Wednesday, December 31, 2014

We need more rigour in the evaluation of Petrobras

There is little dou that Petrobras is in trouble. The current government (and previous administrations?) most likely used it to secure political funding and other corruption activities. This is unfortunate for many reasons, including that it hurts the credibility of one of the best public companies in Latin America. Yet in considering Petrobras´s current situation, we should distinguish more clearly between what we know and what we don´t know and stop mixing things up. The problem of corruption is quite different to the potential existence of productive inefficiencies or to the use of Petrobras as an instrument of industrial policy. Petrobras may still be a useful instrument for industrial policy (I have not seen any evidence to the contrary yet) even if there is corruption at the same time. Unfortunately this is not the way the mainstream press (and many mainstream economists) analyze the situation. Take a recent FT article here. . In describing the current situation, an opposition observer argues that "“At the end of the day, all of this is happening because the PT (Workers’ party) has fostered monopolies and, to a certain extent, cartels which generate inefficiencies and an atmosphere that is conducive to corruption". Yet there is no evidence that this is the case, that is, using Petrobras as a monopolistic instrument of industrial policy has nothing to do with corruption. You can do one without the other. In fact, I am still hopeful that the policies of local content requirements that Petrobras have used end up being successful.

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