Political Risk Latin America Blog @PolRiskLatam

Chile and Colombia play it cool on bonanza spending

Posted in News and Articles by politicalrisklatam on August 25, 2010

by Henry Mance for Financial Times, August 23rd, 2010.

Counter-cyclical spending has never been popular in Latin America. As a new IMF paper argues, the region’s governments have spent as they have received – in the boom years.

So, with the continent’s economic recovery picking up and commodity prices set to remain high, why are Chilean and Colombian politicians talking about austerity?

Colombia’s new finance minister says “austerity will be the new buzzword” of the Santos government, while his Chilean counterpart proudly pledges that “the economy will grow faster than public spending on average [during Sebastian Piñera’s four-year administration].”

Chile’s approach is less surprising – as those familiar with Michelle Bachelet’s windfall fund will know. Yet prudence predates Bachelet. The IMF analysis by Leandro Molina finds that since 1995 Chilean government spending has been unchanged in the face of commodity price shocks – putting it on par with developed commodity exporters like Australia and New Zealand. At the other end of the scale is Venezuela, whose spending has correlated dramatically with higher commodity prices. (continue reading… )

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