Lula and Petrobras

I had a pleasant exchange with an intern – in the end a class of interns – at the Brazilian newspaper “O Estado de São Paulo” a couple of weeks ago.  The questions were insightful. I tried to answer in an informative and direct manner.  Indeed, things are not going well at Petrobras lately, and looking at the politics of Pdvsa and Petrobras next to one another is a useful exercise. Here’s the interview.

1) Do you agree that PDVSA and Petrobras have both had political mishaps in their administrations? Why?

Yes. Hugo Chavez used Pdvsa as the “goose that lays the golden eggs.” However, he took so much from Pdvsa — especially to support his frequent election campaigns, before each of which he increased public spending to win votes — that the “goose” has been left to starve.

Chavez’ revolution was, in his own words, an “oil revolution” and “oil socialism.” However, he did not understand how to run the national oil company. While he distributed largess from the country’s oil wealth to the poor, he was incapable of introducing a new, higher productivity of labor in Venezuelan society, which is what any real social revolution requires for success. He left the country in a very dangerous situation with a shortage of foreign exchange. If the price of oil falls further due to a US & EU accord with Iran and/or an improvement in the oil production situation in Libya, and Iraq, then Venezuela will face a deep crisis.

Petrobras too, under Lula, began to be viewed as a cash cow after it discovered the pre-salt. As a president. Lula was much more competent organizationally and in economic matters than Hugo Chavez. However, Continue reading →