Can Brazil avoid the curse of its enormous new oil discovery?


In late August, Brazilian President Luiz Inácio Lula da Silva shocked foreign oil companies with a plan that would ensure a larger role for Brazil in exploring new oil reserves -- and a bigger share of the world's oil profits. Declaring this initiative as part of a move towards Brazilian economic independence, Lula said the profits would go to a new government development fund that would provide social services and payments to Brazil's still largely poor population. Naturally, Brazilian state oil company Petrobras (PBR) would play a large role.

But sudden oil wealth can do very bad things to a country, wrote Moisés Naim, editor of Foreign Policy, in a recent edition of the Financial Times -- unless, as economist Paul Collier notes, that nation has a political culture and structure strong enough to withstand the temptations of corruption created by a big injection of oil cash. Many countries that have experienced a sudden onslaught of huge natural riches has resulted in a stunted economy and a suffering populace. Brazil has become a solid democracy at the national level, but corruption remains endemic and highly visible. Can Brazil handle this gusher?