Architect of Plan Real Says Brazil Needs Education to Avoid Curse of Natural Resources

Edmar Bacha Edmar Bacha, a leading Brazilian economist and one of the architects behind the 1994 Plan Real that stabilized Latin America’s largest economy, says Brazil is 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 daily O Estado de S, Paulo.

“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,” 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 “center 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.

Record Harvest

Brazil lowered 0.1% its estimate for the 2012 harvest that should reach 160.3 million tons, considered a record volume. Overall this year’s harvest should be 0.3% above the 159.9 million tons of 2011, according to data from the Brazilian Geography and Statistics Institute, IBGE.
 
The 2011 harvest was 6.9% greater than the previous year and improved compared to the estimates from last November.

According to IBGE the area dedicated to agriculture this year will expand 2.7% reaching 50 million hectares.

However the soybean crop, Brazil’s number one is expected to see a 0.9% drop in volume to 74.19 million tons because a fall in productivity. Corn should expand 7.9% to 36.8 million tons because farmers have been attracted by higher prices and more acreage was planted, reports IBGE.

Rice production will drop 11.2% to 11.9 million tons because of adverse climate conditions (drought) in the state of Rio Grande do Sul, main producer of the cereal.

The 159.9 million tons of grains and oilseeds of 2011 also marked a record in exports totaling US$ 94.6 billion, up 24% from 2010.

Last year the area planted increased by 4.7% to 48.7 million hectares, 90% of which absorbed by soybeans, corn and rice.

However this year Brazil plans to export grains and oilseeds for the value of US$ 100 billion, which is 5.7% up from the 2011 record, according to Minister of Agriculture Jorge Alberto Mendes Ribeiro.

Mercopress

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