well-known. A string of others are about to become so.

Many of these companies are linked to agribusiness or other primary commodities. Additionally, some economists [40] argue that Brazil is the beneficiary of a structural shift, in which the industrialisation of Asia and the rise of a newmiddle class in the developing world will keep commodity prices high. Besides, Brazil produces more than just soyabeans. It has a lot of manufacturing industry too. And [45] its newly discovered offshore fields of oil and natural gas
may turn out to be bigger than those in the North Sea in the 1960s.

Oil wealth is lovely, of course. But it is also a cause for concern. The worry now is that a bonanza of oil will weaken [50] an already infirm resolve to dig deeper into the economy’s structural problems. These difficulties include an oppressive tax system and a labour code that makes firms cautious in hiring. Between them these have confined some 40% of the workforce to the informal economy. [55] Compared with its past, Brazil is indeed doing much better. But before oil euphoria kicks in, Brazil’s leaders should ask themselves why so many other countries have made bigger returns from a much smaller natural endowment.

Apr 17^th 2008 
From The Economist (print edition)

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