The Foreign Service Journal, December 2003

fees, revenue sharing and payments-in-kind, forward sales of future revenues, and commercial transactions with government and public sector entities. Investors and citizens everywhere stand to benefit from PWYP. Reducing corruption will stimulate invest- ment and growth, which is good for business and good for developing countries. It will also strengthen the rule of law and property rights, thereby attracting investors. Reducing corruption also lessens the likelihood that multinational businesses will get drawn into corrupt activ- ities, which can damage their reputation and expose them to legal problems, both in country and back home. PWYP is part of a larger international governance agenda needed to address corruption in today’s globalized economy. The PWYP campaign has the support of over 130 groups from all around the world. Several large nat- ural resource extraction companies, including BP, Shell, and Newmont Mining, have expressed positive views about it. In addition, a group of major European and American asset management funds representing $3 tril- lion has endorsed greater company transparency regard- ing payments to government. Regrettably, U.S. oil companies have resisted PWYP, claiming that corruption is a governmental problem. But the reality is that corruption is a systemic problem, and by doing nothing to end it, such companies are de facto fencers of oil and other natural resources. If the G-8 were to ignore such opposition and collective- ly agree tomake PWYP part of their securities laws, it would immediately cover all major financial markets that are the principal source of major pools of development finance. This approach would quickly become the benchmark for capital market integrity, and those developing country gov- ernments that barred companies from disclosing payments would soon find the supply of capital drying up. Extractive Industries Transparency Initiative PWYP is a mandatory disclosure measure targeted to publicly-traded natural resource companies. But it does not address non-traded companies or state-owned natural resource companies; nor does it address governments themselves. The Extractive Industries Transparency Initiative, announced by British Prime Minister Tony Blair at the World Summit on Sustainable Development in Johannesburg, in September 2002, complements PWYP by broadening the web of coverage to include these actors. The EITI aims to establish voluntary compacts between country governments and companies regarding natural resource revenue transparency. Using standard- ized reporting templates, companies would report what they pay governments and state agencies, including state- owned oil companies and provincial governments. State oil companies would also report what they receive from companies and pay governments, while governments are to report revenues received from private sector and state- owned natural resource companies. This architecture is intended to create a web of double-entry checks. The strength of the EITI is its broadening of the scope of reporting coverage to include state oil companies and governments. Its weakness is that it is a voluntary com- pact, so bad cases such as Angola and the Republic of the Congo are unlikely to participate. Publish What You Lend It is not just the current revenues of developing coun- tries that are subject to theft. Because modern financial markets enable governments to borrow significant amounts of money that effectively convert future rev- enues into cash today, they can facilitate the looting of the public purse. This can happen in several different ways. Leaders of countries may incur large debts, saddling future governments with the burden of making the inter- est and loan principal repayments on them. In effect, financial markets can enable corrupt governments to steal from the future. Another way financial markets facilitate this kind of theft is by borrowing against secured assets. Thus, valu- able assets can be converted into cash today without ever being publicly sold. And once again, future governments and taxpayers are left with the tab. In government-owned extractive industries, a related practice is to forward-sell future output. For instance, state-owned oil companies may forward-sell future pro- duction, getting cash today in return for promising to deliver oil in the future. In effect, these sales represent borrowing against future production, and they, too, pro- vide a means by which governments can be stripped of future revenues. The problem is compounded by the fact that financial transactions are often shrouded in secrecy owing to the bankers’ culture. Publish What You Lend would have national governments require by law that all banks, finan- cial intermediaries, and business enterprises, that make loans to or engage in forward purchases with governments F O C U S 56 F O R E I G N S E R V I C E J O U R N A L / D E C E M B E R 2 0 0 3