© 2011 International Monetary Fund


© 2011 International Monetary Fund

Cataloging-in-Publication Data

Beyond the curse : policies to harness the power of natural resources / editors, Rabah Arezki, Thorvaldur Gylfason, and Amadou Sy. – Washington, DC : International Monetary Fund, 2011.

p. ; cm.

This book is based on a high level seminar on natural resource, finance and development, IMF Institute and Central Bank of Algeria, Algiers, November, 4-5, 2010.

Includes bibliographical references.

ISBN 9781616351458

1. Natural resources. 2. Resource curse. 3. Fiscal policy. 4. Monetary policy. 5. Foreign exchange rates. 6. Diversification in industry. 7. Economic development. 8. Primary commodities. 9. Prices. 10. Exports. 11. Finance. 12. Financial institutions. 13. Sovereign wealth funds. I. Arezki, Rabah. II. Gylfason, Thorvaldur, 1951-. III. Sy, Amadou N. R. IV. International Monetary Fund.

HC85.B49 2011

Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its member countries.

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  • Foreword

  • Acknowledgments

  • Abbreviations and Acronyms

  • 1 Overview

  • Leslie Lipschitz

    • The Broad Perspective

    • Management of the Extraction

    • Fiscal Policy

    • Monetary Policy and Exchange Rate

    • Economic Diversification

    • Institutional Aspects


  • 2 Natural Resource Endowment: A Mixed Blessing?

  • Thorvaldur Gylfason

    • Introduction

    • Policy issues in Natural-Resource-Rich Countries

    • Norway and Other Success Stories

    • From Anecdotes to Empirical Testing

    • Conclusion

    • References

  • 3 Primary Commodities: Historical Perspectives and Prospects

  • Marian Radetzki

    • Primary Commodities in the Economic Development Process

    • Falling Transport Costs and Globalizing Markets

    • The Entry and Exit of the State in the Commodity Sector in the 20th Century

    • Real Prices: Falling Long-Run Trends and Short-Run Instability

    • Policy Implications for Commodity-Exporting Nations

    • References


  • 4 Economic Diversification in Resource-Rich Countries

  • Alan Gelb

    • Introduction

    • Why Diversify?

    • The Resource Curse: A Diversification Perspective

    • The Examples of Malaysia, Indonesia, Chile, and Dubai

    • Some Common Factors in Success

    • Conclusions

    • References

  • 5 Finance and Oil: Is There a Resource Curse?

  • Thorsten Beck

    • Introduction

    • Finance and Growth: Is There a Natural Resource Discount?

    • Finance and Natural Resources—Is There a Resource Curse?

    • Banks in Resource-Based Economies

    • Access to Finance in Resource-Based Economies

    • Summary and Policy Implications

    • References

  • 6 The Economics of Sovereign Wealth Funds: Lessons from Norway

  • Thomas Ekeli and Amadou N.R. Sy

    • Introduction

    • The Economics of Sovereign Wealth Funds

    • The (Long) Road to a Sovereign Wealth Fund

    • Sovereign Wealth Management

    • Conclusions and Policy Implications

    • References


  • 7 Primary Commodity Price Series: Lessons for Policymakers in Resource-Rich Countries

  • Kaddour Hadri

    • Introduction

    • Empirical Evidence

    • What Can Policymakers Do to Counter These Three Challenges?

    • Summary

    • References

  • 8 Sustainable Fiscal Policy for Mineral-Based Economies

  • Kirk Hamilton and Eduardo Ley

    • Introduction

    • Measuring Economic Performance

    • Achieving Economic and Fiscal Sustainability

    • Conclusions and Policy Implications

    • Appendix

    • References

  • 9 Fiscal Policy In Commodity-Exporting Countries: Stability and Growth

  • Rabah Arezki

    • Introduction

    • Data

    • Estimation Strategy and Main Results

    • Conclusion

    • References


  • 10 How Can Commodity Exporters Make Fiscal and Monetary Policy Less Procyclical?

  • Jeffrey Frankel

    • The Problem of Procyclicality

    • Proposal to Make Fiscal Policy More Countercyclical: Emulate Chile’s Structural Budget Rule Institutions

    • Proposal to Make Monetary Policy More Countercyclical: Product Price Targeting

    • Summary

    • References

  • 11 Natural Resources Management and Financial Stability: Evidence from Algeria

  • Mohammed Laksaci

    • Introduction

    • External Shocks and Financial Instability

    • Adoption of Prudent Macroeconomic Management for Increased Resources

    • Financing for the Economy in a Context of Prudent Resource Management

    • Strengthening the Framework for Financial Stability: Outlook for the Macroprudential Approach

  • 12 Copper, The Real Exchange Rate and Macroeconomic Fluctuations in Chile

  • José De Gregorio and Felipe Labbé

    • Introduction

    • Copper in the Chilean Economy

    • Fiscal Policy and Copper

    • Economic Fluctuations and the Copper Cycle

    • Terms-of-Trade Shocks, Real Exchange Rate, and Long-Run Dynamics

    • Macroeconomic Fluctuations and Real Exchange Rate Volatility

    • Simulation of a Copper Price Shock Using a DSGE Model

    • Concluding Remarks

    • References

    • Appendix A

    • Appendix B


  • 13 The Political Economy of Reform in Resource-Rich Countries

  • Ragnar Torvik

    • Introduction

    • How Do Countries Reform When They Receive Resource Rents?

