Brazil: Another quiver in its bow

Brazil's President Lula with Petrobras's CEO and Lula's Heir-Apparent, Dilma Rousseff  Source: Latin American Herald Tribune
Brazil’s President Lula with Petrobras’s CEO and Lula’s Heir-Apparent, Dilma Rousseff Source: Latin American Herald Tribune

Brazil’s persistent economic weakness over the years has been its external balance sheet — heavy indebtedness to foreigners, weak foreign trade sector, and low external liquidity (e.g. low fx reserves).  This was in addition to a heavy government debt burden (government borrowing abroad in fact drove the fragile balance of payments), a poor business climate (a huge tax burden, heavy regulation and a state-dominated economy) and huge social challenges (e.g. poverty, wealth inequality, crime). 

Yet since the arrival of President Fernando Henrique Cardoso in 1994, whose stabilization and market-oriented policies were largely continued by President Lula since 2002, Brazil has improved somewhat on all these fronts.  What has changed like night to day is the external balance sheet  — as the country’s diversified commodity exports have fueled growth of such economic smokestacks as China.  Brazil, traditionally an energy importer — both hydro and fossil — due to its heavy consumption needs, has recently become a net oil exporter.  No longer do higher energy prices mean balance of payments problems for Brazil, but rather rising fx reserves. 

And, the news keeps getting better. With the technology available for deep-sea drilling, Brazil is set to become a quite sizable oil exporter (read a NYTimes article on the subject).  Petrobras, the part-government-owned energy company, is set to take the lead in developing the deep-sea fields.  It is no accident that Lula’s heir-apparent, Dilma Rousseff, is chairwoman of the board of directors of Petrobras.

Brazil’s fx reserves should continue to mount, providing an almost China-like fortress against external shocks.   This should provide the country with the room it needs to confront its other ills, enumerated above, and move higher and higher among the ranks of today’s Rising Powers.

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