icy are compounded by the intrinsic characteristics of these
commodities. The countries in which non-renewables account for over
20% of exports include the Bolivarian Republic of Venezuela, Bolivia, Chile,
Colombia, Ecuador, Mexico and Trinidad and Tobago. This article reviews
the relationship between the improvement in these countries terms of
trade and the fiscal policy challenges they are having to cope with. To this
end, it analyses the importance of the role played by the exploitation of
these commodities, reviewing changes in their prices and their impact on
the terms of trade. It also considers the performance of these countries
in relation to the main characteristics of fiscal policy in the region and
analyses developments in the public accounts following recent price rises,
with emphasis on their impact and the policy decisions taken.
Juan Pablo Jim�nez
Economic Affairs Officer,
Economic Development Division,
ECLAC juanpablo.jimenez@cepal.org
Varinia Tromben
Research assistant,
Budgeting and Public Management
Area,
Latin American and Caribbean
Institute for Economic and Social
Planning (
ILPES
)

varinia.tromben@cepal.org C E P A L R E V I E W 9 0 D E C E M B E R 2 0 0 6
60
FISCAL POLICY AND THE COMMODITIES BOOM: THE IMPACT OF HIGHER PRICES FOR NON-RENEWABLES IN LATIN
AMERICA AND THE CARIBBEAN JUAN PABLO JIM�NEZ AND VARINIA TROMBEN
Latin America and the Caribbean has traditionally
been an important supplier of energy and mineral
resources. The region accounts for 13% of the worlds
oil production and possesses 10% of world reserves,
while Chile is the leading copper producer and exporter,
accounting for an average of 35% of world output. For
this reason, the recurrent uctuations in the prices of
these commodities have a signicant impact on the
economies of the countries specializing in them.
Among the many dilemmas raised by this situation,
there are two main questions that have to be addressed
by scal policymakers in boom periods. The rst is how
to transform windfall income into scal revenues, and
the second is how to use the scal surpluses generated
while avoiding the macroeconomic problems that such
periods of high prices usually create.
Concerning the rst question, the decision as to
which tools to use will depend mainly on whether
the non-renewables are publicly or privately owned.
The most direct way of turning the exploitation of
these commodities into scal revenue has been for
governments to participate in their extraction through
publicly-owned companies. When they are privately
owned, scal revenues from these sectors are obtained
through a combination of tax instruments covering
the exploitation and marketing of the non-renewables
concerned: royalties and taxes on income, prots and
capital gains applied to the companies exploiting
resources of this type. Furthermore, over the past few
years, as prices have risen strongly, some countries
have introduced new instruments: Chile established its
special tax on operating income from mining activities
and Bolivia approved its direct tax on hydrocarbons
and their derivatives.
The second question concerns the role played
by fiscal policy in stabilizing the economy. In this
connection, it is often recommended that during
economic boom periods the scal authorities should
influence the level of activity by restricting public
spending, whereas in periods of recession scal policy
should contribute to the reactivation of the economy.
Accordingly, the usual recommendation is that
scal policy be designed with this stabilizing function
in mind. The goal of policy should be to decouple
changes in revenue, which is strongly inuenced by
the economic cycle, from changes in spending. The
countries in the region have sought responses of
different kinds, ranging from discretionary scal policy
decisions to more institutionalized mechanisms such as
scal rules or stabilization funds.
In recent years, furthermore, coinciding with the
upward trend in prices for mineral and energy goods
and the consequent impact on fiscal revenues, the
countries have been discussing different mechanisms
for regulating the use of the resulting surpluses.
With these objectives in mind, this paper has been
organized as follows. The next section analyses the
importance of non-renewables in the region (section
II). This is followed by consideration of changes in
the prices of these commodities over the last few years
and their impact on the terms of trade for countries
specializing in them (section III). The performance
of these countries is examined in relation to the main
characteristics of scal policy in the region, and there
is an analysis of developments in the public accounts in
response to the price increases of recent years, stressing
their impact and the policy decisions adopted (section
IV). Lastly, section V contains a number of conclusions
relating to the scal policy applied by these countries
and their recent experience.
I
Introduction
As was abundantly clear in the eighteenth century to those who pondered
the enigma of this gigantic empire dominated by one of the
most archaic nations in Europe, what had driven the
conquistadores was the search for precious metal
Halper�n Donghi (1990)
The authors wish to express their appreciation for the comments
of Omar Bello, Guillermo Cruces, Osvaldo Kacef and Ricardo
Martner, as well as the observations of an anonymous referee on a
preliminary version of the article. All opinions, errors or omissions,
however, are the sole responsibility of the authors. C E P A L R E V I E W 9 0 D E C E M B E R 2 0 0 6
61
FISCAL POLICY AND THE COMMODITIES BOOM: THE IMPACT OF HIGHER PRICES FOR NON-RENEWABLES IN LATIN
AMERICA AND THE CARIBBEAN JUAN PABLO JIM�NEZ AND VARINIA TROMBEN
Latin America has traditionally been a key supplier of
commodities to the world. The earliest
ECLAC
works
already refer to the regions importance in this role.
1
As
gure 1 shows, commodities continue to account for a
substantial proportion of the regions total exports.
Despite the significant efforts made by the
countries of the region to diversify exports over the last
few years, one or two commodities continue to account
for a major share of the export total in many of the
countries. Table 1 shows commodities accounting for
over 10% of each countrys exports in 2004.
The countries specializing in non-renewable
exports (including energy and mineral goods, referred
to hereafter as non-renewables) include, principally,
the Bolivarian Republic of Venezuela, Bolivia, Chile,
Colombia, Ecuador, Mexico and Trinidad and Tobago.
These countries can be classied into three groups by
the average share of such products in their total exports
(copper in Chile, hydrocarbons in Bolivia and Trinidad
and Tobago, oil in the other countries) over the 1980-
2005 period (gure 2 and table 1):

