Some commodity exporters doing okay with plunge in prices
Russia – debt looks as if it is going to be downgraded to junk status
Venezuela – is on the verge of defaulting
Brazil – growth forecast cut
Norway – significant cut in government revenue
However some other commodity exporting countries are coping with this fall in prices. Chile and Peru which are dependent on metal exports are forecast to grow 3% and 5% respectively. Furthermore no Middle Eastern country is expected to enter a recessionary phase. The Economist identifies two factors that explain why some commodity exporters are coping better with lower commodity prices.
1. Business Friendly – Many countries have made their economies more business friendly – believe it or not according to the World Bank Rwanda is a better place to do business than Italy. Benign business environments encourage foreign direct investment – Africa has encouraged FDI despite the global economic conditions.
2. Prudent Government Spending – when commodity prices were high and tax revenue was growing a lot of countries increased their expenditure significantly. However the opposite applied when prices fell as they no money to boost domestic demand.
As Keynes used to say – save when times are good and spend when times are bad.