Fri, Mar 25, 2011 - Page 9 News List

Making good use of Latin America commodity boom

By Jose Luis Machinea

Since there is no attribution in countries’ fiscal accounts of income from products linked to natural resources, we can only hazard a reasonably informed guess about how that spending was allocated. Between 2001 and 2002 and 2007 and 2008, social-welfare spending in countries with abundant natural resources increased by around 55 percent in real terms, with spending relative to GDP rising by nearly 3.5 percentage points. Therefore, on a regional level, a large part of the additional resources were used to increase public spending, especially for social security, health and education, in that order.

In some countries, there were also increased subsidies. Argentina, for example, increased subsidies for energy and transport to the equivalent of 3 percent of GDP. Something very similar occurred in Ecuador and Venezuela throughout the decade. In contrast, spending for other objectives — for example, research and development on new products and processes — increased very little.

In short, Latin American countries have used their additional export revenues to pay down debt and increase social spending. Both were necessary, but, with few exceptions, the region is not using the commodity windfall to do what it must: Improve technological capacities sufficiently to ensure that future economic growth does not depend entirely on the fickle fortunes of finite natural resources.

Jose Luis Machinea, former executive director of the Economic Commission for Latin America and the Caribbean and former minister of economy of Argentina, is dean of the School of Government at Torcuato Di Tella University, Buenos Aires.

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