The Foreign Service Journal, December 2003

This occurs because the income from these resources is often misappropriated by corrupt leaders and officials instead of being used to support growth and development. Moreover, such wealth often fuels internal grievances that cause conflict and civil war. This pattern is widely referred to as the “natural resource curse” — natural resource wealth creates stagnation and conflict, rather than eco- nomic growth and development. The natural resource curse is vividly illustrated in Angola, where an International Monetary Fund fiscal audit has been unable to account for hundreds of millions of dollars of oil revenues. In Nigeria, Cameroon and the Republic of the Congo, oil wealth has failed to generate development, and has instead fueled deep-seated corrup- tion that retards growth. Sudan is marked by strife over oil. And in Aceh, Indonesia, regional separatism has been fanned by secrecy about oil payments and public misun- derstanding about their scale. The problem of natural resource-related corruption also afflicts the Western Hemisphere. Ecuador is rich in oil but ranks as one of the most corrupt countries in Latin America. And accumulated resentments over the way Venezuela’s oil wealth has been distributed have con- tributed to the political divisions in that country. Finally, Saddam Hussein’s Iraq is another tragic exam- ple of the natural resource curse. Iraq is abundantly rich in oil, having proven reserves of 112 billion barrels, which represent 10.8 percent of the world’s total proven resources. Moreover, many believe that its potential may be far greater, as the country is relatively unexplored due to years of war and sanctions. But like many other coun- tries rich in natural resources, Iraq has failed to benefit from its oil wealth. Instead, Saddam Hussein’s regime used petroleum revenues to finance domestic political repression, military aggression and state looting — exem- plified by wasteful spending on presidential palaces and transfers of funds to personal foreign bank accounts. These revenues also bankrolled the war with Iran and Saddam’s invasion of Kuwait. The natural resource curse represents the pre-eminent obstacle to democracy and development in much of the developing world. Moreover, the problem has the poten- tial to worsen in the coming decade. In the Caspian Basin, the completion of the Baku-Tiblisi-Ceyhan pipeline will increase oil revenues in Azerbaijan; the now completed Chad-Cameroon pipeline will have oil rev- enues ramping up in Chad; and off the coast of West Africa, the Gulf of Guinea has some of the most promis- ing oil exploration prospects anywhere in the world. None of these areas have histories of strong democratic governance, and all therefore risk being afflicted by the natural resource curse. There is no “silver bullet” to remedy the problem, but there are a range of measures that the U.S. and other developed nations, multilateral institutions, and develop- ing countries themselves can all take to increase account- ability and transparency. In a world lacking strong institu- tions of global governance, the U.S. has a special respon- sibility to back international cooperation and collective action. For without coordinated interventions, corruption will just move between jurisdictions — like squeezing air in a balloon. In addition, putting a stop to the national resource curse would serve U.S. national security interests, both by reduc- ing strife around the globe and by addressing the poverty and political instability perpetuated by this tragic pattern. Publish What You Pay Corruption is the enemy of both free markets and democracy. Corrupt government promotes corrupt busi- ness, and corrupt business promotes corrupt government. This inexorable logic means that citizens and investors everywhere have a public and private interest in combat- ing corruption by increasing transparency and account- ability. When oil and mining companies fail to disclose pay- ments to governments, for example, it is easier for gov- ernment officials to steal and more difficult for citizens to hold officials accountable. Recognizing this, philan- thropist George Soros and his Open Society Institute have been working for the last 18 months to address the prob- lem of corruption connected with natural resource extrac- tion through an international “Publish What You Pay” campaign. This initiative proposes legislation requiring publicly- listed oil and mining companies to disclose information about payments to government, as a condition of stock exchange listing. Relevant payments that would have to be disclosed include tax payments, royalty and license F O C U S D E C E M B E R 2 0 0 3 / F O R E I G N S E R V I C E J O U R N A L 55 Thomas I. Palley is the director of the Globalization Reform Project at the Open Society Institute. The views expressed in this article are those of the author and not those of the Open Society Institute.