Brazil runs the risk of becoming highly dependent on natural-resources exports
A leading Brazilian economist Edmar Bacha, one of the architects behind the 1994 Plan Real to stabilize Latin America’s largest economy said the country was at risk of becoming entirely dependent on natural resources exports and urged greater savings to invest in diversification.
“I think the main challenge is that we may not know how to manage wealth generated from natural resources. Wealth that will be greater in the future when Brazil begins exploiting the very deep oil offshore”, said Bacha in an interview with O Estado de Sao Paulo published Sunday.
“We need to take the necessary measures so as not to fall into the ‘curse of natural resources’ suffered by countries such as Venezuela and Argentina when the discovery of raw materials created sudden wealth “that is not the result of previous work, of the accumulation of capital or the improvement of human resources” underlined economist Bacha.
The solution lies in “using this great opportunity of increasing raw materials revenue to augment the savings rate and invest not only in infrastructure, but also in the diversification of the economy and the improvement of education,” he said.
“Because in that way, at some time we will have a more solid economy that will not depend only on raw materials” economist Bacha said, adding that the keys to sustainable growth are “savings, technology and education”.
“We have serious problems. The quality of education in Brazil is terrible and we’re not a very innovative country. Also, the savings rate is very low, too low” Bacha said.
The economist then mentioned Chile and Norway as examples of good management of natural resources income surpluses. “Both countries created sovereign wealth funds that help contain overvaluation of their currencies while the returns are used to promote economic diversification”.
Prices of raw materials, although they can suffer temporary setbacks because of the developed countries’ slowdown will keep increasing because of demand from countries such as China and India that have become the “centre of the world” argued Bacha..
The extraordinary expansion of the Brazilian economy in recent years has been based mainly on raw materials’ exports that help accumulate international reserves but also appreciate the local currency and limit competitiveness.