Global Insider: Brazil Attempts to Balance Interests in Growing Oil Revenues

Global Insider: Brazil Attempts to Balance Interests in Growing Oil Revenues

Brazilian President Dilma Rousseff recently issued a partial veto for a bill that would distribute a greater share of oil revenues to Brazilian states that are not oil producers. In an email interview, Fernando Antonio Slaibe Postali, a professor of economics at the University of São Paulo, discussed Brazil’s oil revenue distribution policy.

WPR: What is at stake in the efforts to craft revenue-sharing legislation in Brazil?

Fernando Antonio Slaibe Postali: When the current rules where designed, in the mid-1990s, the revenues involved were small, because oil prices were low and the Brazilian exchange rate was fixed. (Oil royalties are calculated in U.S. dollars and depend on international prices.) So the distribution of these resources to only a few locations did not seem to be a problem. From 2000 on, these revenues increased greatly due to the increase in international oil prices and the change to Brazil’s exchange-rate regime in 1999. Under this new scenario, the noneligible Brazilian states started to fight for increasing their share of oil royalties. The presalt oil discoveries intensified this tendency, and Brazilian legislators have begun to propose bills in order to correct the asymmetric distribution of oil windfalls. Meanwhile, the current legislation, created in 1997, does not contain specific rules for the use of this kind of revenue, which gives rise to misunderstandings and misuse of revenues.

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