A missed opportunity? - Another super-cycle of high commodity prices gone

The inability to transform resource wealth into development in resource-rich countries has puzzled academics and the larger public for decades. Behind “resource curse”, “paradox of plenty”, “devil’s excrement”, and many other catchy labels, as well as loads of brainpower and statistics, there are millions of academic neurons devoted to explain that inability. We are all frustrated. As we are leaving another resource-boom period, this frustration resurfaces even more strongly. What went wrong again? We thought we had already learned a thing or two when this last “fat cows” period started a dozen years ago. Why did some countries not act on what we had learnt?

At the turn of the millennium, economists knew a lot about rent seeking, Dutch-disease, commodity prices volatility and other macroeconomic distortions, as well as the link between conflict and natural resources riches. Possible illnesses and cures were already diagnosed. Yet, resource-rich countries responses varied. Paul Collier in a recent talk at Oxford suggested that the key factor for benefiting from the boom was assets accumulation. He pointed out at Botswana and Norway for getting this right. Andrew Bauer and David Mihalyi in a recent NRGI’s blog pointed out that sticking to sound fiscal behavior (fiscal stability, controlled budgets, and savings) was behind the success stories from this last boom.

Collier’s assets accumulation point is hardly new. Arturo Uslar-Prieti, perhaps the most prominent Venezuelan thinker of the 20^th century said in 1936 that Venezuela needed “to sow the oil”. He meant what economists have later been saying for decades about extraction of minerals: that you should replace that form of capital by another in the form of physical (infrastructure), human (educated and healthy population) or savings (for the times of lean cows). Bauer and Mihalyi highlight that political resoluteness by leaders and consensus in most democratic countries explain much of the prudent fiscal behavior of countries like Norway, Peru and Timor-Leste.

The question then is why many decision-makers throughout this last decade did not make assets accumulation a priority nor behave more fiscal-responsibly. The answers would surely point out to the perseverance of rent-seeking, falling foul of unrealistic expectations and lack of political will to resist the temptations of public coffers filled with bonanza revenues. In short, to our dismay, decision making in many places did not follow the wisdom prevailing when this last cycle began.

Similarly, at the turn of the millennium many thought that an effort to boost “transparency and accountability” was much needed for improved decision-making. EITI Principle 4 (agreed a dozen years ago) went to identify that “…public understanding of government revenues and expenditure over time could help public debate and inform choice of appropriate and realistic options for sustainable development”. Almost 50 countries are now implementing the EITI Standard. Transparency and accountability are means to get better decision-making. It is not built in a decade. We do not know how much worse some of the decision-making might have been without it. We are condemned to keep trying. As many, including Prof. Collier, have said, “the EITI is the right place to start and the wrong place to stop”. 

Francisco Paris is a Venezuelan and Regional Director for Latin America and the Caribbean at the EITI International Secretariat. Francisco wrote his doctoral dissertation at the London School of Economics on the failure of Venezuelan institutions to prevent squandering of oil revenues in the period 1975-2005.