Macroeconomic Stabilization Fund - FEM

When a country’s economy is dependent on a commodity...like, say, oil...it means the ups and downs that commodity faces ripple downwards to affect that nation’s economy, as well as its people.

Venezuela, whose country’s GDP is largely based on its oil exports, experienced this volatility and instability. To combat it, they created FEM, the macroeconomic stablization fund, in 1998, because the IMF (International Monetary Fund) asked them nicely to smooth over their cash inflows.

The idea behind FEM is to save the top part of oil profits when times are good, and then use the reserves they saved when the price of oil tanks. Kind of like what you should do if you have variable income. Rather then living like a king when income is good and living in squalor when money is tight, you could live like an average Joe by saving some money when times are good so that you have more money to tap when times are bad.

Another thing FEM is good for is keeping inflation stable.

It turned out FEM was a good idea. Venezuela stuffed their nest egg with billions, which was useful in 2003 to pull them out of a $6 billion hole.