Tuesday, February 28, 2012

A Lesson to Learn from Chile vol.2

From today's FT comment section, an article by the finance minister of Chile:

Chile, for example, runs fiscal policy according to a structural rule whereby spending is determined by anticipated revenue, which depends on an independent committee’s estimates of the long-term copper price and potential output growth. Fiscal policy is countercyclical, resulting in a surplus in the good times and a deficit in the bad times. The rule has allowed Chile to accumulate more than $20bn (about 9 per cent of GDP) in sovereign wealth funds, most of which can be used in case of significant shocks.

[...] These elements are at the core of the contingency plan we have been designing in Chile during the past few months. At recent meetings with my emerging market colleagues, especially from Latin America, we have discussed the design of contingency programmes that will enable us to respond effectively should the international outlook deteriorate further. In this way, emerging markets can not only help themselves but also help cushion the rest of the global economy. In other words, we now have a clear opportunity to be part of the solution instead of being part of the problem.

Addendum: Lesson vol.1


Confidence of Youth said...

I guess it will be quite hard to start a fund like one Chile did since our politicians are more populist than we can ever imagine. Just look at what they have done in regard to student scholarships. It covers everyone and anyone that will be enrolled in private as well as public universities and colleges. At least that's what I understood. So once surplus pours in, I can imagine what the populists can think of to disperse it. Maybe give $5 again for every goat, every sheep and $10 for horse.
Nevertheless, those can grasp that mineral resources are in limited quantity and whether we want or not, it is exhaustive, should fight to stop the nonsense and pursue a real policy that actually help the country in the dark times. The fund is a must, but how can we implement it rather than just create an another useless law in regard to it. I think execution is what we should worry about. :)