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OECD: The Macro Management of Commodity Booms: Africa and Latin America’s Response to Asian Demand

Authors: Rolando Avendaño, Helmut Reisen, and Javier Santiso
August 2008

An examination of how the Asian-driven commodity boom has affected the way emerging countries pursue macroeconomic policy.

Excerpt: The Asian-driven commodity boom has affected the way emerging countries pursue macroeconomic policy. Raw-material exporters, the subject of this paper, have benefitted from increased revenues and have often used their windfalls to consolidate fiscal positions. Ensuring appropriate fiscal responses in a context of high commodity prices is not a straightforward affair, however, and Africa and Latin America as commodity-exporting regions have shown diverse and often contrasting responses to the question of fiscal management in a time of commodity boom.

This paper seeks to analyse the macroeconomic response of a sample of countries in these two regions, with emphasis on fiscal policy. Using a sample of 56 countries over 1987-1999 and 2000-2005, the authors compare fiscal responses in both regions before and during Asia's current commodity boom. They define selection and control groups for each region, based on the impact of commodity demand and prices in the economy.

The overall assessment of the net macroeconomic policy in these regions is cautiously optimistic. Commodity-exporting countries have realised clear benefits from the current boom, offsetting pro-cyclical fiscal policy and increasing foreign-exchange reserves. They have also broadened their client base for export, retired costly debt and improved credit profiles. Moreover, negative over-specialisation effects that might have resulted from the  commodity boom have been less pronounced than is often feared.

These findings suggest that effective macroeconomic management is possible for resource-rich countries. The success of certain countries' policies in this field is a reassuring sign that shifting global wealth need not be squandered, but can make positive contributions to development.

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