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RIO DE JANEIRO. In 2007, Brazilian geologists made the biggest oil find in the Americas in three decades. Buried more than eight kilometres below sea level, the discovery was estimated to raise the country’s crude reserves by 62%.
Brazil was already the world’s natural-resource powerhouse: its biggest exporter of coffee, sugar, orange juice and beef. The prospect of it becoming a major energy power as well prompted then-President Luiz Inacio Lula da Silva to declare amid a rush of patriotism that “God is Brazilian.”
Brazil has struggled for half a century to break its dependence on commodities, grappling with the socalled resource curse. Depending on how profits are managed, the new oil wealth could be a godsend that drives a new era of development or a burden that holds the nation back, said Alberto Ramos, a senior Latin America economist at Goldman Sachs Group Inc. in New York.
“They can be Norway, or they can be many other countries where oil did not bring growth and development,” Mr. Ramos said in a telephone interview. “You’d better be smart and forward-looking about using it, otherwise it might hurt you.”
Demand for food and metals for an industrializing Asia has tripled commodities prices in the past decade, helping Brazil overtake Italy and Spain to become the world’s sixthbiggest economy. Higher prices for Brazilian iron ore and soybeans, and an almost sevenfold rise in foreign direct investment, have helped the real double over the same period, making it the best performer of 163 currencies tracked by Bloomberg.
The benefits of the resource boom are widespread. It helped millions of Brazilians out of poverty and drove down the country’s net debt to 37.2% of gross domestic product, from 60.4%. Germany’s debt-to-GDP ratio is 83.2%.
Still, commodity price swings can be volatile, making resource-rich economies vulnerable, and efforts devoted to commodities can stifle growth elsewhere. Most productivity growth in a developing economy comes from manufacturing, not agriculture or resource extraction, said Neil Shearing, an emerging markets economist at Capital Economics Ltd. in London.
Brazil’s industry has contracted for three straight quarters, limiting growth to 2.7% growth last year, the nation’s second-weakest performance since 2003.
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