Wednesday, 3 September 2008

Nationalistic Tendency Could Be the Wrong Strategy For Brazil

The Brazilian government is currently debating proposals to further its share in the country's oil industry. Petrobras, the largest oil producer in Brazil, is currently owned by both government and private sectors. However, following the recent discoveries of the Tupi field, the government is considering increasing its ownership rights into what will most definitely be a very profitable venture. A separate state owned oil company may therefore be set up in order to manage the country's oil exploration and production contracts in the subsalt cluster. Under this system, the government would own the oil but pay companies with part of the proceeds. Surely, Lula's administration is interested in using most of the 'oil money' to resolve social problems:

"The priority for the resources from pre-salt fields will be education and the eradication of poverty,'' Lula said in a speech to celebrate Brazil's independence today. "We'll turn perishable wealth, such as oil and gas, into a permanent source of wealth for the Brazilian people."

However, such nationalistic tendencies could send the wrong message to international investors who are willing to invest in the country. Protectionism is more of a foe than a friend of economic development and given the current global financial malaise, it would wiser to adopt liberalisation as the government's economic policy. In any event, it is first necessary to determine precisely how much oil there is before embarking on how it is likely to be shared.

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