A regional commission has noted windfalls to oil producers like Trinidad and Tobago from price increases in hydrocarbons and minerals, but warns that such surpluses should be administered with fiscal policy that restricts spending to avoid the erosion of macro-stability.
According to the Economic Commission for Latin America and the Caribbean (ECLAC), the windfalls pose a dilemma for countries which "must decide how to channel higher prices into fiscal revenues and administer their new fiscal surpluses so as to avoid the macroeconomic problems that boom times tend to bring."
The tendency, the commission said, is for countries where oil exploration is private sector-led "to lay claim to part of the bonanza", using new tax mechanisms. "Boom times also raise questions about the role of fiscal policy in economic stabilisation," said ECLAC in its Economic Survey of Latin America and the Caribbean 2005-2006.
Moderate activity
"The standard recommendation is that when economies are experiencing boom growth, fiscal authorities should moderate activity by restricting public spending."
But just this year, Trinidad boosted its budget by an additional US$700 million as oil gains rolled in from the volatile swings in world oil prices that shot up to a year-to-date high Tuesday of just under US$79 per barrel.
The twin-island republic con-tinues to grow at a phenomenal rate with most of the macro-economic indictors reading positive - the economy appears set to grow 10 per cent this year - but there is an internal dissageement over whether the country's revenues were being managed sustainably.
