RIO DE JANEIRO -(Dow Jones)- Brazil's soaring real currency is reducing the ability of local manufacturers to compete and causing Latin America's largest economy to edge closer toward an economic phenomenon known as "Dutch disease," according to the chief financial officer of state-run energy giant Petroleo Brasileiro (PBR, PETR4.BR), or Petrobras.

In an interview published in Monday's edition of the Valor Economico business daily, Petrobras's Almir Barbassa said that the appreciation of Brazil's real had undercut the company's ability to use local content in its operations and pushed the country "very close" to Dutch disease. "We have to find ways that allow us to increase manufacturers's ability to compete," Barbassa said.

Petrobras's press office confirmed the CFO's comments.

Brazil's government has been vocal about using recently discovered offshore oil fields to foment industrial growth, particularly in the oil and natural gas sectors. Officials have routinely pointed to Norway's development of the North Sea oil fields as a model in order to avoid the de-industrialization that took place in the Netherlands after a large natural gas field was discovered there in the late 1950s.

Concession contracts require Petrobras and other oil companies operating in Brazil to use a certain percentage of domestic goods and services. The limits, however, can cause costs to climb because the locally produced goods and services are more expensive than what is available abroad -- in large part because of the real's recent appreciation. The real currency is up 6% against the U.S. dollar so far in 2011, and it is up more than 20% over the past two years.

One of the ways Petrobras is attempting to beef up the local supply chain is by opening funding channels that allow manufacturers to use their contracts with the oil company for loan guarantees. That would also free up cash that Petrobras currently pays up front to suppliers with scant access to financing.

Brazil also recently announced a package of tax cuts and anti-dumping regulations aimed at supporting local manufacturers in key sectors that are suffering from competition with cheaper imports.

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