Today’s Bounty, Tomorrow’s Promise: Better Policies to Manage Natural Resources

IMF Blog, December 15, 2010

Source details

Canonical URL: Today’s Bounty, Tomorrow’s Promise: Better Policies to Manage Natural Resources

Author: Leslie Lipschitz
Date: December 15, 2010
Central observation: Countries rich in natural resources—typically oil, gas or minerals—have, on average, performed less well than comparable non-resource rich countries.
Core policy question: How to manage the economic and social challenges that stem from resource wealth and prevent “nature’s bounty” from “becoming the curse of the common people”?

Organized by: IMF Institute, in cooperation with the Bank of Algeria.
Timing: early November.
Purpose: Focus on challenges faced by countries with new natural resource discoveries and distill lessons from countries that have managed natural resources successfully.
Participants: senior officials, experts from academia, civil society organizations, and representatives from countries including Botswana, Chile, Mexico, Norway, Ghana, and Uganda; also included the point of view of a major global petroleum company and various technical experts.

Contract negotiations with multinational extraction firms:
- Governments face difficulties negotiating exploration cost sharing and profit distribution.
- Governments seek to retain a fair share of profits domestically; companies seek assurance of a fair return on initial exploration and discovery investments.
- Technical experts and industry representatives discussed contractual structures to handle contingencies.
Intergenerational sharing of benefits:
- Key question: How should benefits be allocated between current and future generations?
- Trade-offs highlighted: urgent poverty-alleviation needs versus longer-term investment strategies.
- Political fortitude and robust institutions are often necessary to prevent domestic spending from exceeding absorptive capacity.
Governance and institutions:
- No single universally applicable solution; however, successful cases share good governance underpinned by robust and transparent institutions.
Macroeconomic environment:
- A stable and predictable macroeconomic environment is necessary to capitalize on resource wealth.
- IMF advice was sought on designing fiscal policies, monetary and exchange rate policies to cushion revenue volatility, and the efficacy of ‘industrial policies’ (for example, trade policies or budgetary subsidies).

Ongoing consultative dialogue:
- Emphasized need for an ongoing, inclusive consultative dialogue that includes civil society and adopts a collaborative approach.
IMF’s two broad fronts of engagement:
- Technical assistance in areas such as:
- Tax and expenditure policies.
- Monetary policies under alternative exchange rate regimes.
- Use and management of sovereign wealth funds.
- Training opportunities:
- IMF Institute launched a new two-week course on “Macroeconomic Management in Resource Rich Countries” at Stellenbosch University in South Africa following the Algiers Seminar.
- The course aims to give a broad overview of topics and challenges in policymaking and strategic planning for resource-rich countries.
- Next year the course will be offered again—to different regional audiences at the Joint Vienna Institute in Austria and the Joint Partnership for Africa in Tunisia.

The seminar provided rich, varied discussion but did not identify a quick fix to long-standing resource management challenges.
The IMF aims to continue stimulating policymakers’ thinking by sharing complexities and successful examples and committing to technical assistance and training to support better policy design and institutional capacity.

Source: Today’s Bounty, Tomorrow’s Promise: Better Policies to Manage Natural Resources — Leslie Lipschitz, December 15, 2010