Editor at Global Trader
Post date: Monday, 16th May 2011
Brazil’s government could be excused for taking more than just a prurient interest in the accusations levelled at Dominique Strauss-Kahn, the head of the International Monetary Fund, in New York.
Prior to the weekend the IMF told Brazil that it was being a very naughty boy. It’s crime? Making too much money from its commodities and enjoying too much growth but not reinvesting the windfalls into infrastructure and failing to control public spending and personal debt.
However at the same time as the rebuke was still ringing in the ears of the Brazilian politicians, who were probably feeling quite satisfied that the country was free of the slump gripping most of the western world, the IMF was being rocked by the charges of sexual assault and attempted rape against its chief.
Tipped by most observers in his home country France to run for the opposition socialist party against president Nicolas Sarkozy in the 2012 elections, Strauss-Kahn, who is taunted with being a ‘Caviar Leftist’ by his critics, was arrested after accusations from a chambermaid at the Sofitel Hotel in New York.
The former French finance minister has denied all the charges and has even agreed to undergo a forensic examination – his supporters have gone as far as suggesting that it is all part of a conspiracy to discredit him by the ruling French government – but whatever the outcome it is likely to taint the credibility of the IMF hierarchy and could scupper Strauss-Kahn’s political ambitions.
And it may mean that Brazil is less inclined to listen to advice from the powerful arbiter of economic good sense, although even Brazil’s most optimistic commentators would acknowledge that Brazil’s boom could turn to bust if the country starts to believe too much in its own PR.
Even the news on Friday that state-owned oil company Petrobras enjoyed a profit hike of 42 per cent in the first quarter compared to last year was tempered with fears about inflation.
Coming on the back of increased oil prices, the rise in profits, while good for the company and the country’s coffers, is helping to fuel inflation as Petrobras pass on the cost to Brazilian consumers who are also indulging in a spending spree thanks to easy credit and increased prosperity.
As a result the government has told the company’s bosses that it should sacrifice having such a bumper income and cut the price of petrol at the pumps – not advice entirely independently-owned oil companies, such as Shell or BP, would take kindly to.
Petrobras would argue – and many politicians would agree - that it needs all the money to fund its increasing exploration programme, especially off the south-eastern coast of Brazil.
Either way, it’s a difficult balancing act to pull off, but one that could have profound effects for years to come, as anyone who looks at Norway with open-mouthed awe will agree. Since that country discovered its vast reserves of oil and gas, it has invested in a fund worth well over $500 billion.
Consequently the country has no deficit and once that rainy day comes when there’s no more oil and gas in the North Sea, then at least Norway will have plenty to fall back on, and being Norwegians, they’re already highly prepared for a world without oil.
But Brazil isn’t Norway – is anywhere? - and its people are more associated with spontaneity and enjoyment rather than planning and caution, so perhaps a similar oil fund can be discounted pretty easily, although the IMF’s words of wisdom, regardless of whatever moral high ground may be crumbling from under its feet, could come back to haunt it if nothing at all is done.