Latin America is not widely regarded as the go-to for guidance when it comes to Australian economic policy, but we could learn a thing or two from the region when it comes to resources, according to a leading economist.
After a recent trip to Chile HSBC Australia and New Zealand chief economist Paul Bloxham said that there is a valuable lesson in the way Chile designed the terms of trade for its copper exports.
In the lead up to the release of the Federal Government’s May 14 budget, and with the country on the other side of its mining boom, Bloxham told Business Insider that now was a good time to think about how Australia absorbed the benefits of its own commodity exports.
Chile, a major exporter of copper had done a “great job” of managing the increase in commodity prices, Bloxham said.
Bloxham, who was in Chile to meet with HSBC clients as well as representatives of the country’s central bank, said that its terms of trade were “best practice” and a guide to what Australia should have done.
Chile set up a stabilisation fund in 1985, and two more sovereign wealth funds in 2007 to deal with the fact that the demand for its copper “might not be permanent,” he said.
Copper makes up nearly half of Chile’s total annual exports, and the state-owned firm CODELCO is the world’s largest copper-producing company.
“They collected revenue from the run-up of copper prices and put it away for a rainy day.
“You don’t often see parallels drawn between Latin America and Australia, but if you talk to the Chileans, they spend a lot of time looking at what happens in Australia and New Zealand,” said Bloxham.
In February it was revealed that the Gillard Government’s mining tax – designed to claw back some wealth from resources giants – had only raised $126 million, well short of a touted $2 billion.
“We’re about to have a budget [released] and it’s not a bad time to observe how we absorbed the gift of high commodity prices.
“It looks like we could have done better,” especially is treasurer Wayne Swan delivers the deficit expected, Bloxham said.
The way we reap the rewards of commodity exports, he said, “deserves a reassessment.”
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