FISCAL STABILIZATION: MYTH OR REALITY

• Jurisdiction: Derecho Internacional

International Mining Law and Investment in Latin America and the Caribbean
(Apr 2005)
CHAPTER 6A
FISCAL STABILIZATION: MYTH OR REALITY
James Otto
Director of Graduate Studies
University of Denver Sturm College of Law
Denver, Colorado

During his professional career, Professor James Otto has been engaged in the practice of mineral economics and natural resources law working in over 35 nations for governments, the private sector, multi-lateral institutions and universities. He has undertaken a wide variety of mining and natural resources assignments related to the development of national mining laws and fiscal systems, sustainable development, environmental impact mitigation, mineral sector driven poverty alleviation, and country risk assessment.

Currently, he is Director of Graduate Studies of the Environmental and Natural Resources Law Program at the University of Denver. He sat as member of the specially convened session of the World Bank Experts Group on Mining Law, the Southern Africa Development Community Advisory Committee on Environmental Mining Regulation, the United Nations Experts Group on Modernization and Rationalization of Mining Law, and the UNCTAD Group of Experts on State Participation and Privatization in the Minerals Sector. He was appointed to the Mineral Committee of the Section of Energy and Resources Law of the International Bar Association, the Advisory Committee of the International Minerals Professional Society, various committees of the Rocky Mountain Mineral Law Foundation, the Implementation Committee of the IIED project on mining and sustainable development, and the North American Committee of MMSD. He was formally the Director of the Center for Global Resources Policy and Management at the Colorado School of Mines; Deputy and Acting Director (and RTZ Senior Lecturer) of the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee, United Nations Chief Technical Advisor UNDTCD and Project Fellow and Coordinator of the Asia-Pacific Mineral Trade and Investment Project East West Center.

1. Introduction

Several attributes of mines make them vulnerable to unilateral government fiscal changes. First, it is a basic attribute of sovereignty that a nation may tax its productive enterprises and all nations do. Secondly, mines exploit a non-renewable resource that is in most nations owned by the state or by the public at large. This means that the state or public may from time to time change its perception about the optimal size and nature of a mine's contribution to society. Thirdly, unlike many other forms of capital, a mine is not movable and may be considered captive capital. Given these three factors, it is predictable that mine investors are concerned that the rules of the fiscal game may change over the life of the mine and that such change may pose a risk to their anticipated profits. Such investor concerns have prompted some governments to provide means by which some or all types taxes...