The Foreign Service Journal, December 2003

template some form of temporary distribution during the transition to constitutional democracy in Iraq, any perma- nent arrangement must be the decision of the Iraqi peo- ple. This is the only way an arrangement can have lasting political legitimacy. Oil Stabilization and Saving Funds Oil stabilization and saving funds represent another approach. An accounting device, OSSFs provide a sepa- rate account into which oil revenues are paid. Their pur- pose is to shield the government budget from the revenue uncertainty and volatility of natural resource revenues, and to save for future generations given that natural resources are often non-renewable. Azerbaijan and Kazakhstan are two countries that have recently estab- lished national oil stabilization funds. Such funds can make a contribution to improved gov- ernance, particularly by contributing to greater trans- parency of natural resource revenue flows. They can also help guard against the problem of “Dutch disease” by ensuring that some of the revenues are directed to accu- mulation of foreign assets. This helps prevent exchange rate appreciation, which undermines international com- petitiveness. Finally, to the extent that government spending is tied to fund revenues, they can contribute to fiscal discipline. These are real benefits. However, stabilization funds also have significant limitations. For example, there is no guarantee their revenues will be used for the benefit of cit- izens. Furthermore, governments can avoid the putative income constraint by borrowing. The bottom line is that to work well, oil stabilization funds need good governance. However, the funds do not themselves produce the institu- tional and political change needed for good governance. This limits their usefulness in worst-case countries. Privatization Another widely canvassed solution to the natural resource curse is privatization, the sale of state-owned oil industries and oil production rights to private-sector F O C U S 60 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 You know that intimate, boutique all-suite hotel that everyone wants to find? The one that has cutting-edge style and service, but is still reasonably priced? You just found it! • Located minutes from State Department Headquarters • Government per diem accepted all year • Newly Renovated suites with full kitchens • Visit our new restaurant “Dish” For more information please visit ww w.theriverinn.com or call (202) 337-7600. L OTS OF S TYLE , N OT A LOT OF P R I CE 9 2 4 2 5 T H S T R E E T , NW W A S H I N G T O N , DC 2 0 0 3 7 MCG FINANCIAL PLANNING Former State Department Employee Stationed Overseas Understands Unique Financial Situation of Foreign Service Services Include: Retirement Planning Tax Preparation and Strategies Analysis: Insurance and Investments Lump Sum Retirement Options MARY CORNELIA GINN 4630 Montgomery Avenue, Suite 220 Bethesda, Maryland 20814 Phone: (301) 951-9160 Fax: (703) 938-2278 E-mail: mc gfin@erols.com S ECURITIES OFFERED THROUGH N ATHAN & L EWIS S ECURITIES , I NC ., M EMBER NASD & SIPC. MCG F INANCIAL P LANNING AND N ATHAN & L EWIS ARE NOT AFFILIATED ENTITIES .