from Follow the Money

More Bolsa Familia, smaller fuel subsidies

November 3, 2006

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That seems to be the IMF’s message to Latin America.    The latest regional outlook lauded programs like Brazil’s Bolsa Familia:

“These and other social assistance programs show considerable progress as a tool for poverty reduction as they successful target spending on the needy.” 

Interestingly, the IMF found that Chile spends more on these kinds of programs (1.5% of GDP for “Chile Solidaro”) than Brazil (which spends about 1% of its GDP).     And that spending on these kinds of programs generally pales relative to the 6.5% of GDP implicit fuel subsidy in Ecuador, where domestic fuel prices are frozen at 2003 levels.

No wonder Ecuador seems to be about the only oil exporter than doesn't have a significant current account surplus with oil close to $60. 

While SUVs may be a big part of the middle-class lifestyle in the US, I suspect cheap gas benefits the upper-income brackets in Ecuador rather more than Ecuador’s middle class. 

Another interesting tidbit in the IMF report:  The productivity of Mexico’s VAT is only ½ that of Chile’s.   Even Argentina does better.   Who would have thunk.   

Indeed, I thought the IMF’s regional outlook did a nice job with a range of cross-national comparisons – and did a good job of putting the “Changing oil and natural gas fiscal regime in the Andean countries” in a broad global context, one where all commodity-rich countries are looking “to secure a greater share of the windfall profits” from high commodity prices.

UPDATE: the implicit subsidy required to keep petrol at 12 cents a gallon in Venezuela must be large.  Venezuela still has -- I think -- a current account surplus, but I think it is also running a fiscal deficit.  That takes a bit of effort with oil at $60 ...

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