The Role of Transparency and Accountability for Economic Development in Resource-rich Countries, Address by Agustín Carstens, Deputy Managing Director, IMF
IMF News, January 27, 2005
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- Published: January 27, 2005
Core argument: why transparency and accountability matter
- Transparency and accountability are "important pillars of democratic governance" and "critical for the efficient functioning of a modern economy and for fostering social well-being."
- Transparency makes information available to measure authorities' performance and to guard against misuse of delegated powers; accountability means authorities "can be held responsible for their actions."
- Without transparency and accountability, trust between government and governed erodes, leading to social instability and an environment "less than conducive to economic growth."
- In oil-producing countries, decisions on extraction pace, use of proceeds, and investment can have long-lasting effects on current and future generations.
Specific challenges in resource-rich countries
- Oil exploitation typically generates "very large and sudden revenue inflows," which strain administrative systems that "are often not well-equipped to handle such flows."
- Volatile oil prices add complexity and increase the risk of policy mistakes or corruption.
- The scale and volatility of resource revenue flows were identified as distinct problems motivating tailored transparency guidance.
International and regional initiatives highlighted
- IMF Guide on Resource Revenue Transparency:
- Part of the IMF's framework on best practices in fiscal transparency.
- A draft guide "has been produced and is published on our website" and comments are being sought.
- Extractive Industries Transparency Initiative (EITI):
- Launched in "September 2002."
- Promotes publication of payments by companies to governments and payments received by governments; discrepancies suggest possible irregularities.
- Group of Eight (G8) initiative:
- In "June 2003," G8 issued a declaration on "Fighting Corruption and Improving Transparency" encouraging fiscal transparency assessments by the IMF and publication of results.
- African multilateral initiatives:
- Includes aspects of the New Partnership for Africa's Development (NEPAD) emphasizing good governance and accountability.
Country examples and lessons
- Botswana (non-oil example):
- Diamond production accounts for "about a third of Botswana's economy."
- "More than half of government revenues is derived from diamonds," yet tax rates are generally low and legislation is "simple and transparent."
- Significant shares of diamond revenues have been saved, boosting foreign exchange reserves managed "prudently and transparently by the central bank."
- Medium-term plans channel diamond revenues into capital investments.
- Over the last 20 years, "real GDP growth has averaged nearly 9 percent per annum," and "per capita income has risen above $3500."
- Impressive social gains include progress toward the Millennium Development Goals such as "the achievement of gender equality in primary education."
- Republic of Congo (oil-producing example):
- Since "2003," government oil revenues are "being certified quarterly by an external auditor" reconciling payments due from oil companies with government receipts.
- An audit firm undertook audits of the "1999–2001 and 2002 external accounts" of the state oil company (SNPC), including internal controls and fiscal agency functions; the government has committed to annual audits.
- The government published on official internet sites:
- oil revenue certification reports;
- significant excerpts from recent audits of the state oil company;
- an action plan to reform the state oil company's operations (accounting system, internal controls, management information system, reporting and accountability mechanisms);
- the production sharing contracts for all oil fields; and
- monthly oil production and revenue data.
- The government and the state oil company organized seminars on the oil sector for parliamentarians and the public.
- The government publicly announced its commitment to adhere to the Extractive Industry Transparency Initiative (EITI).
- Nigeria:
- "Among the first to participate in the Extractive Industries Transparency Initiative."
- Publication of financial results of licensing rounds is one of Nigeria's principal commitments under the EITI.
- The IMF is assisting Nigeria to fulfill its EITI undertakings.
Implications for the IMF's work (surveillance and lending)
- IMF surveillance (regular analysis, policy dialogue, advice) depends on "the transparent sharing of reliable information and candid discussions" between IMF staff and authorities and on peer review by the Executive Board representing "184 member countries."
- Lack of transparency undermines surveillance quality and the IMF's role as a trusted advisor; it risks flawed policy advice and missed early warnings (unsustainable debt, accelerating inflation, misaligned exchange rates).
- IMF lending requires transparency and accountability because loans are conditional on authorities' policy actions designed to resolve underlying problems and enable repayment; without transparency, agreed actions may be inadequate and problems could worsen.
Policy recommendations and operational priorities (implied and explicit)
- Promote and institutionalize transparency and accountability in resource revenue management to ensure resource wealth benefits the whole population.
- Engage parliaments and the public to promote awareness of good governance and enhance country ownership of reform efforts.
- Support country adoption of international initiatives and standards (IMF Guide on Resource Revenue Transparency, EITI, G8 fiscal transparency assessments, NEPAD governance initiatives).
- Encourage external audits, public publication of resource-sector contracts, revenue certification, and regular dissemination of production and revenue data.
- Build administrative capacity to manage large and volatile resource revenue inflows and implement medium-term plans that channel revenues into capital investments and savings.
Workshop purpose and expected outcomes
- Advance understanding and acceptance of good practices in transparency and accountability among CEMAC countries.
- Engage parliamentarians given their increasing role in economic policymaking.
- Provide the IMF with better understanding of specific challenges faced by CEMAC countries to improve the Fund's global advisory role.
- Facilitate productive discussions with experts and practitioners featured in the workshop program.
Address by Agustín Carstens, Deputy Managing Director of the International Monetary Fund, Malabo, Equatorial Guinea, January 27, 2005.