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News Analysis: Fiscal prudence, sovereign wealth funds best ways to deal with low commodity prices: officials

Xinhua, October 10, 2015 Adjust font size:

As the International Monetary Fund (IMF) has regarded low commodity prices as one of the world's major economic concerns, finance ministers believe fiscal prudence and sovereign wealth funds are the best ways to deal with the problem.

The world's top emerging economies largely rely on their massive commodity exports, such as Argentine soybeans, Angolan oil, Brazilian iron ore, Chilean copper, South African gold, and Indonesian nickel.

However, commodity prices may well remain low with the slow global economic recovery, World Bank President Jim Yong Kim said Friday.

Speaking Friday at a panel on commodity prices during the World Bank Group-IMF annual meetings, Chilean Finance Minister Rodrigo Valdes explained how Chile's fiscal prudence had helped resist the damage.

"The key to managing natural resources is to decide how much to save in the good times, not what to do when prices fall," he said.

"When commodity prices fell in 2003, Chile had a rule. We only spent our permanent income. We understood that any extra money is best spent tomorrow than today. This led us to having surpluses of 7-8 percent of GDP when copper prices were sky-high," he explained.

Angolan Finance Minister Armando Manuel talked about the role of sovereign wealth funds. In 2010, Angola set up a sovereign wealth fund with oil revenue, which was aimed to pay for improvements in infrastructure, said Manuel.

He said that Angola wanted the fund to be a long-term buffer, focusing on economic diversification for future generations.

If managed properly, Angola's oil resources would become a stable guarantee of future stability, much like what Norway's national fund has done.

The creation of sovereign wealth funds applies to all commodities alike and has proved its worth.

Algeria has created a Revenue Regulation Fund with over 50 billion U.S. dollars in reserves with prudent fiscal management, which somewhat shielded the country from current oil price volatility. If Brazil had done the same in the boom times, its current suffering would be alleviated.

This may not come as a major comfort to those already mired in a crisis at the end of the commodity super-cycle. However, with judicious planning, these recommendations might help commodity exporters fare better next time prices collapse. Endi