The Foreign Service Journal, December 2003

recovery of looted assets would reduce the incentive to loot. The experience with money laundering and terror- ist financing shows that recovery of stolen assets is feasi- ble. All that is needed is political will. The IMF and the World Bank Group The IMF and the World Bank have an important role to play in combating the natural resource curse. As important large lenders, these two institutions have signif- icant power that can be leveraged to improve governance and reduce corruption. The Fund and the Bank can both help by funding technical assistance programs and devel- oping standards for fiscal transparency and good fiscal practice. Governments must publish what they earn and publish what they spend, and government purchases should be governed by transparent contracting proce- dures that have open tendering, with contracts going to the bidder providing the highest quality at the lowest price. The IMF also has an important role to play in the EITI initiative as the Fund is envisaged to be the aggre- gator, totaling company payments to national govern- ments to get an overall country figure. However, the key contribution the IMF and World Bank can make is to institute requirements for transpar- ent reporting of government revenues from natural resources. Given that countries need financing from the Bank and the Fund, these institutions have significant leverage. A good example of this is the World Bank’s groundbreaking handling of financing of the Chad- Cameroon oil pipeline, which it has made conditional on Chad’s compliance with strict accounting and spending management. Similarly, at the IMF’s urging, Azerbaijan and Kazakhstan have established national oil stabilization funds that aggregate much of their oil revenues (see the “Oil Stabilization and Savings Fund” section below). Building on these initiatives, all Fund and Bank coun- try assistance and lending programs — especially those connected to the extractive sector — should be condi- tional on recipient countries transparently reporting their revenues. This approach should apply to all activities — development assistance loans to countries, loans to com- panies via the International Finance Corporation, or investment guarantees provided via the Multilateral Investment Guarantee Agency. Publish What You Pay can play a valuable role helping the IMF and the Bank. Given the often weak administra- tive capacities of developing countries, PWYP can help pro- vide a double-entry check on government revenues, since companies’ reported payments should match governments reported natural resource revenues from companies (including state-owned companies). This reveals how dif- ferent policies work together synergistically. Export Credit Guarantee Agencies Another important avenue for tackling the natural resource curse is via the various export credit guarantee agencies, such as the World Bank Group’s Multilateral Investment Guarantee Agency. These agencies play a critical facilitating role by insuring trade and investment projects. Absent this publicly provided insurance, many private sector transactions would not take place, making these agencies an important lever for change. Even more important, these agencies often insure large natural resource development projects. They are therefore involved at the outset of the project, before rev- enue streams come on line. A major difficulty in getting governments to change is that they have little incentive to do so once revenues are on stream. Insisting on change when projects first begin is the strategically sensible moment, and export credit guarantee agencies are well placed to do that. Oil Revenue Distribution Funds The transparency and accountability inherent in good governance are the keys to warding off the natural resource curse. However, developing efficient states with honest governments takes much longer than developing oil fields and building pipelines. Oil revenue distribution funds that directly distribute revenues to citizens repre- sent an important means of addressing this conundrum, as they can be established relatively quickly. Perhaps the best example of an ORDF can be found close to home, in Alaska (though that one operates on a relatively modest scale). But the approach holds great promise for developing countries. By side-stepping government interference, ORDFs reduce the space for official corruption. But they also pro- vide a host of other economic and political benefits. First of all, income distribution is highly unequal in many developing countries, and this inequality is bad for growth and democracy. The payment of a flat oil dividend to all citizens would constitute a progressive redistribution, helping equalize the distribution of income, and providing seed money for poorer citizens to become entrepreneurs. F O C U S 58 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