The petroleum and poverty paradox
We must work smarter to reverse the resource curse.
(Page 2 of 2)
An especially promising development is the Extractive Industries Transparency Initiative (EITI), a voluntary program which certifies that participating countries, and the oil companies operating there, are honestly accounting for funds flowing into their coffers. The G-8 and UN have praised the EITI and its work.Skip to next paragraph
Subscribe Today to the Monitor
Yet action falls short. In Vietnam, where 30 percent of the budget comes from oil, the World Bank and major bilateral donors have done little to address extractive industry transparency. Peru and Equatorial Guinea have signed up for EITI, but major-country donors are not stepping forward to strengthen those nations' capacity to manage massive oil wealth. Skeptical Indonesians asked why America has not joined EITI. In Angola, which has the world's highest infant mortality rate, the US is terminating a program to help the country administer its oil billions, which are largely unaccounted for.
There is an urgent need for concerted diplomacy and assistance targeted at budget management and expenditure accountability. Donor coordination in these areas is rare. And China, whose state-backed oil companies have a large footprint in many developing countries, has not yet engaged on these issues.
As we are now seeing, oil prices can come down just as far, and just as fast, as they go up. That's why it's so critical that developing countries act urgently to ensure that their funds are managed wisely, so that they are not left in poverty after earning billions. We can do more to help:
•America should lead by example and sign up for EITI, submitting its oil and gas royalties to outside audit. This low-cost move would encourage more developing countries to follow.
•The G-8 countries should back their transparency words with deeds. They could, for instance, require that their oil and mining companies publish country-by-country data on royalty, tax, and other payments as part of routine financial reporting.
•International assistance to resource-rich countries should focus on improving revenue management and fighting corruption. Relatively small amounts of aid money could thus help channel large amounts of countries' own funds toward poverty reduction.
•Oil and mining companies can be part of the solution by voluntarily disclosing their payments to countries where they operate.
Most important, the United States, whose attention to transparency often appears sporadic, should vigorously back these efforts. Reversing the curse is in everyone's interest.