    • How Should Countries Reform When They Receive Resource Rents?

    • Which Reforms?

    • The Design of Petroleum Funds and Political Incentives

    • Conclusion

    • References

  • 14 Terms of Trade and Growth of Resource Economies: Contrasting Evidence from Two African Countries

  • Augustin Kwasi Fosu and Anthony Owusu Gyapong

    • Introduction

    • Theoretical Discussion

    • Empirical Model

    • Some Lessons and Concluding Observations

    • References


The global economy is going through dramatic changes, with major implications for the demand for natural resources. Over the coming years, emerging economies will increasingly drive global growth. Many countries will take steps to adapt to climate change. And there will be further technological advances in extractive industries. Such changes will clearly impact the demand for natural resources.

A perennial challenge for commodity exporters has been how to manage the impact of volatile commodity prices on macroeconomic and financial stability. Even though commodity prices have stabilized somewhat since the Great Recession, volatility is sure to return—and is already back in agricultural commodity markets. This underscores the importance of having the right macroeconomic policies to manage this volatility. Financial tools, including hedging strategies, clearly matter too.

Another challenge is how to increase competitiveness. Natural-resource-rich countries run a risk of contracting “Dutch disease”—the phenomenon of large commodity exports leading to an appreciation of the real exchange rate, which in turn slows productivity growth in other sectors of the economy. This weakens competitiveness and holds back economic diversification—leaving the economy overly dependent on the natural resource sector.

But perhaps the most fundamental challenge is how to ensure that natural resource wealth is used wisely and shared fairly across society. Natural-resource-rich countries have been blessed with tremendous natural wealth. And yet in many of them, unemployment is high—especially among the young—and millions remain in poverty. It seems only right that these countries’ natural riches should be used to tackle constraints on growth and development, to create the decent jobs needed to raise living standards.

Much greater investment in physical, human, and institutional capital is clearly needed to boost productivity and raise competitiveness. This should be supported by structural reforms that tackle constraints on entrepreneurship and that improve the business climate.

At the same time, spending should be at a measured pace. This will safeguard macroeconomic stability, which includes maintaining the real exchange rate at a fair level. It will also allow future generations to benefit from the revenues earned from exhaustible natural resources today.

Strong institutions will play a critical role in ensuring that well-designed policies are indeed effective. Strong fiscal institutions help prevent excess spending in times of plenty—thus leaving enough resources for times of want. And strong financial institutions help manage the impact of spikes in capital inflows on the broader economy. Sound management of foreign exchange reserves is a critical complement in this regard.

Unfortunately, strong institutions have been missing in many resource-rich economies. As a result, economic performance in many countries with abundant natural resources has been quite poor; and even where economies have grown, unemployment, inequality, and the resulting tensions have often undermined social progress. Partly as a result, the blessing of resource riches has too often turned into the curse of conflict.

A strong commitment to good governance lies at the heart of responsible management of natural resource wealth. Good governance helps ensure that commodity revenues can benefit all in society. This is why institutions with a high level of accountability are so important. The experiences of countries like Botswana, Chile, and Indonesia show the important role that strong, independent, and accountable institutions can play in resource-rich countries. I also firmly believe that a vigorous civil society is critical for achieving—and maintaining—a high standard of accountability.

Transparency is an important first step in ensuring accountability—and an issue that the IMF is helping to promote. To support our members’ efforts in this area, the IMF developed the Guide on Resource Revenue Transparency and the Code of Good Practices on Fiscal Transparency. The IMF also provides technical assistance and training to its members, drawing on its deep experience of working on these issues all over the world.

The IMF remains committed to working with all its members, resource-rich and resource-poor, to tackle the policy challenges of this new global economy. It is my hope that publications like this one—alongside, of course, our close bilateral relations with our members—will contribute to supporting a strong and stable global recovery, to the benefit of all nations of the world.

Christine Lagarde

Managing Director

International Monetary Fund


This book is the culmination of the efforts of many policymakers, academics, and World Bank and IMF staff. Their coming together during the high-level seminar organized by the Bank of Algeria and the IMF Institute in Algiers on November 4 to 5, 2010, has been instrumental in fostering the understanding of how countries can manage the challenges of natural resource wealth so as to reap the benefits while avoiding the pitfalls.

This book would not have been possible without the support and encouragement of Leslie Lipschitz, director of the IMF Institute and Mohammed Laksaci, Governor of the Bank of Algeria. We are grateful to Joanne Blake of the IMF’s External Relations Department for coordinating the production of the book. Last, but not least, we would like to thank a large number of colleagues at the IMF and staff at the Bank of Algeria for their support.

Rabah Arezki, Thorvaldur Gylfason, and Amadou Sy

Abbreviations and Acronyms


adjusted net national income


Consumer Price Index


foreign direct investment


Gulf Cooperation Council


gross national income


information technology


liquid natural gas


natural resource fund


Organisation for Economic Co-operation and Development


Organization of the Petroleum Exporting Countries


purchasing power parity


product price targeting


research and development


real exchange rate


System of National Accounts


sovereign wealth fund


United Nations Conference on Trade and Development


United Nations Development Programme

Policies to Harness the Power of Natural Resources