Posted by Stephen Manker on Jun 9, 2011 Leave a comment

Colombian House approves reform in royalties distribution

Colombian congress

Colombian lawmakers approved Thursday a major reform of how royalties from the country’s booming oil and mining industries are distributed among different regions, one of key fiscal projects of President Juan Manuel Santos.

The new law, which still needs to be signed by Santos, will allow for a more even distribution of the country’s royalties which in the past have concentrated mainly in Colombia’s resources-rich departments.

The country’s top oil and mining regions will eventually receive around 25% of the royalty transfers from the previous rate of 75%, Finance Minister Juan Carlos Echeverry said.

The legislation will also allow the central government to eventually save up to 30% from royalties, a move which Echeverry said will allow Colombia to offset major fluctuations in the price of commodities.

Saving oil and mining revenue during years of high commodity prices will permit Colombia to avoid so-called “Dutch disease” that occurs when high natural resource revenues result in an appreciating currency, making exports too expensive and damaging the manufacturing sector, Echeverry said. “We are going to have resources to fight Dutch disease,” Echeverry said.

The royalties’ reform represents the second major piece of fiscal legislation approved by Congress this week. On Wednesday lawmakers endorsed a law of fiscal responsibility, which seeks to avoid major hikes in government spending financed with larger public debt.

The government is also seeking the approval of a new law that would place a direct limit on the government’s fiscal deficit.