Fiscal rules and the management of natural resource revenues: the case of Chile

Over the past quarter-century, Chile has proven that the unthinkable is possible: A middle-income, natural resource-producing nation can have a fiscal policy that is both stable and sustainable. The core of this policy has been very simple: Act responsibly, design policy for the long run, and accumulate enough fiscal space so that fiscal policy can play a stabilizing role in the short run. The approach implies saving during periods of high copper prices and using those accumulated resources during a global economic crisis. Shifting from a procyclical to a mildly countercyclical fiscal stance has helped to smooth public investment and social expenditures across the cycle. One example of this countercyclical policy was Chile's reaction to the 2008-2009 world financial crisis. Thus, this article argues that Chile's approach contains ideas and practices that may be useful in the design of fiscal policies and institutions in other commodity-producing nations.