The rst group includes the Bolivarian Republic
of Venezuela and Trinidad and Tobago. For the
II
The exploitation of non-renewables
in the region
FIGURE 1
Latin America and the Caribbean: Commodity exports, 1986-2004
(Percentages of total exports)
Source:
ECLAC
, using information from the Commodity Trade Database of the United Nations Statistics Division (
COMTRADE
).
1
In The Development of Latin America and its Principal Problems,
we nd the following assertion: Under that schema the specic
task that fell to Latin America, as part of the periphery of the world
economic system, was that of producing food and raw materials for
the great industrial centers. (Prebisch, 1950).
100
80
60
40
20
0
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Energy goods
Mining goods
Agricultural goods and foods
(
P
e
r
c
e
n
t
a
g
e

o
f

t
o
t
a
l

e
x
p
o
r
t
s
) C E P A L R E V I E W 9 0 D E C E M B E R 2 0 0 6
62
FISCAL POLICY AND THE COMMODITIES BOOM: THE IMPACT OF HIGHER PRICES FOR NON-RENEWABLES IN LATIN
AMERICA AND THE CARIBBEAN JUAN PABLO JIM�NEZ AND VARINIA TROMBEN
TABLE 1
Latin America and the Caribbean: Countries dependent
on a commodity export, 2004
(Percentages of each countrys total exports)
Commodity
Over 50%
Between 20% and 49%
Between 10% and 19%

of total exports
of total exports
of total exports
Energy goods
Crude oil and oil products
Venezuela (Bol. Rep. of)
Barbados (35.4%), 2003
Argentina (14.3%)

(81.5%)
Colombia (25.2%)

Ecuador (53.2%)
Mexico (38.3%)
a


Trinidad and Tobago


(38.5%), 2003
Natural gas

Bolivia (27.7%)


Trinidad and Tobago


(20.6%), 2003
Mineral goods
Bauxite and aluminium
Jamaica (65.6%), 2002
Coal


Colombia (10.6%)
Copper

Chile (46.1%)
Peru (19.6%)
Gold


Peru (18.6%)
Agricultural goods
Coffee


Guatemala (11.2%)



Honduras (18.4%)



Nicaragua (17.4%)
Bananas

Dominica (20.5%)
Costa Rica (9.3%)



Ecuador (13.2%)



Honduras (11.3%)



Panama (12.2%)
Soya

Paraguay (42.4%)
Argentina (11.8%)
Fish

Panama (38.5%)
Crustaceans and molluscs

Belize (25.7%), 2003
Panama (14.6%)
Beef (cattle and meat)

Uruguay (20.6%)


Nicaragua (20.1%)
Source:
ECLAC
,