Global Development: Views from the Center
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January 09, 2006
Overcoming the Oil Curse--Chad and The World Bank
Posted by Lawrence MacDonald at 01:37 PM
The World Bank announced Friday that it was suspending all loans to Chad, including one that helped finance a $4.2 billion oil pipeline, on the ground that it had broken an agreement to largely dedicate its oil revenues to alleviating the country's extreme poverty. According to the Celia Dugger in the NYT
In a conference call with reporters, Mr. Wolfowitz said he spent two hours on the phone on Thursday night with Chad's president, Idriss Déby. Mr. Wolfowitz said he saw no alternative to suspending the bank's $124 million in loans to Chad, even as he held open the door to further negotiations.
Will the suspension of loans make a difference? Not likely. In an Op-Ed published in the LA Times last week, CGD President Nancy Birdsall noted that the Bank supported the Chad project with its “eyes wide open” knowing in advance that it had little leverage for enforcing the agreement. She argues that in order for Chad and other poor countries cursed with oil riches to benefit from their black gold, the rich countries that run the World Bank (and buy nearly all of the oil) must help in three ways:
Each should enact legislation requiring total transparency of their oil and mining multinationals in financial dealings with the governments of developing countries. The rich members of the Organization of Economic Cooperation and Development should agree on legislation allowing each nation to prosecute corporations that are involved in corruption in developing countries. Private banks in OECD countries should be pushed to disclose their deposits from countries and rulers that have obviously been derived from natural resources. This would parallel efforts to track terrorism-related funds in the wake of 9/11.
This seems eminently sensible to me—and a logical step for rich countries that constantly scold poor countries about corruption. What will it take to make this happen?
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Comments
Seems reasonable to me, but what about the large state controlled oil companies in countries such as Venezuela, Russia and China who have no qualms about dealing with any sort of regime? I'm doubtful they could be persuaded to abide by such rules.
Posted by: Mark Mason at January 10, 2006 06:00 PM
The problem of corruption in resource-rich states with weak institutions is a serious one and Nancy Birdsall's suggestions would be a good start toward tackling the problem. But they will only make a difference if the rich consuming countries have the political will to implement them forcefully and the evidence on that is mixed. The OECD countries embraced the suggestion in the second bullet when they approved an anti-bribery convention in the late 1990s and all 30 member countries, plus several non-members, have now adopted legislation criminalizing overseas bribery by OECD-based companies. The only enforcement under the convention, however, is peer review and prosecutions of companies under the new laws remain rare.
In addition, as Mark Mason points out, countries with fewer scruples, or that have corruption problems themselves, may choose not to cooperate with such efforts. Nevertheless, greater transparency, both by multinational corporations investing in resource extraction in developing countries, and by banks accepting potentially illicit funds, would help to put pressure on these regimes. Ultimately, however, a World Trade Organization agreement on transparency in investment, as has been proposed for government procurement, would be the only way to ensure broad international cooperation.
Posted by: Kimberly Elliott at January 11, 2006 10:43 AM
What regimes, exactly, should Venezuelan, Russian and Chinese state oil have qualms about dealing with? And does this imply that oil multinationals can be said to have qualms regarding who they deal with? I personally would foresee at least as much resistance to Birdsall's plans from oil multinationals.
Posted by: Matt Norman at January 16, 2006 12:17 PM