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Addressing the resource curse?. NS4053 Week 7.2. Reviewing features of ‘cursed’ states. Mineral/fuel export dependency. Mineral exports > 35% of total exports. ‘Dutch disease’ undermines non-mineral sectors of economy.

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reviewing features of cursed states
Reviewing features of ‘cursed’ states
  • Mineral/fuel export dependency.
    • Mineral exports > 35% of total exports.
  • ‘Dutch disease’ undermines non-mineral sectors of economy.
  • Rentier states create perverse incentives for politicians, private sector and civil society.
  • High income inequality and poverty
  • Weak states: low capacity, broad scope, high popular expectations.
policy alternatives
Policy alternatives
  • Make state more capable.
  • Make it more difficult for politicians to spend windfall income.
  • Transfer funding to population.
  • Privatization.
  • Regime change.
proposed solution 1 state centered
Proposed solution #1: State-centered
  • Make state more capable of avoiding pitfalls.
    • ‘Forewarned is forearmed’
  • International community consensus.
  • Large ‘industry’ of technical advisors.
  • Major international organizations:
    • World Bank
    • International Monetary Fund
  • Development focused non-governmental organizations.
sound fiscal and monetary policy
Sound fiscal and monetary policy
  • Manage foreign exchange to avoid currency overvaluation.
  • Repress windfall profits by investing abroad (living off the dividends).
  • Accumulate budget surpluses.
  • Requires:
    • autonomous technocratic form of government.
    • Checks and balances on executive.
    • Institutions to punish rent-seeking and corruption.
    • Transparency and free media.
economic diversification
Economic diversification
  • Widely adopted policy in mineral export dependent states.
  • Major source of poor economic outcomes.
  • States do a poor job of selecting domestic industries to invest in.
    • Political priorities overwhelm economic priorities.
natural resource funds
Natural resource funds.
  • Stabilization: designed to absorb ‘boom’ in funds during boom-bust cycle.
  • Savings: save ‘boom’ funds for future generations through investment.
  • Only work if you already have institutions capable of monitoring government corruption, ensuring transparency, rule of law.
  • Strong executive with no oversight is worst case of all.
transparency
Transparency
  • External monitoring of revenues and spending by non-government institutions.
  • Only works if government, civil society and international institutions are all on board.
  • Can be disregarded by government.
    • Particularly a problem in autocratic regimes.
    • No leverage from international community.
      • With mineral wealth, who needs foreign aid?
direct distribution
Direct distribution
  • To avoid corruption, send money directly to citizens.
    • Alaska model: dividends only
    • New proposal: pass all money to citizens
  • If it creates poor incentives for governments, why not for citizens?
    • Deepens the ‘no skin in the game’ problem?
privatization
Privatization
  • Removes control from politicians.
  • Creates incentives for investment rather than consumption.
  • Clear management criteria
    • profit/performance
  • Private actors have an incentive to minimize rent seeking
    • Corruption takes money out of their pocket.
privatization issues
Privatization issues
  • State gets greedy.
    • Obsolescing bargaining models.
    • State seeks to capture revenues during boom times (i.e. see Russia today)
  • State only has incentive to privatize when prices are low and it can benefit from one time sale to plug budget gaps.
regime change
Regime change?
  • Propensity to authoritarianism associated with resource curse.
  • Authoritarian states have less of the ‘checks and balances’ required to implement policy solutions.
  • Is a solution regime change?
    • Encourage democratization?
    • Other approaches?
shaping the environment
Shaping the environment
  • What policies to pursue?
    • Mitigation of consequences
    • Risk reduction through technical advice
    • Free market promotion
    • Democracy promotion
    • International institutions
      • Certification
      • Monitoring
    • Promote international civil society
      • Jawboning governments into doing the right thing?